- Gap Inc. on Thursday said that first quarter net sales rose 10% to $3.8 billion as companywide comparable sales rose for the sixth straight quarter, increasing 1% compared with a 2% increase last year, according to a company press release. It was a mixed result against analyst expectations, with FactSet forecasting $3.61 billion in revenue and a 1.7% same-store sales rise, according to Marketwatch.
- Comparable sales at Old Navy Global rose 3% in the quarter, far short of last year's 8% increase; Gap Global same-store sales fell 4% equal to a 4% decline last year; and Banana Republic Global comparable sales rose 3% versus a 4% decline last year.
- Net income in the quarter rose to $164 million from $143 million a year ago, the company said. Gross profit rose 10% to $1.43 billion, as gross margin fell 20 basis points year over year to 37.7%. Operating margin declined 130 basis points to 6.1%.
Gap shares dropped more than 10% late Thursday after the apparel company spooked Wall Street with a muted quarterly same-store sales rise at Old Navy, normally the company stalwart, and an inventory pileup at flagship Gap that forced deep markdowns.
The Old Navy bargain banner has honed a keen style barometer and swift supply chain that have allowed it to beat back competition from fast fashion. But that was no match for unusually cold spring weather — something already corrected with nicer days, CEO Art Peck told analysts on Thursday, according to a transcript from Seeking Alpha. Peck also emphasized e-commerce. "Do not underestimate the importance and the power of the online business," he said.
But problems may be more entrenched, according to GlobalData Retail Managing Director Neil Saunders. "We believe that Gap is in a better position than it was a year ago," he said in a note emailed to Retail Dive. "However, we also believe that management talks a better game than it is actually playing."
That includes the flagship Gap banner. Saying "you know, we will never have all of our product perfect," Peck said there's no overall issue there. "There is a style here, a color there, et cetera, but we feel good across the whole portfolio that we actually had strong product that was on trend."
But Saunders said he is not so sure, calling out a product mix still reliant on "the same boring basics," prices that seem off base and continued discounts. "While Gap's management notes that the brand is in transition and discounting is necessary to sell down excess inventory, we are not confident that the strategy is anywhere near optimal. In short, Gap is still a brand struggling for relevance," he said.
The company in recent years has shuttered more Gap stores, centering its growth strategy on Old Navy, and Peck said new stores could increasingly show up in urban centers rather than at malls. While that could take a toll on flagship sales, the weakness in the quarter is more likely a fashion issue that Ray Hartjen, director of content marketing and public relations at RetailNext, says could yet be corrected.
"Inventories were planned around Gap store closings, so the primary root cause is simply a fashion miss,” he told Retail Dive in an email. "With better inventory planning and more fashion hits than misses, Q1 will just be a minor bump on the road. With tight margins, it's Gap’s only real play."