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Gap Inc (GPS.N) beat Wall Street estimates for quarterly sales and posted a profit on Thursday, helped by steady demand for its formal clothing and dresses even as decades-high inflation squeezes consumer spending.
Shares of the company jumped about 11% in extended trading.
Affluent consumers have been preferring more formal clothing, dresses, woven tops and pants, shelving casual wear like t-shirts and shorts as they return to travel, work and social occasions after two years of pandemic-induced restrictions.
U.S. retail chain Macy’s Inc (M.N) on Thursday signaled strong demand for high-end apparel and accessories ahead of the holiday season as well-to-do customers continue to splurge.
However, Gap echoed retailer Kohl’s (KSS.N), which on Thursday warned soaring prices of essential commodities had dampened lower-income consumer’s spending on non-essential spending like apparel.
The owner of Athleta brand expects fourth-quarter net sales to be down in mid-single digits, compared with analysts’ expectations of a 0.6% decline, according to Refinitiv IBES data.
Gap’s adjusted gross margin came in at 38.7% in the third quarter, down 320 basis points from a year earlier due to the company offering steep discounts to get rid off the excessive and outdated inventory, especially in its Old Navy brand.
The company reported $53 million in impairment charges related to Yeezy Gap. In October, Gap removed products from its Yeezy Gap line created in partnership with Kanye West, and shut down YeezyGap.com following the rapper’s anti-Semitic comments.
Gap’s third-quarter net sales rose 2.5% to $4.04 billion, topping analysts’ estimates of $3.80 billion.
The company posted net income of $282 million, or 77 cents per share, for the quarter ended Oct. 29, compared with a net loss of $152 million, or 40 cents, a year earlier.
