© Reuters. The sign for a Gap store is seen on 5th avenue in midtown Manhattan in New York June 16, 2015. REUTERS/Brendan McDermid/File Photo
(Reuters) – Gap on Thursday forecast holiday-quarter sales below expectations, signaling weak demand for its Banana Republic and Athleta brands heading into the all-important shopping season.
The once sought-after apparel maker has seen falling sales at all four of its major brands this year as sticky inflation forced lower-income customers to tighten spending, while other shoppers turned to rivals such as Shein and Amazon.com (NASDAQ:) for fresher styles.
Gap 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, but Old Navy, Gap’s biggest brand, recorded only a 1% decline.
The apparel maker’s efforts to keep inventory levels under control and take fewer markdowns helped it post a 460 basis point increase in merchandise margins.
Gap’s ending inventory of $2.38 billion for the third quarter was 22% lower than 2022.
Over the last year, the company has also eliminated jobs and shut 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 above Wall Street expectations.
Shares of the Old Navy parent rose 8% in extended trading.
On an adjusted basis, Gap earned 59 cents per share, crushing estimates of 19 cents, while net sales of $3.78 billion beat expectations of $3.60 billion.
The company also said it continues to expect fiscal 2023 net sales to decline in the mid-single-digit range.