Gap Inc. is headed for further streamlining amid ongoing sales declines.
In disclosing weak April and first-quarter sales results, Gap Inc. said Monday that it is evaluating its Banana Republic and Old Navy fleets, primarily outside of North America, “to sharpen its focus on geographies with the greatest potential.”
The San Francisco-based specialty retailer did not specify which geographies would be targeted, but details will be shared during its first-quarter earnings report on May 19.
“Our industry is evolving and we must transform at a faster pace, while focusing our energy on what matters most to our customers,” said Art Peck, chief executive officer of Gap Inc. “We are committed to better positioning the business to recapture market share in North America and to capitalizing on strategic international regions where there is a strong runway for growth.”
Last year, the company triggered a restructuring involving closing 175 specialty stores in North America over a few years, including 140 that happened last fiscal year, as well as “a limited number” of European store closures. In addition, the company cut about 250 jobs at its North American headquarters. Gap has been hindered by numerous fashion misses and margin pressures recently, and much management change over the past couple of years at the highest levels.
By no means is Gap Inc. alone in its struggles. The 15-unit Scoop NY, as reported first in WWD, is shutting down entirely, and Aéropostale declared Chapter 11 bankruptcy last week. In addition, J. Crew has been grappling with difficult sales trends, and department stores, including Macy’s and J.C. Penney, are expected to report this week a continuation of weak sales trends through the first quarter. Much of the luxury sector, including Saks Fifth Avenue and Neiman Marcus, have also been seeing soft sales and traffic, partly due to the lack of tourist shopping and consumers spending more on traveling, restaurants, theater tickets and other types of experiences.
Gap Inc.’s comparable sales for the first quarter fell 5 percent, and for April were down 7 percent. Net sales were $1.12 billion for the four-week period ended April 30, a drop from $1.21 billion in sales for the corresponding year ago period. For the first quarter of fiscal year 2016, Gap Inc.’s net sales were $3.44 billion compared with $3.66 billion for the first quarter last year.
The company said the streamlining of its operating model will make it “more efficient and flexible while more fully exploiting its scale advantage.”
Gap Inc.’s 5 percent first-quarter, same-store sales decline followed a 4 percent decrease last year. Gap Global’s comp sales were down 3 percent versus down 10 percent last year; Banana Republic Global was down 11 percent versus down 8 percent last year; and Old Navy Global was down 6 percent versus up 3 percent last year.
The 7 percent comp decline in April followed a 12 percent decrease in last year’s April period. Comparable sales by global brand for April 2016 were Gap Global: negative 4 percent versus negative 15 percent last year; Banana Republic Global: negative 7 percent versus negative 15 percent last year, and Old Navy Global: negative 10 percent versus negative 6 percent last year.
The company said it expects diluted earnings per share for the first quarter of fiscal year 2016 to be in the range of 31 cents to 32 cents, which is below consensus estimates of around 44 cents. As previously disclosed, gross margins were pressured as the company entered April with more inventory than planned due to weaker traffic, which began in late March 2016 and continued into April.
A spokeswoman said, “We believe the strategies we’ve pursued for product, experience and talent are the right ones and we’ve made good progress against them. For multiple reasons, including a tepid macro environment for apparel retail, the change in our business trajectory is not happening at the pace we had hoped.”
Regarding the geographies being evaluated, the spokeswoman said, “While we haven’t provided specifics, more broadly, we are committed to growing sales in our global brands, anchored in regaining market share in our largest market, North America, and continued growth in China.”
The company also noted that the Sunday and Monday of the Memorial Day holiday falls in the fiscal month of June this year versus May last year. The company expects the later holiday timing to negatively impact May sales results and benefit June sales results.
As of the end of last January, Banana Republic had 612 company-owned and 43 franchise stores in North America. In Europe, there are 10 company-owned and 11 franchise stores; Asia has 51 company-owned Banana Republics and 20 franchises, and in the Middle East, South America and Africa there are a total of 21 franchised Banana Republics.
Old Navy operates 1,030 stores in North America, all company owned. In Asia, there are 65 company-owned Old Navy units and seven franchises. In the Middle East, there are five franchise units.
Gap has 866 company-owned and 74 franchise units in North America. In Europe, there are 175 company-owned and 74 franchise stores; Asia has 305 company-owned and 78 franchised units, and the Middle East, Africa, South America and Oceania has a total of 107 franchise units.
Stores as well as online operations could be involved in the streamlining. Gap Inc. also ships online orders to more than 90 countries around the world.
Peck in the past has cited certain fashion “misses” during the year that impacted the Old Navy and Banana Republic brands, which ranged from too many sweaters to armholes on jackets that were too small.
For the year, earnings dropped 27 percent to $920 million, from $1.26 billion.