Gap to Close Stores Amid Sales Slump -- WSJ
May 20 2016 - 3:03AM
Dow Jones News
By Maria Armental and Khadeeja S. Safdar
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 San Francisco company also gave a cautious outlook for the
remainder of the year, saying it needed "trends in the apparel
retail environment" to improve from the first quarter to achieve
Wall Street's consensus earnings target for the year. On Thursday,
Gap reported its fifth straight quarter of lower revenue and
profit.
Altogether, Gap said it would close about 75 stores, largely
abroad, and said it would book about $300 million in restructuring
charges before taxes. It estimated the moves would save about $275
million a year.
The restructuring efforts, which follow dozens of store closings
in North America last year, weren't enough to protect the company's
investment grade credit rating. S&P Global Ratings downgraded
the retailer to junk status Thursday. Fitch Ratings downgraded Gap
to junk status last week.
"We believe meaningful industry headwinds have more than offset
the company's various operating initiatives and hurt the company's
competitive standing on a sustained basis," wrote S&P credit
analyst Helena Song, "as the company has weakened brand appeal and
lost share to fast fashion retailers, online competitors, and
off-price retailers."
The Old Navy budget brand, which until recently had been
performing better than Gap's other brands, has struggled in recent
quarters. In the first quarter, Old Navy sales at stores open at
least a year fell 6%, while Gap same-store sales fell 3% and Banana
Republic dropped 11%.
On a conference call, CEO Art Peck attributed the problems at
Old Navy to "too much fashion, too much duplication in the
assortment" and weak marketing in the first quarter. Mr. Peck said
the company is stepping up its TV commercials after pulling back in
April. "We had ineffective TV. TV is a big brand driver for Old
Navy," he said.
The changes come after Old Navy President Stefan Larsson, who
had been credited with turning around the brand, left the company
last year to become Ralph Lauren Corp.'s chief executive. Gap named
company veteran Sonia Syngal to replace him.
The 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. The
Japan exit marks a reversal for the company, which earlier this
year had planned to open additional Old Navy stores in the
country.
For the quarter ended April 30, Gap reported a profit of $127
million, or 32 cents a share, down from $239 million, or 56 cents a
share, a year earlier. Revenue fell 6% to $3.44 billion. The
results were in line with the company's downbeat guidance released
earlier this month.
Write to Maria Armental at maria.armental@wsj.com
(END) Dow Jones Newswires
May 20, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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