Gap Inc. showed signs of stabilization with modest fourth-quarter gains and chief executive officer Art Peck — now at the helm for two years — is sensing opportunity in the chaos that is retail in 2017.
Peck, in a reflective mood as he walked Wall Street analysts through year-end results, said he knew when he took the job that the company needed to perform better and that the industry was changing dramatically.
“Looking back on it now, I think we probably all underestimated the magnitude and the speed of the changes taking place,” the ceo said. “It’s been pretty stark what’s been happening over the last year as we’ve looked at how some competitors have exited the market.”
He didn’t name names, but the Limited, Wet Seal and American Apparel are among the Gap specialty store competitors that have recently gone under.
But Peck said Gap just finished a strong year and the apparel market is in the midst of structural growth and is expanding by 2 to 5 percent.
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It’s a market that rewards scale, Peck said, noting that Gap can play to that strength.
“Fundamentally there is a significant market share opportunity,” Peck said. “To read the headlines today you’ll see the words dead, dying. We are none of those. We are healthy and strong and have a plan and clear direction, but we can all pick our favorite company that’s no longer in business. When the lights go off and when the windows get boarded over that is market share that is made available to the rest of the industry. She’s not stopping shopping. She’s shopping someplace else. A time of disruption means that market share becomes more fluid. If we put what we believe are our structural advantages together along with much of the work that we’ve been doing on product and experience we believe we have a significant opportunity to consolidate and gain market share going forward.”
Key is having the right product — and Peck said the company was getting better on that score — and also getting it to store as fast as possible.
“Time is the enemy in this business,” he said. “And in a typical industry average development cycle as for many — much of the industry’s history been 10 months. We’ve done the work now to get many of our programs and many of our categories down in some cases to eight to 10 weeks. A third of our product across the company can be produced within the quarter this allows us to buy differently and this allows us to chase trend differently. This allows us to manage an inventory differently.”
Just how much market share Gap grabs remains to be seen, but certainly the company managed to navigate a very tough fourth quarter and come out showing modest improvement. Net income rose 2.8 percent to $220 million, or 55 cents a diluted share, from $214 million, or 53 cents, a year earlier. Adjusted earnings were 51 cents a share — in line with what the company guided Wall Street analysts toward earlier this month.
Sales for the three months ended Jan. 28 rose 1 percent to $4.43 billion from $4.39 billion, with a 2 percent gain in comparable sales.
For the year, Gap’s net profits fell 27 percent to $676 million, or $1.69 a share, as sales slipped 1.8 percent to $15.52 billion.
Comparable sales slipped 2 percent for the year, with a 1 percent gain at Old Navy being offset by a 3 percent drop at the Gap division and a 7 percent decline at Banana Republic.
This year, Gap is projecting earnings per share of $1.95 to $2.05, below the $2.07 analysts had penciled in.
The company operated 3,200 doors at the end of the year, marking a 3 percent decline in square footage over a year earlier. It also has 459 stores that it does not directly own, giving it a brick-and-mortar presence in 50 countries.