Gap slashes forecast as inflation rips demand, Old Navy stumbles

People walk past the GAP clothing store in Manhattan, New York, U.S., August 15, 2016. REUTERS/Eduardo Munoz

May 26 (Reuters) – Gap Inc (GPS.N) slashed its full-year earnings forecast on Thursday, sending shares down 13% after hours as the clothing retailer blames its line’s poor fashion choices Old Navy and the low demand in the face of decades. high inflation.

Parent company Banana Republic also posted a much bigger-than-expected quarterly loss, slammed by soaring air freight costs and steeper discounts.

The bleak outlook echoes peers American Eagle Outfitters (AEO.N) and Abercrombie & Fitch Co (ANF.N) as rising prices for essentials like food force consumers to rein in discretionary spending.

Gap is also reeling from execution issues at Old Navy, its biggest brand.

As shoppers are now shifting away from casual and athletic wear to formal wear and party wear, the product assortment at Old Navy “continues to lag” with the shift in preference, Gap executives said during of a call for results.

“We identified customer trends too early in the process and weren’t able to research the right fashion choices more closely,” said general manager Sonia Syngal.

Low-cost brands such as Old Navy typically benefit when consumers tighten their belts, but steep discounts to balance inventory at the label level weighed on margins in the first quarter.

Gap now expects earnings per share for fiscal 2022 to be between 30 cents and 60 cents on an adjusted basis, down from $1.85 to $2.05 earlier and well below Refinitiv estimates of $1.34 .

“Ultimately, the business needs to re-elevate its brand perception, be prepared to sell less and charge more, which is much easier said than done,” said BMO Capital analyst Simeon Siegel. Markets.

American Eagle also cut its full-year operating profit forecast on Thursday after missing quarterly expectations, sending its shares down nearly 12%. Read more

“Looking back, our plans at the start of the year were overly optimistic,” chief executive Jay Schottenstein said.

Reporting by Deborah Sophia in Bengaluru; Editing by Devika Syamnath

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