Gap forecasts weak sales on slow consumer spending, rising competition

FILE PHOTO: The Gap logo is seen on the front of a store in Paris

By Ananya Mariam Rajesh and Katherine Masters

(Reuters) - Gap Inc on Thursday forecast a steeper-than-expected decline in current-quarter sales hit by slowing demand for its accessories and apparel, and warned it was losing market share to rivals including Shein, Amazon and T.J. Maxx.

Gap missed revenue expectations for the second quarter, echoing weak trends from companies such as Macy's and Foot Locker, in fresh signs U.S. consumers may be spending less on discretionary items in a uncertain economy.

"Some of the brands that are really winning with our consumer are T.J. Maxx, Amazon, Shein. We are definitely seeing those businesses gaining share," finance chief Katrina O'Connell said on a conference call, responding to an analyst's question on how Gap's cheaper-priced brand Old Navy was faring against competition.

Gap has also been battling declining sales at all its brands as customers move away from outdated product assortments, mainly at its namesake brand and Old Navy.

In July, Gap tapped Mattel's operating chief, Richard Dickson, to head the company after a year-long search, betting on the executive's success in turning around the Barbie brand to revive sales at the apparel retailer.

"Old Navy and Gap has been very inconsistent with their products and their strategy," said Jessica Ramirez, senior analyst at Jane Hali and Associates, adding they expect to see solid strategy and more compelling products with the new CEO.

Shares of Gap were up 1.7% 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 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.

The company now sees 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.

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.

(This story has been refiled to remove an extraneous word in paragraph 2)

(Reporting by Ananya Mariam Rajesh in Bengaluru and Kate Masters in New York; Editing by Krishna Chandra Eluri)