By Anuja Bharat Mistry
May 28 (Reuters) – Gap cut its annual sales forecast on Thursday and American Eagle Outfitters kept its annual comparable sales view intact, failing to reassure investors as cautious U.S. consumers kept apparel demand pressured.
Shares of Gap plunged about 15% in extended trading, while those of American Eagle fell nearly 11%.
Inflation saw its largest gain in three years, with consumer sentiment slumping to a record low in May, underscoring mounting pressure on households that are looking to dip into savings and cut back on nice-to-have items, including clothes and accessories.
Both Gap and American Eagle faced pressures in certain women’s seasonal wear categories, which continue to weigh on their performance in the current quarter.
Gap, which is undergoing a turnaround, said Old Navy’s results were hurt by its women’s dress category, where execution fell short and failed to resonate with customers. It forecast weak current-quarter sales and continues to expect impact from higher fuel costs triggered by the Middle East conflict.
“Entering Q2, the seasonal women’s dress business continues to underperform its expectations,” CEO Richard Dickson said during the post-earnings call.
Meanwhile, American Eagle said weaker demand for women’s bottom wear drove a decline in quarterly sales, hurt by shifts in styles and a colder spring.
“Lower-income consumers aren’t doing as well as others … The apparel industry has too much competition and overproduction, but these are chronic problems that are separate from consumer spending levels,” said Morningstar analyst David Swartz.
Earlier this week, Abercrombie & Fitch and Bath & Body Works managed to buck the slowdown thanks to affluent shoppers’ spending resiliency in a K-shaped economy.
But big-box retailers Walmart and Target cautioned about muted spending last week.
Gap expects fiscal 2026 sales to be up 1% to 2%, compared with its prior forecast of 2% to 3% growth.
However, Gap raised its annual profit forecast, expecting about $80 million in tariff relief while accounting for broader economic uncertainty.
It now expects full-year adjusted profit in the range of $2.30 to $2.40, versus its prior forecast of $2.20 to $2.35 per share.
While American Eagle reiterated its annual comparable sales and operating profit forecast, it expects current-quarter gross margin to contract as it reported a 27% jump in inventory during the first quarter.
(Reporting by Anuja Bharat Mistry in Bengaluru; additional reporting by Katha Kalia in Bengaluru; editing by Alan Barona)
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