March 6 (Reuters) – Apparel retailer Gap forecast annual and first-quarter sales below estimates on Thursday, joining a growing number of companies that expect subdued consumer spending amid rising inflationary woes.
Consumers are reining in spending on non-essentials such as apparel and accessories to prioritize necessities like groceries, as high interest rates and rising costs of living have been forcing households to tighten their belts.
Gap expects net sales growth for fiscal 2025 to be between 1% and 2%. The midpoint of this range is slightly below the 1.7% rise analysts estimated, according to data compiled by LSEG.
The company’s forecast is based on the assessment of the current macroeconomic environment and related headwinds to consumer spending, including inflationary pressures, tariffs, supply chain disruptions and foreign currency volatility, the company said.
Its first-quarter net sales are expected to be flat to slightly up, compared with analysts’ expectations of a 1.6% rise.
Earlier this week, peer Abercrombie & Fitch also provided a bleak forecast due to softer demand and higher input costs.
Apparel makers, much like retail giants Walmart and Target, expect that rising inflationary concerns flared by President Donald Trump’s import tariffs will strain consumer budgets.
Higher marketing and promotional expenses taken to attract lost customers, further pressured Gap’s margins, which came in at 38.9%, flat compared to a year ago.
However, Gap’s efforts to reinvigorate its brands and return to its “pop culture brand” roots under CEO Richard Dickson’s turnaround strategy led to a recovery in demand for Old Navy and Banana Republic during the holiday quarter.
Its comparable sales rose 3% in the quarter ended February 1, after coming in flat a year ago.
It earned quarterly profit of 54 cents per share, beating the average estimate of 37 cents per share.
(Reporting by Anuja Bharat Mistry in Bengaluru; Editing by Alan Barona)