Gap lowers annual forecast on supply chain woes ahead of holiday season

The Gap logo is seen on the front of the company’s store on Oxford Street in London, Britain, July 1, 2021. REUTERS/John Sibley

Nov 23 (Reuters) – Gap Inc (GPS.N) lowered its full-year net sales and profit forecasts on Tuesday, estimating the supply chain crisis could cost the company up to $650 million in lost sales and drive up expenses going into the crucial holiday season.

Inventory shortages due to port congestion, surging shipping costs and labor crunches have been plaguing retailers, with companies such as Abercrombie & Fitch (ANF.N) and Nike (NKE.N) having to deal with delayed inventory and empty shelves.

Gap, grappling with factory closures in Vietnam which accounts for 30% of production, said shortages dented third-quarter sales by about $300 million, as brands were unable to meet strong demand stemming from eased restrictions and a return to social gatherings.

However, Chief Executive Officer Sonia Syngal remained optimistic for plans to air-carry products due to continued strong demand for Gap’s Yeezy hoodies and Old Navy clothing.

“The supply chain situation does seem to be improving at this point…the bet we made to air product was to build on the momentum we had in the business,” Syngal told Reuters.

The company, which ended the third quarter with inventory down 1%, is now investing about $450 million in air freight annually and expanding its shipping port network to mitigate product shortages during the busy holiday season.

The Old Navy owner expects annual net sales of about 20%, compared with its prior forecast for growth of 30%. Analysts expect a 28.4% growth, according to IBES data from Refinitiv.

Gap also cut its estimates for annual profit, excluding some charges, to between $1.25 and $1.40 per share from $2.10 to $2.25. Analysts on average expect a profit of $2.20 per share.

Reporting by Aditi Sebastian in Bengaluru; Editing by Krishna Chandra Eluri

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