Gap Inc (NYSE:GPS) retracted its financial outlook for fiscal 2022 after it slipped into a net loss in the second quarter blaming "execution challenges combined with uncertain macro trends".
Net loss was US$49mln, or 13 cents a share compared to last year's net income of US$258mln, or 67 cents a share.
The retailer posted revenues of US$3.86bn for the quarter ended 30 July 2022, down from US$4.21bn a year earlier.
Though net sales were down 8% from last year, the company has surpassed consensus revenue estimates three times over the last four quarters, including the current second-quarter consensus estimate of US$3.82bn.
Adjusted earnings per share for the second quarter were 8 cents, 13 cents higher than analysts' estimate of a 5-cent loss, and adjusted net income was US$30mln, which excluded an inventory impairment of US$58mln and a US$35mln charge related to the transition of Old Navy’s Mexico business.
The San Francisco-based company, which is seeking a new CEO, has exceeded consensus EPS estimates twice in the last four quarters.
Shares of Gap were up nearly 7% in pre-market trading at US$10.01. Shares have declined 43.9% since the beginning of the year versus -13.1% for the S&P 500.
Commenting on its brands, the retailer said the Gap outlet business is experiencing "near-term softness stemming from inflationary pressures impacting the lower-income consumer".
Old Navy saw net sales fall 15% like-for-like to US$2.1bn, hit by size and style imbalances and ongoing inventory delays, as well as slowing demand.
"In the near-term, we are taking actions to sequentially reduce inventory, rebalance our assortments to better meet changing consumer needs, aggressively manage and reevaluate investments, and fortifying our balance sheet," said Katrina O’Connell, chief financial officer, in a statement.
Clothing chains like Kohl's Corporation (NYSE:KSS) and Abercrombie & Fitch (NYSE:ANF) are also expected to offer steeper discounts to get rid of excess inventory of casual wear, which people wore more during the Covid-19 pandemic.
Though stocks at the end of the second quarter were 37% higher than last year, Gap expects them to fall in the coming months.