By Tess Stynes
Gap Inc. cut its earnings guidance for the year ahead of the
crucial holiday selling season, even as the apparel retailer's
profit topped expectations for the November quarter.
The San Francisco retailer, which has been striving to
reinvigorate its eponymous brand, also named two executives to turn
around its Gap and Banana Republic brands.
A string of sales declines has persisted at the Gap brand,
despite the September launch of a much touted merchandise and
marketing effort. The company recently reported its sales,
excluding newly opened or closed locations, dropped 5% at its Gap
stores in its third quarter, while sales were flat at Banana
Republic and up 1% at the lower-priced Old Navy.
In a bid to combat sluggish demand, retailers have continued
heavy discounting and promotions to attract shoppers, a practice
that resulted in a highly competitive atmosphere and weighed on
margins.
"As we move into the holiday season, our teams are focused on
delivering unique customer experiences which will differentiate our
portfolio of brands in the marketplace," Chairman and Chief
Executive Glenn Murphy said in a news release.
Gap lowered its per-share earnings estimate for the year ending
in January to $2.73 to $2.78, from its previous estimate for $2.95
to $3. The retailer also cut its capital spending outlook to $700
million, a decrease of $50 million.
Last month, the company said Mr. Murphy would step down next
year as CEO of the retailer, where he reversed a long-running sales
slump but more recently has struggled to reinvigorate the company's
eponymous brand. Art Peck, a nine-year veteran who helms Gap's
digital division, was tapped as his successor.
In conjunction with those plans, the company on Thursday named
Jeff Kirwan to lead its Gap brand starting next month. Mr. Kirwan,
who is is 48 years old and currently heads the China division, will
succeed Stephen Sunnucks, who is leaving the company after steering
the namesake brand over the past decade.
Andi Owen, 49, who leads Gap's outlet division, will head Banana
Republic starting Jan. 5. He succeeds Jack Calhoun, who will leave
the company in early February. Mr. Calhoun led the brand for eight
years.
In all, Gap reported a profit for the period ended Nov. 1 of
$351 million, or 80 cents a share, up from $337 million, or 72
cents a share, a year earlier. The latest period included a benefit
of six cents a share, mostly related to foreign-tax credits. The
company estimated 78 cents to 79 cents a share earlier this month,
topping estimates at the time.
Gap recently reported its sales eased 0.1% to $3.97 billion.
On Thursday, Gap noted sales grew 1%, excluding currency
fluctuations, and the stronger dollar had a net negative impact of
about $31 million. The retailer recorded about 24% of its sales
revenue abroad in the latest period. Total online sales rose 5.4%
to $621 million.
Operating margin declined to 13.9% from 14.5%.
At quarter's end, inventory dollars per store fell 2% from a
year earlier, compared with expectations for an increase in the
low-single digits on a percentage basis.
Write to Tess Stynes at tess.stynes@wsj.com
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