Gap Slashes Annual Forecasts as Inflation Drains Demand; Shares Plunge

Gap Inc. cut its annual sales and profit forecasts on Thursday, becoming the latest US retailer to come under pressure from soaring costs and poor demand in the face of decades-high inflation.

Shares of the company plunged more than 15 percent in extended trading, widening this year’s slump of around 37 percent.

Retailers including Walmart Inc and Target Corp have also warned of tough times ahead as rising prices of essentials force consumers to limit spending on clothing, accessories and big-ticket purchases.

Gap said increasing costs of air freight and deeper discounts at Old Navy - its biggest brand - dragged first-quarter gross margins by 930 basis points to 31.5 percent.

“Growth at Gap Brand was also negatively impacted by the COVID-related forced lockdowns and slowed overall demand in China,” the company said in a statement.

It now expects fiscal 2022 profit between 30 cents and 60 cents per share on an adjusted basis, compared with $1.85 to $2.05 earlier and far lower than analysts’ average estimate of $1.34, according to Refinitiv IBES.

The Banana Republic parent also expects full-year revenue to fall in the low- to mid-single-digit range, compared with the low single-digit range growth it forecast earlier.

The San Fransisco-based company’s dismal forecast comes in tandem with teen apparel peers American Eagle Outfitters and Abercrombie & Fitch Co, which have also projected weaker profits for the year.

American Eagle trimmed its operating profit forecast on Thursday and said demand in the first quarter was “well below” its expectations, sending its shares down nearly 5 percent.

“In hindsight, our plans entering the year were too optimistic,” said American Eagle chief executive Jay Schottenstein.

Gap’s net sales fell to $3.48 billion in the three months to April 30 from $3.99 billion a year earlier, just a touch above estimates of $3.46 billion.

By Deborah Sophia; Editing by Devika Syamnath

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