FILE PHOTO: People pass by the GAP clothing retail store in Manhattan, New York, U.S., August 15, 2016. REUTERS/Eduardo Munoz/File Photo
(Reuters) -Gap Inc on Thursday posted a bigger-than-expected fourth-quarter loss and forecast full-year sales below Wall Street estimates, signaling a slowdown in demand for its products as inflation-weary consumers curb discretionary spending.
Shares of the company fell about 7% in extended trading after the Banana Republic parent also forecast first-quarter sales below estimates.
With the Federal Reserve prepared to raise interest rates more than expected in an attempt to control inflation, consumers, especially at the lower- to mid-income rung, have turned more cautious and curbed spending on non-essential items.
The company’s efforts to offer promotions and steeper discounts during the holiday quarter to get rid of excess inventory and spur demand has further hurt its margins in the fourth quarter.
Gap is also seeing a slowdown in demand for casual and active wear as people returning to work and social occasions prefer more formal clothing, pants and dresses.
The company also said president and chief executive officer of its Athleta brand, Mary Beth Laughton, was exiting the business, effective on Thursday. Interim CEO Bob Martin will work closely with the Athleta team while a search is underway to find a new chief for the brand.
Sales at Old Navy, Gap’s biggest brand, slid 6%, while at Athleta, which sponsors U.S. Olympic gymnast Simone Biles, they were down 1%.
The Old Navy brand, which has been struggling with outdated inventory, saw demand softness from lower-income consumer and in the kids and baby category.
Gap expects fiscal 2023 net sales to decrease in the low- to mid-single digit range, compared with analysts’ expectations of 1.64% rise, according to Refinitiv IBES data.
The company posted a fourth-quarter loss of 75 cents per share, compared to estimates of a loss of 46 cents.