NEW YORK - cost increases faster than Gap Inc. anticipated - especially for its products at low prices - sank profit in the first quarter of the company, and the clothing company significantly reduced its forecast for the year earnings late Thursday.
Escalating costs are composed only of challenges to the company, which aims to boost sales of its namesake brand. In fact, the company also operates the brands Banana Republic and Old Navy, acknowledged that also more than expected refresh the string empty in the latest quarter.
Shares of Gap fell $3.47, or 14.9% to $pass after hours. They had completed exchanged regularly at $23,29, up to 21 cents.
The company said that he spends about 20 percent more than last year on each element, it intends to sell in the second half of the year, especially for the holidays, it more high season. And its price increases will be not able to keep pace.
"I shall be quite honest with you." I feel good having to come here today and re-guide, "Gap CEO and Chairman Glenn Murphy said, referring in a call with investors in new perspectives of the company result." Thursday "But the 20% increase in our average unit costs in half back is real".
Murphy, said the cost pressure was a challenge "short term", not a structural issue and noted that prices of cotton are already retreating. It also recalled that the company goes ahead with initiatives in the long term, especially online and in other countries.
Gap said its net income dropped by 23% to $ 233 million, or 40 cents per share, for the quarter ended April 30. That compares to 302 million, or 45 cents per share, a year earlier.
His income fell by 1% to $ 3.29 billion. Income has fallen more, about 4%, to its chain of Old Navy of low prices, which produces about 40% of the revenues of the company.
Analysts expected worse performance - pay the 39 cents and revenues of $ 3.27 billion, according to FactSet.
Prices of many companies clothing for raw materials such as cotton and labour in China is growing. But the warning of profit of the Gap shows that he was not able to navigate the challenges and its rivals such as J.C. Penney Co. and Abercrombie & Fitch.
Plan of Gap and other sellers of clothing to raise prices this fall to offset the higher costs, but there are limits to how many shoppers will tolerate low prices in an economy still difficult, particularly for strings. In fact, cost pressures are hitting the company facilities and Old Navy stores more difficult because buyers resist to pay even a few dollars more for a shirt, so the company had to absorb more fresh.
Stifel Nicolaus analyst Richard Jaffe said puzzled that Gap is facing cost increases larger than its rivals, who reported increases in the cost of 10 to 15 per cent.
"This could be single their", said Jaffe.
Sabrina Simmons, Chief Financial Officer of the Gap, said investors Thursday that he had ordered to the spring and summer in February goods, only when it is sunny throughout the year forecasts, and he assumed costs would facilitate after he commissioned of goods of the fall.
But that does not. When the chain began to negotiate with suppliers in March and April for holiday orders, it found costs had soared. Murphy said that Gap is still in the hope of reducing costs when it finishes its purchases of vacation.
Gap Inc. has made a series of organizational changes and management recently. In February, Art Peck became the President of the trade mark, its fifth in nine years. The San Francisco-based company has also established a Global Creative Center and consolidated its marketing in New York. And earlier this month, he ousted Patrick Robinson, Director of design for the empty string. Murphy said that the brands Old Navy and Banana Republic also need to work.
The key indicator of revenue at stores open at least a year fell by 3 per cent for Gap Inc. as a whole. Gap North America, the figure decreased by 3%, while he fell 1 percent to Banana Republic and 2 percent to Old Navy North America. International division of the company saw a decrease of 6%. The number is significant because it is not distorted by stores who has recently opened or closed.
Gap continues to remodel the Old Navy stores and added its first stores in China and Italy last year. The company now sells its wares online in more than 90 countries and has recently announced plans to introduce the brand Gap in the Serbia and the Ukraine and a store on the largest e-commerce Chinese, called Alibaba group Mall site.
Total income Gap Online Inc. has increased by 18% to 348 million dollars, compared to $ 295 million in the first quarter of last year.
The company said the March earthquake and tsunami in the Japan, where she operates a cluster of stores, cut into its revenue and said that it will take some time for the company to recover.
Gap now expects to earn $ 1.40 to $ 1.50 per share for the year, at the bottom of his February forecast for $1.88 to 1.93 $ per share. Prior to report earnings Thursday, analysts expected $1.84 per share, according to FactSet.
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