© Reuters. FILE PHOTO: People walk past the GAP clothing retail store in Manhattan, New York, U.S., August 15, 2016. REUTERS/Eduardo Munoz/File Photo
By Ananya Mariam Rajesh
(Reuters) – Gap Inc posted a larger-than-expected fourth-quarter loss on Thursday and forecast full-year sales below Wall Street estimates, signaling a slowdown in demand for its apparel as prices Inflation-weary consumers cut back on discretionary spending.
Shares of the company fell about 8% in extended trading after Banana Republic parent also forecast first-quarter sales below estimates.
With the Federal Reserve poised to raise interest rates more than expected in a bid to rein in inflation, consumers, especially in the low to middle income bracket, have become more cautious and cut spending on non-essential items. .
The company’s efforts to offer promotions and deeper discounts during the holiday quarter to get rid of excess inventory and stimulate demand further hurt its margins.
Gap also said that Athleta’s chief executive, Mary Beth Laughton, would be leaving the business effective immediately and that a new chief executive officer for the brand is being sought.
The company is also seeing a slowdown in demand for casual and active wear, as people returning to social occasions prefer more formal wear. Sales of all four of Gap’s brands fell in the reported quarter, with Athleta slipping 1%.
While Old Navy, Gap’s biggest brand, has struggled with outdated inventory, CFO Katrina O’Connell said Banana Republic lost some holiday merchandise, including overstocked sweaters and outerwear, and the assortment of gifts did not resonate with the consumer.
“We expect the next few quarters to be difficult for Gap with a weaker economic backdrop than the previous two years and new management,” said Zachary Warring, an analyst at CFRA Research.
Gap expects first-quarter and full-year gross margin expansion, but Warring added that this margin improvement is “not cause for enthusiasm.”
The company expects fiscal 2023 net sales to decline in the low to mid-single digit range, compared with analyst expectations for a 1.64% increase, according to Refinitiv IBES data.