Gap Inc. saw declines in earnings and sales last quarter due to continued weakness at the Gap and Banana Republic brands and costs associated with store closings and staff cuts.
The Old Navy division continued its winning ways and the corporation reaffirmed its full-year earnings per share guidance to be in the range of $2.75 to $2.80, excluding the impact from strategic actions announced last June. Those actions involved shutting about 175 Gap stores in North America over the next few years including about 140 this year, and eliminating 250 jobs, which for the most part were at the headquarters in San Francisco.
“I remain confident in our strategies to improve business performance and drive loyalty going forward,” said Art Peck, chief executive officer of Gap Inc. “Our evolving product operating model is laying the foundation to more consistently deliver on-trend product collections across our portfolio.”
Gap Inc.’s net profit fell 34 percent to $219 million in the second quarter ended Aug. 1, from $332 million earned in the year-ago quarter.
Diluted EPS were 52 cents including the negative impacts associated with foreign currency fluctuations, West Coast port delays and the strategic actions. Excluding the negative impact of 12 cents from the restructurings, the adjusted diluted earnings per share came to 64 cents last quarter.
Corporate-wide, comparable sales for the second quarter were down 2 percent versus flat last year. By division, Gap Global was down 6 percent; Banana Republic Global was negative 4 percent, and Old Navy was up 3 percent.
Gap Inc.’s net sales decreased 2 percent to $3.9 billion compared with $3.98 billion for the second quarter last year. On a constant currency basis, net sales for the second quarter of fiscal year 2015 were about flat compared with last year.
Gap expects to end up with a chain of about 800 Gap stores in North America — comprised of 500 Gap specialty locations and 300 Gap outlet stores after the streamlining. Globally, there are about 1,600 company-operated and franchise locations in more than 50 countries.
The company estimates an annualized sales loss of approximately $300 million associated with the store closures. Additionally, the company estimates one-time costs associated with these actions to be between $130 million to $140 million. These costs were primarily recognized in the second quarter, and include lease buyouts and asset impairments related to the Gap fleet, inventory and fabric write-offs, and employee-related costs.
On the brighter side, the company estimates annualized savings from the cutbacks to be approximately $25 million, beginning in 2016.