Gap Shares Soar After Retailer Reports Big Improvement in Margins

Gap, the company that operates its namesake brand along with Banana Republic, Old Navy, and Athleta, experienced an increase in gross margins due to decreased promotions and air freight costs.

The revenue for the first fiscal quarter of the mall retailer was mostly as anticipated.

Although the company's net losses have lessened, all four of its brands have reported a drop in sales once again.

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The logo of Gap is showcased at a Gap store in Los Angeles, California on April 25, 2023.

Gap Inc. has reported another quarter of net losses and declining sales across its four brands, but the retailer insists it's making progress and has managed to significantly improve its margins, which sent shares surging in aftermarket trading.

In its fiscal first quarter, the company reported a loss of $18 million, or 5 cents per share, compared with a loss of $162 million, or 44 cents a share, in the same period last year. On an adjusted basis, the company reported earnings of $3 million, or 1 cent per share. Sales dropped to $3.28 billion, down 6% from $3.48 billion a year earlier.

Gap has been without a CEO for nearly a year as it worked to restructure the business, understand its consumers better and return to profitability. The company said that work is well underway but acknowledged it has long been needed.

Last month, it announced it will lay off about 1,800 employees, more than three times as many as the 500 layoffs it announced in September, as part of a broad effort to cut costs and streamline operations.

In its most recent quarter, comparable sales were down 3% and store sales decreased 4% compared to last year. Online sales, which represented 37% of total net sales, also dropped 9% year over year.

Despite the challenges, Gap is continuing to improve its inventory levels, which were down 27% in the quarter at $2.3 billion compared to the year ago period. The company's full-year outlook was largely unchanged from the forecast it gave in March, with second quarter net sales expected to decrease in the mid to high-single digit range. For the full year, it continues to expect net sales to be down in the low to mid-single digit range.