Gap misses earnings estimates as costs jump, shares tumble

NEW YORK: Gap fell short of Wall Street estimates for quarterly profit on Tuesday, hit by higher marketing and shipping costs due to the shift to online shopping, sending the apparel retailer's shares down about 10 per cent in extended trading.

The company, which houses the Old Navy, Banana Republic and Athleta brands, has invested in digital marketing campaigns such as "Stand United" and "Be the Future" as shopping moved online during the COVID-19 pandemic.

Online sales surged 61 per cent in the third quarter, accounting for 40 per cent of all sales, helping the company report a surprise rise in comparable sales.

Comparable sales rose 5 per cent, compared with the average analyst estimate of a 0.62% per cent fall, according to IBES data from Refinitiv.

But this came at a cost. Operating expenses rose about 8 per cent in the quarter.

The company forecast fourth-quarter sales, including the busy holiday season shopping, to be flat or slightly higher than last year, and said it expected higher shipping costs.

The San Francisco-based retailer reported a net income of US$95 million, or 25 cents per share, for the quarter ended Oct 31, down from a profit of US$140 million, or 37 cents per share, a year earlier.

Analysts had expected the company to earn 32 cents per share.