Gap stock plunged 21% in premarket trade on Wednesday as supply chain concerns caused sales to fall in the third quarter while costs soared, causing the firm to fall short of expectations.

In reaction to lengthy and ongoing supply chain challenges, the owner of  Banana Republic and Old Navy lowered its sales target for the year.

Net sales declined 1% year over year to $3.94 billion as the company's stores ran out of stock due to factory closures in Vietnam, its primary source of supplies. The pandemic spread over the Asian nation earlier this year, prompting the authorities to enforce lengthy industry closures in order to contain the Covid-19 virus.Gap Logo, history, meaning, symbol, PNG

 

According to the company's estimations, inventory restrictions caused it to lose $300 million in sales during the quarter. According to the report, the damage might total $650 million over the course of the year.

To make up for a lack of inventory and avoid port congestion, the company is turning to air freight to get apparel and accessories to customers faster, just in time for the holidays. As a result, the company's transportation expenditures have increased. As a result, operating expenses as a proportion of sales increased by 140 basis points to roughly 38%.

Gap CEO Sonia Syngal told CNBC, "We feel the appropriate thing to do is compete in the holiday season to have the correct stock across all four of our brands, and that's what we're doing." The fourth brand in the portfolio is Athleta.

According to the corporation, online sales increased and now account for 38% of overall income.

The corporation now forecasts a 20% increase in yearly sales, down from a 30% increase previously forecast. The adjusted operating margin is expected to fall by 250 basis points from the previous prediction, ending the year at around 5%.