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Gap Plunges as Weak Inventory Costs Sales, Brings Cut in Guidance -Breaking

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© Reuters

By Dhirendra Tripathi

Investing.com – Gap stock (NYSE:) plummeted 21% in Wednesday’s premarket trading as supply chain issues meant that sales at the retailer fell in the third quarter while costs rose, ensuring the company fell short of estimates.

In response to ongoing supply chain problems, the owner of Old Navy and Banana Republic reduced its annual sales forecast.

Net sales fell 1% year-on-year to $3.94 billion as the company’s stores ran out of inventory owing to factories being shut in Vietnam, its key base for supplies. In response to the pandemic in Asian countries earlier in the year that claimed many lives, the government had to close down factories for several months to stop the spread of the Covid-19 virus.

According to the company’s estimates, it may have lost $300 million in sales during the quarter due to inventory constraints. It estimated that the total damage for the entire year could reach $650 million.

The company uses air freight in order to transport clothes and accessories quicker, and avoid congestion at ports. The company’s transportation expenses have increased as a result. As a percentage of the sales, operating expenses were therefore higher at approximately 38%, or 140 basis points. One-hundredth percent is one basis point.

“We believe the right thing to do is compete in the holiday season to have the right stock across all four of our brands, and that’s what we’re doing,” Gap CEO Sonia Syngal told CNBC. Athleta is fourth in the portfolio.

The company stated that online sales have increased to 38% and that they account for 38% total revenue.

According to the company, its annual sales are expected to increase by 20% this year. This is a significant improvement on the previous 30% estimate. Also, the adjusted operating margin was reduced by 250 basis points from previous estimates and is now at around 5%.

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