The Declining Trend: Gap Forecasts Gloomy Sales, Despite Beating Q2 EPS Estimates

Gap Inc GPS reported a second-quarter FY23 sales decline of 8% year-on-year to $3.55 billion, missing the analyst consensus of $3.57 billion.

Comparable sales declined 6% versus Q2 2022. Online sales decreased 11% Y/Y and constituted 33% of total sales.

Brand Sales: Old Navy declined 6%, Gap fell 14%, Banana Republic dropped 11% and Athleta decreased 1%.

Gross profit inched higher by 0.2% Y/Y to $1.33 billion, with the margin expanding 310 basis points to 37.6%. Operating income for the quarter totaled $106 million versus a loss of $(28) million last year. The operating margin was 3%.

Adjusted EPS of $0.34 beat the analyst consensus of $0.09. 

The company held $1.37 billion in cash and equivalents as of July 29, 2023. Operating cash flow for six months totaled $528 million, with a free cash flow of $329 million.

Inventory at the end of Q2 declined 29% Y/Y to $2.23 billion.

The company ended the quarter with 3,456 store locations in over 40 countries, of which 2,592 were company operated.

The company's Board of Directors recently approved a third-quarter fiscal 2023 dividend of $0.15 per share, payable on or after October 25, 2023, to shareholders of record on October 4, 2023.

Outlook: Gap expects Q3 net sales to decrease in the low-double-digit range compared to last year's net sales of $4.04 billion.

The company anticipates that fiscal 2023 net sales could decrease in the mid-single digit range (prior view decrease in the low to mid-single digit range) compared to last year's net sales of $15.6 billion.

Related: Gap Q2 Earnings Preview: Earnings Estimates, What Analysts Are Saying And Key Items To Watch

Price Action: GPS shares closed lower by 1.24% at $9.53 on Thursday.