Gap Posts a Surprising Profit as Margins Improve

Gap (GPS) shares jumped 12.5% on Friday as the apparel retailer posted an unexpected profit, and said margins improved because of its restructuring efforts and lower transportation costs.

The operator of Gap, Old Navy, Banana Republic, and Athleta stores reported fiscal 2023 first quarter earnings per share of $0.01. Analysts had been anticipating a loss of $0.16. Revenue dropped 5.8% to $3.28 billion, just short of forecasts. Comparable store sales were down 3%.

CEO Bob Martin said the company continues to “take the necessary actions to drive critical change at Gap Inc., ultimately getting us back on a path toward delivering consistent results long-term.”

He noted that the Gap’s adjusted operating margin jumped 610 basis points (bps) from a year ago, driven by a “significantly improved gross margin” from a reduction in air freight costs and promotional activity, as well as cuts in selling, general, and administrative expenses (SG&A).

CFO Katrina O’Connell added that Gap slashed its inventory volumes by 27% from 2022, and will have closed about 350 underperforming Gap and Banana Republic locations by the end of the year. In addition, she explained that the company plans to open fewer stores this year than expected. 

Gap reaffirmed its full-year net sales guidance of a decline in the low- to mid-single-digit percentage range.