Gap Inc.’s traffic problems keep getting worse.
As the retailer on Thursday revealed that net income declined 46.8 percent in the first quarter ended April 30, chief financial officer Sabrina Simmons admitted the company didn’t expect things to be quite as bad as they were.
“We had never expected positive traffic, but we didn’t expect deeply negative traffic,” she said, adding that February and March started well, but then fell off precipitously in the week before Easter.
The poor performance was across all the group’s divisions except Athleta. As Gap Inc. continues to search for a way to get back on the growth track, the company revealed plans to shutter another 75 stores, including all 53 Old Navy stores in Japan. The company wants to anchor that chain in North America.
Still, the group is sticking with its plan. “As the pace of change across the apparel industry increases, now is the time to accelerate our transformation by scaling our product and operating capabilities across our global portfolio,” said Art Peck, chief executive officer at the Gap. “By taking every opportunity to exploit our strategic advantages, our brands will be able to more fully harness the power of the enterprise to better serve their customers across channels and geographies.”
The company’s net income for the quarter declined 46.8 percent to $127 million, or 32 cents a diluted share, down from $239 million, or 56 cents, a year ago. This met the FactSet estimate for 32 cents per share.
Net sales for the three months ending April 30 decreased 6 percent to $3.44 billion from $3.66 billion a year earlier and matching the FactSet estimate. Comparable sales dropped 5 percent versus a decrease of 4 percent last year. Gap Global sales fell 3 percent, Banana Republic dropped 11 percent and Old Navy declined by 6 percent.
Peck talked about the problems at Old Navy on the earnings call, saying there was too much fashion and too much duplication in the assortment. On Banana Republic, he said he was seeing encouraging results there. The company cut back on discounting and has been trying to train the customer to not wait for promotions.
The ceo also the company made adjustments on the price tickets, commenting that the initial ticket price at all three brands just wasn’t real.
The bright spot in the company was Athleta. Peck said on the call, “That business is highest growing and it will be a very significant segment of the overall rated apparel space as we go forward and we plan on it being here to stay.” The Gap would not disclose the size of the Athleta business. Peck did say it was performing superbly.
During the quarter the retailer opened 18 stores and closed 17. The company expects net closures of 50 company-operated stores in fiscal 2016.
Gap would not affirm its earnings per share guidance, but took note of the First Call estimate of $1.92 for fiscal-year 2016. The company said trends would need to improve in order to achieve this estimate.
Peck did clear up some questions he had made regarding Amazon. Some thought he was alluding to a potential partnership, but he said it was interpreted incorrectly. He said he mentioned Amazon as a company he wants to be aware of because of all the e-commerce happening around it.