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Consumers, especially on the lower to middle-income rungs, have focused on essential purchases as persistent inflation and interest rate hikes strain household budgets.
However, shares of Gap were up about 2% in extended trading after the company crushed profit expectations, benefiting from restructuring efforts, lower freight expenses and fewer promotions at its apparel brands.
The company has been closing underperforming Gap and Banana Republic stores to save on costs and eliminated more than 2,000 jobs to shield its margins.
Gap’s weak sales were on similar lines to the latest earnings and forecasts from retailers ranging from Macy’s (NYSE:M) to Foot Locker (NYSE:FL), in fresh signs U.S. consumer spending is under stress heading into the second half of the year.
The owner of Banana Republic and Athleta brands expects third-quarter net sales to decrease in the low double-digit percentage range, compared with analysts’ expectations of a 6.76% decline, according to Refinitiv data.
Gap now expects fiscal 2023 net sales to decrease in the mid single-digit percentage range, compared with a previous forecast of a low to mid single-digit percentage decline.
The company’s net sales fell 8% to $3.55 billion in the second quarter, missing analysts’ average estimates of $3.57 billion.
On an adjusted basis, Gap earned 34 cents per share for the quarter ended July 29 compared with estimates of 9 cents.
