NEW YORK — Months of negative same-store sales results and the burden of reversing that trend led Moody’s Investors Service to cut Gap Inc.’s credit rating.
Moody’s, the credit rating agency, lowered the San Francisco-based Gap’s long- and short-term ratings “based on the challenges that the company faces as it seeks to improve comparable store sales across all three brands in the context of a highly promotional and unforgiving retail environment and given its intention to continue its significant store expansion.” About $2.2 billion of debt securities were affected. Senior unsecured notes and floating rate notes were lowered to A3 from A2.
Moody’s said in a note that all three concepts — Gap, Banana Republic and Old Navy — experienced negative comparable-store sales and softer than anticipated operating performance over the last year.
Still, the agency said its outlook for Gap is stable, adding that the new rating provides a cushion for potentially greater volatility in Gap’s operating performance as the company seeks to implement its initiatives to reignite sales and earnings.
Gap has undertaken a number of initiatives with each of its brands to boost sales and profitability. For example, Old Navy’s “wow pricing” demonstrated the brand’s value price image. Banana Republic has stressed fit in women’s bottoms while the Gap division is expected to fine-tune assortments to appeal to a more defined target customer.
Gap’s March same-store sales fell 8 percent from the same month last year.
Gap’s shares closed up $1.81, or 7.7 percent, to $25.31 as the Federal Reserve’s half-point interest rate cut sent stocks soaring.