Gap Eyes Weak Third-Quarter Sales as Consumer Spending Weakens

Gap Inc. on Thursday forecast a steeper-than-expected decline in current-quarter sales after missing expectations in the second quarter, hit by slowing demand for its accessories and apparel as budget-strained American customers cut back on spending.

Consumers, especially on the lower to middle-income rungs, have focused on essential purchases as persistent inflation and interest rate hikes strain household budgets.

However, shares of Gap were up about 2 percent in extended trading after the company crushed profit expectations, benefiting from restructuring efforts, lower freight expenses and fewer promotions at its apparel brands.

The company has been closing underperforming Gap and Banana Republic stores to save on costs and eliminated more than 2,000 jobs to shield its margins.

Gap’s weak sales were on similar lines to the latest earnings and forecasts from retailers ranging from Macy’s to Foot Locker, in fresh signs US consumer spending is under stress heading into the second half of the year.

The owner of Banana Republic and Athleta brands expects third-quarter net sales to decrease in the low double-digit percentage range, compared with analysts’ expectations of a 6.76 percent decline, according to Refinitiv data.

Gap now expects fiscal 2023 net sales to decrease in the mid-single-digit percentage range, compared with a previous forecast of a low to mid-single-digit percentage decline.

The company’s net sales fell 8 percent to $3.55 billion in the second quarter, missing analysts’ average estimates of $3.57 billion.

On an adjusted basis, Gap earned 34 cents per share for the quarter that ended July 29, compared with estimates of 9 cents.

By Ananya Mariam Rajesh and Kate Masters; Editor Krishna Chandra Eluri

Learn more:

Is Gap’s CEO ‘Kenough’ for Investors Seeking a Turnaround?

To shake itself from a funk that has lasted 20 years, the retailer has routinely pinned its hopes on chief executive officers who promised fresh ideas. There was someone from Disney and then a drugstore retailer. One had a consulting background, and another knew supply chains. But none of them were able to execute a comeback with staying power.