Gap to Close Old Navy in Japan, Withdraws Earnings Forecast
May 19 2016 - 5:00PM
Dow Jones News
Gap Inc., under pressure to turn around operations amid a
prolonged sales slump, said it plans to close all its Old Navy
stores in Japan and some Banana Republics mostly outside of North
America by the end of its business year.
The company also said it wouldn't reaffirm its earnings outlook
for the year. In February, it had projected adjusted earnings of
$2.20 to $2.25 a share—and on Thursday, it said the current
consensus estimate by analysts of $1.92 was "within a reasonable
target of potential outcomes." But Gap also said that to get to
that estimate, "trends in the apparel retail environment would need
to improve from the first quarter."
Shares rose 1.3% to $17.50 in after-hours trading. As of
Thursday's close, the stock had fallen 28% in the past month.
Altogether, Gap said it would close about 75 stores, largely
abroad, and said it would book about $300 million in restructuring
charges before taxes. Meanwhile, it estimated the moves would save
about $275 million a year and improve its operating margin by
nearly 2 percentage points.
The move—which the company had signaled earlier this month as it
released preliminary first-quarter results—marks an about-face move
for the company, which had said it planned to open additional Old
Navy stores in Japan when it released annual results for the year
ended Jan. 30. But the company warned the weaker yen would continue
to weigh on results.
Beyond the numbers, the Japan exit is a turning point for Gap,
which in 2012 chose Japan as the first country to expand Old Navy,
its then sales-engine brand, beyond North America.
Gap ended its most recent fiscal year with 3,721 stores in 51
countries.
The San Francisco retailer, which in February reported its first
annual sales decline since fiscal year 2011, has been adjusting its
North American operations, closing stores and laying off
workers.
Over all for the first quarter, Gap reported a profit of $127
million, or 32 cents a share, down from $239 million, or 56 cents a
share, a year earlier.
The results, based on 5.9% fewer shares outstanding, are in line
with the company's downbeat guidance released earlier this month,
when it also released a 6% sales decline with weakness across
brands.
It is the fifth straight quarter of lower revenue and profit for
the company.
Gross profit margin narrowed to 35.2% from 37.8% a year
earlier.
Write to Maria Armental at maria.armental@wsj.com
(END) Dow Jones Newswires
May 19, 2016 16:45 ET (20:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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