Gap Inc. stock sunk in after-hours trading on Thursday after the San Francisco retailer reported sales a 43% drop in first quarter sales.
Driven by Covid-19-related store closures, Gap finished with $2.11 billion in revenue, down from $3.71 billion a year earlier. Analysts had estimated revenue would be about $2.3 billion. The company saw a $1.24 billion operating income loss, compared with a $316 million profit in the first quarter last year.
Like other retailersc, Gap has suffered severely during the pandemic and has been looking for areas to cut costs. Gap’s stock price has dropped about 70% since October. Gap stock was down 3.8% at $11.68 in after-hours trading.
The company did not provide guidance, citing uncertainty during the pandemic, but CEO Sonia Syngal said the company plans to reduce capital expenditures for the fiscal year by half. It will also be scrutinizing its real estate portfolio to advance priorities for «a smaller, healthier fleet.»
Syngal added that inconsistent messaging with the namesake Gap brand needed to be improved in comparison to other brands within the company such as Old Navy, Athleta and Banana Republic.
Syngal said she is optimistic that online sales will continue to grow and keep Gap competitive in the current environment. Online sales increased 13% year-over-year, improving week over week through April and by 100% year-over-year in May. Online sales represented about a quarter of sales in 2019.
The company has seen better than expected return to demand in reopened markets like China and Japan, she added.
In the near term the company will prioritize strengthening its liquidity, said Katrina O’Connell, executive vice president and CFO, on the call. The company has already deferred its first quarter dividends, cut headcount by 15% and instituted temporary pay cuts to executive salaries among other measures.
Since April, Gap has stopped paying rent at all store locations globally affected by mandatory closures during the pandemic. In North American stores that’s about $115 million per month in unpaid rent.
Gap is being sued by Simon Property Group, the largest mall operator in the country, for an $69.5 million in unpaid rent across more than 400 properties. Gap is Simon Property Group’s largest nonanchor tenant.
Syngal, who started as CEO in March, began the call by sharing her support for protests against police brutality that have rocked the country in the last two weeks, and shared that 20 stores around the country sustained excessive damage.
