Gap says restructuring efforts and supply chain cost reductions led to a surprise first-quarter profit.
Investors loved the news, sending the retailer’s shares up as much as 16% during extended trading.
Executives said the company has been spending less on salaries and other operating expenses in an effort to improve margins, along with efforts to reduce inventories.
The company has had lower inventory for two consecutive quarters as it works to clear excess clothing purchased last year.
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Inventory volumes were down 27% from a year earlier, according to Chief Financial Officer Katrina O’Connell.
Gap increased inventory during the COVID-19 pandemic as consumer demand soared, but was left with piles of unsold inventory as spending normalized.
The company’s reorganization efforts have eliminated about 2,300 company positions in two rounds of layoffs since September.
Interim CEO Bob Martin said in a post-earnings call that the job cuts should contribute to nearly $550 million in estimated annual savings.
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The company will have closed approximately 350 underperforming Gap and Banana Republic stores by the end of the year and will open fewer stores than expected.
Still, sales of all four of Gap’s brands fell in the quarter as the retailer struggled to update inventory and align with consumer trends.
Gap reported an adjusted profit of 1 cent for the first quarter, beating the analyst estimate for a loss of 16 cents, according to Refinitiv IBES data.
The company’s net sales fell 6% to $3.28 billion. Analysts had expected $3.29 billion.
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Gap maintained its annual sales forecast and expects second-quarter sales to fall into the mid to high single digit range. Analysts expect sales to fall 4.95% in the second quarter on average.
Reuters contributed to this report.