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Gap Inc. shares sank in late trading after the retailer reported it expects margins will shrink this year, a sign tariffs are slowing recent turnaround momentum.
Comparable sales rose 1 percent in the quarter ended Aug. 2, missing analysts’ expectations of almost 2 percent growth. The miss was driven by a 9 percent comparable sales decline at Athleta, which lagged behind estimates of a 4 percent drop.
The San Francisco-based company has been trying to revive its business under chief executive officer Richard Dickson, but some of its brands are further along than others. Changes at its namesake brand and Old Navy seem to be working, but Banana Republic and Athleta haven’t bounced back as quickly.
Tariffs have complicated these efforts. Gap forecasts operating margins could sink as low as 6.7 percent for the fiscal year, below what it reported last year.
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The company estimated last quarter that tariffs could cause a net impact of as much as $150 million, with the levies then at 30 percent for most goods from China and 10 percent for other countries. Now, Gap sees the impact to be as much as $175 million, chief financial officer Katrina O’Connell said in an interview.
The retailer has been working on mitigation strategies, including reducing its sourcing reliance on China and other countries and doubling its use of American-grown cotton.
Gap shares fell 5.4 percent at 4:29 p.m. in extended New York trading Thursday. The stock had dropped 8.3 percent so far this year.
Athleta, one of Gap’s smallest brands, has been the hardest to turn around in Dickson’s two years. In late July, Gap announced it tapped Maggie Gauger, a former Nike executive, as CEO and president of the female-oriented athletic-wear brand.
“We’ve been working on bringing new customers into the brand and to some extent that’s been at the expense of creating enough compelling products to appeal to our existing customer base,” Dickson told Bloomberg News.
Other retailers including Kohl’s Corp., TJX Cos. and Abercrombie & Fitch Co., have reported better-than-expected results this quarter, thanks to strong back-to-school spending and consumer demand for discounts. All have boosted their outlooks despite consumer concerns surrounding the economic outlook and inflation.
By Lily Meier
