(Reuters) – Gap Inc on Thursday forecast fourth-quarter sales below Wall Street estimates, signaling a slowdown in demand for its casual clothing as inflation-weary consumers curb discretionary spending.
As people return to work and social occasions, they have been preferring more formal clothing, pants and dresses, shelving casual wear and athleisure clothing that saw a surge in demand during the pandemic.
Gap echoed retailer Kohl’s, which on Thursday warned soaring prices of essential commodities had dampened lower-income consumer’s spending on non-essential spending like apparel as people look to buy more need-based consumable goods and basic necessities.
Gap’s adjusted gross margin came in at 38.7% in the third quarter, down 320 basis points from a year earlier due to the company offering steep discounts to get rid off the excessive and outdated inventory, especially in its Old Navy brand.
The company reported $53 million in impairment charges related to Yeezy Gap. In October, Gap removed products from its Yeezy Gap line created in partnership with Kanye West, and shut down YeezyGap.com following the rapper’s anti-Semitic comments.
The owner of Athleta brand expects fourth-quarter net sales to be down in mid-single digits, compared with analysts’ expectations of a 0.6% decline, according to Refinitiv IBES data.
However, third-quarter net sales rose 2.5% to $4.04 billion, topping analysts’ estimates of $3.80 billion, benefiting from Banana Republic that specializes in suits, dresses and skirts.
Gap also posted net income of $282 million, or 77 cents per share, for the quarter ended Oct. 29, compared with a net loss of $152 million, or 40 cents, a year earlier.
(Reporting by Granth Vanaik and Ananya Mariam Rajesh in Bengaluru; Editing by Maju Samuel)
