GAP SINKS FURTHER INTO ABYSS AS SEPT. COMP SALES FALL 8%
Byline: Jennifer Weitzman
NEW YORK — Slip-sliding away.
That’s the impression Gap Inc. gave the industry Wednesday, as it tallied its fifth consecutive month of same-store sales declines. September saw comp-store sales fall 8 percent and expectations for this month dropped with them.
The results came on top of August’s titanic 14 percent drop and declines of 1 percent in July and 2 percent each in June and May. Gap had a comp increase of 7 percent in September 1999.
Furthermore, October is expected to be a month of heavy clearance activity and the thinning margins of the third quarter will be a “pivotal factor” in the period’s outcome.
The company is in a tough period, as the sales slide follows a string of high-level executive departures and miscues in its marketing and advertising strategies. Millard P. Drexler, president and chief executive officer, had said last month at a retail conference that the problems have “easy fixes. We don’t feel there are any fundamental issues. We are moving with great urgency to fix these things for holiday. In all three brands, you’ll see good-looking goods.”
Gap’s comps arrived after the market closed, but shares were down 13 cents to close at $19.88 in New York Stock Exchange trading, close to the 52-week low of $19.06. Gap’s high for the past year is $53.75.
Total sales for the month ended Sept. 30 increased 12 percent to $1.25 billion from $1.12 billion.
Gap blamed September’s weak results on a more heavily promotional environment, especially at Old Navy and Banana Republic. But according to Heidi Kunz, Gap’s executive vice president and chief financial officer, all four divisions had comp declines. Gap domestic and Banana Republic declined in the mid-single digits, Old Navy in the mid-teens and Gap International in the high-single digits.
Gap’s sales were below expectations, Kunz said, and hurt by the lack of TV advertising, as compared to a full month of ads last year, and less than spectacular results from its leather line for adults. Top performers for both men and women included sweaters and trousers in its wear-to-work lines, while boys’ activewear and sweaters were strong in its children’s department.
Gap International was hurt by a lack of a marketing voice and high level of price and markdown pressure in Japan and the gas shortages in Europe.
Kunz said Banana Republic had “clearly a disappointing month with both comps and margins falling below expectations.” She noted the biggest driver of the softer results was the weak customer acceptance of the deep purple palate that anchored its fall deliveries. A second fall delivery including a broader color assortment arrived this week.
Old Navy results, which declined in the mid-20s in August, were slightly above expectations as the unit worked through its inventory backlog. Kunz said stores’ inventories are now at last year’s level. Still, the month was highly promotional. A bright spot was Old Navy’s Collection line, led by intimates, sweaters and woven tops.
The company said it ended the month with inventory levels above plan across its brands.
Ellen Schlossberg, an analyst at William Blair & Co., said the results of the company’s Gap division were in line with her expectations. She blamed part of Gap’s problem on the merchandise changes during the back-to-school season, when the firm “accommodated an ‘older’ customer.”
Still, she said in the long run the effect was marginal. “Maybe the timing of the shift was a month or so too soon and maybe that affected comps.” Still, she said the company did “a nice job at broadening the assortment.”
Others among the first wave of reporting retailers had stronger results. The remainder of the publicly held retailers are expected to report their September results today.
Hot Topic said its September total sales and same-store sales posted double-digit increases. Sales increased 56 percent to $23.9 million and comparable sales jumped 20.1 percent.
“The back-to-school period produced terrific store traffic,” Betsy McLaughlin, president and chief executive, said. “Our promotional activity for the back-to-school period was low, consistent with the previous year.”
American Eagle Outfitters saw same-store sales surge 7.4 percent compared with a 34.2 percent hike in September 1999. Laura Weil, chief financial officer, said both men’s and women’s were “solid” during September, although men’s was slightly stronger.
“The strength we saw in August in denim, sweaters and knits continued in September,” Weil said. “Our customers responded well to our fresh and colorful assortments, which included stretch fabrics in a number of categories.”
Chico’s FAS reported overall and same-store sales for September both rose at a double-digit clip. Sales rocketed ahead 69.4 percent to $27.8 million from $16.4 million, while comps rose 36.3 percent.
Charming Shoppes also posted increases in both sales and comps for September. For the month, the 1,754-door retailer’s total sales grew 32 percent to $139.5 billion, from $105.7 million. Comps increased 4 percent for the month.
Based on current sales trends for the first 2 months of the second quarter, the company estimates that it will meet earnings estimates of 8 cents and 10 cents a share for the third and fourth quarters, respectively.