Gap Inc fell short of Wall Street estimates for quarterly profit on Tuesday as a pivot to online sales fueled a surge in marketing and shipping costs, sending the apparel retailer’s shares down about 11% in extended trading.
The company also forecast fourth-quarter sales to be flat or slightly higher than last year, and warned of pressure on margins from elevated shipping costs, including air freight, as retailers rush to move merchandise ahead of the holiday season.
Online sales surged 61% in the third quarter as stuck-at-home customers shopped for comfortable joggers, yoga pants and tops from its Old Navy and Athleta brands, helping Gap report a surprise rise in comparable sales.
But that came at a cost, with operating expenses rising about 8% in the quarter.
Gap, which has launched digital campaigns such as “Stand United” and “Be the Future”, will continue to make marketing investments, Chief Executive Officer Sonia Syngal said.
“With this COVID environment and really a lot of the weaker players seeing significant amount of disruption, we see this as an important time to be investing in our brands for demand generation,” Syngal told analysts.
Comparable sales rose 5%, trouncing the average estimate for a 0.62% fall, according to IBES data from Refinitiv.
Store sales declined 20% in the third quarter, and Gap reiterated its intention to close several hundred Gap and Banana Republic stores globally, while opening profitable Old Navy and Athleta stores.
The San Francisco-based retailer reported a net income of $95 million, or 25 cents per share, for the three months ended Oct. 31, down from a profit of $140 million, or 37 cents per share, a year earlier.
Analysts had expected the company to earn 32 cents per share.
Reporting by Nivedita Balu in Bengaluru; Editing by Sriraj Kalluvila