Gap Shares Dropped 13% After Retailer Slashes Profit

Gap Inc. lowered its full-year profit forecast on Thursday after reporting a drop in fiscal first-quarter sales, which were driven down by its Old Navy division. After finishing the day up 4%, shares dropped roughly 13% after hours. Old Navy’s performance suffered throughout the quarter due to an unbalanced mix of apparel sizes, continuous inventory delays, and an increase in price-cutting campaigns.

Old Navy’s target client, the lower-income consumer, is beginning to feel the squeeze of inflation, according to Chief Executive Officer Sonia Syngal. In a phone conversation, she claimed that shoppers had fast transitioned from buying activewear and fleece hoodies — Old Navy’s “sweet spot” — to browsing for party dresses and workplace attire.

“We’re dealing with really unpredictable consumer signals,” Syngal said, “whether it was last year’s Covid behaviors or this year’s post-Covid behaviors.” “We’ll see customer preferences for product categories level out over time.” The Gap statistics point to a wider divide in the retail business between firms that cater to wealthy Americans and others that sell to budget-conscious buyers looking for bargains.

As inflation rises, the latter have been affected the hardest and have already begun to limit their spending. Meanwhile, the wealthiest customers continue to indulge at retailers like Nordstrom, Bloomingdale’s, and Ralph Lauren on pricey clothing, jewels, and bags for summer trips. Gap now expects to earn between 30 cents and 60 cents per share in fiscal year 2022, on an adjusted basis. This compares to a previous range between 1.85 and $2.05. According to Refinitiv statistics, the stock fell far short of analysts’ forecasts of $1.34 per share.