Supply Chain Disruptions Force Gap To Cut Annual Forecast

Gap Inc cut its forecast for sales for the entire year as it predicted to be hit by a loss of up to $650 million due to supply chain disruptions such as closures of manufacturing factories in Vietnam and the currently high-cost of air freight for distribution of its products.

The shares of the company were down by 19 per cent following the disappointing forecast.

The company is facing inventory delays because of the extension of closure of factories in Vietnam, which is the top sourcing nation of the company that accounts for 30 per cent of its output. This has forced the company to spend $450 million to lift freight by air so that it could ensure that retail shelves are not left empty during the important holiday season.

“While we had planned into the known supply chain constraints as we entered the quarter, including Covid-related closures in Vietnam, the shock to our business persisted longer than anticipated,” Chief Executive Officer of the apparel retailer, Sonia Syngal, said.

Retailers throughout the world have been plagued by inventory shortages caused by port and airport congestion, rising transportation costs, and labor shortages, with businesses like Abercrombie & Fitch and Nike facing the threat of empty shelves. Gap, which completed the third quarter with inventory down 1%, said shortages cost the company $300 million in quarterly sales because brands were unable to fulfilll high demand fueled by loosening constraints and a return to social events.

Syngal, on the other hand, remained upbeat about intentions to invest in air freight, citing the sustained high demand for Gap’s Yeezy sweatshirts and Old Navy clothes.

The Banana Republic owner anticipates a 20 percent increase in yearly net sales, compared to a 30 percent increase previously projected. According to Refinitiv’s IBES data, analysts estimate a 28.4 percent increase.

Gap also lowered its annual earnings forecast from $2.10 to $2.25 per share, excluding certain costs, to between $1.25 and $1.40 per share. Analysts anticipate a profit of $2.20 per share on average.

(Adapted from Reuters.com)

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