By Katherine Masters and Ananya Mariam Rajesh
(Reuters) -Gap on Thursday forecast holiday-quarter sales below estimates, but posted better-than-expected results for the third quarter thanks to easing supply expenses and cost-control efforts, sending its shares up 11% in extended trading.
Major retailers like Walmart and Target have struck a cautious tone heading into the all-important shopping season, with consumers cutting back on spending and likely to delay holiday purchases until the last moment.
Gap, once a sought-after apparel maker, has also taken a hit from shoppers turning to rivals such as Shein and Amazon.com for fresher styles, dragging sales lower at all four of its major brands.
The company expects fourth-quarter net sales to be flat to slightly negative, compared with analysts' expectations for a 0.33% rise, according to LSEG data.
Banana Republic and Athleta's sales fell 11% and 18% in the third quarter, while Old Navy, Gap's biggest brand, recorded a 1% decline.
Gap's across-the-board drop in sales is concerning, said Coresight Research CEO Deborah Weinswig, adding that the company needs to continue focusing on its product-assortment challenges rather than other ways to boost revenue.
"Other retailers are farther ahead in innovation while Gap still needs to get its house in order," Weinswig said.
Over the last year, the company has eliminated jobs and shut down underperforming Gap and Banana Republic stores to help control expenses.
That, along with the easing of supply-chain costs related to freight and manufacturing, helped it post an adjusted profit of 59 cents per share, crushing estimates of 19 cents, while net sales of $3.78 billion beat expectations of $3.60 billion.
The retailer has also tried to keep inventory levels under control and drive sales, mainly at its Old Navy brand, by improving the assortment of clothing in stores.
"Old Navy was a clear winner this quarter while the company's once growth brand Athleta continued to slide," CFRA Research analyst Zachary Warring said.
Gap reiterated that fiscal 2023 net sales would decline in the mid-single-digit range.
(Reporting by Ananya Mariam Rajesh in Bengaluru and Kate Masters in New York; Editing by Devika Syamnath)
