Shares were down 19% in after-market trading.
Extended factory closures in Vietnam, Gap's top country for sourcing which accounts for 30% of its production, have led to delays in the shipping of inventory and forced the retailer to invest about $450 million to lift freight by air and ensure shelves are not empty during the crucial 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 Sonia Syngal said.
Inventory shortages due to port and airport congestion, surging shipping costs and labor crunches have been plaguing retailers globally, with companies such as Abercrombie & Fitch and Nike having to deal with the prospect of empty shelves.
Gap, which ended the third quarter with inventory down 1%, said shortages dented quarterly sales by about $300 million, as brands were unable to meet the strong demand stemming from eased restrictions and a return to social gatherings.
However, Syngal remained optimistic over plans to invest into air freight due to continued strong demand for Gap's Yeezy hoodies and Old Navy clothing.
The Banana Republic 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)
By Aditi Sebastian