“NEW YORK – Faster cost increases than Gap Inc. expected — especially for its lower-priced products — sank the company’s first-quarter profit, and the clothing company dramatically cut its forecast for full-year earnings late Thursday.
Escalating costs are only compounding challenges at the company, which is aiming to revive sales at its namesake brand. In fact, the company, which also operates the Banana Republic and Old Navy brands, acknowledged it also did more discounting than expected at the Gap chain in the latest quarter.
Gap’s shares fell $3.47, or 14.9 percent, to $19.82 after hours. They had ended regular trading at $23.29, up 21 cents.
The company said it is spending about 20 percent more than a year ago on each item it plans to sell in the second half of the year, particularly for the holidays, it biggest season. And its price increases won’t be able to keep pace.
“I will be quite honest with you. I don’t feel good about having to come here today and re-guide,” Gap CEO and Chairman Glenn Murphy said Thursday, referring during a call with investors to the company’s new earnings guidance. “But the 20 percent increase in our average unit costs in the back-half is real.”
Murphy said the cost pressure was a “near-term” challenge, not a structural issue, and noted that cotton prices already are retreating. He also reiterated that the company is moving forward with long-term initiatives, especially online and in other countries.
Gap said its net income fell 23 percent to $233 million, or 40 cents per share, for the quarter that ended April 30. That compares with $302 million, or 45 cents per share, a year earlier.
Its revenue fell 1 percent to $3.29 billion. Revenue fell most, nearly 4 percent, at its low-price Old Navy chain, which produces about 40 percent of the company’s revenue.
Analysts were expecting even worse performance — earnings of 39 cents and revenue of $3.27 billion, according to FactSet.”
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Getting ax’d