Sales slump worsens at fashion group Gap

NEW YORK, USA – The big clothing retailer Gap reported another quarter of declining sales Tuesday, May 10, a sign of deepening trouble in its battle to keep up with fast fashion and online retailers.

The 47-year-old apparel maker, known for its trademark blue denim, khakis and other mostly youth-oriented looks, saw sales fall at all 3 of its store brands: Gap, Banana Republic, and Old Navy.

Sales in the first quarter fell 6.0% to $3.44 billion, with Banana Republic sinking the most at 11%. Old Navy, the group’s cheapest line mostly aimed at children and teens, outperformed its sister chains for most of 2015.

Key challenges for all 3 though include toughened competition from H&M, Uniqlo, and other fast fashion chains, as well as the headwinds from a broader tilt against brick-and-mortar stores as more shoppers go online.

Gap, which a year ago announced plans to cut 175 namesake stores in North America, pledged renewed focus to streamline its operations and whittle its presence internationally to the most promising markets.

“Our industry is evolving and we must transform at a faster pace, while focusing our energy on what matters most to our customers,” said chief executive Art Peck.

Peck said more details would be revealed when the company reports earnings on May 19.

Wall Street’s reaction was brutal, with shares plunging 12.4% in early afternoon trade to $19.11.

Credit Suisse questioned Gap’s emphasis on cutting its overseas footprint, noting stores outside North America make up less than 5% of the total.

“We feel like more attention should be focused on rationalization in North America where the company owns 2,600-plus stores,” Credit Suisse said in a note.

Deep value retailers remain a “considerable threat” to Gap and the rise of online shopping poses risks for “traditional specialty retailers with outsized store footprints,” Credit Suisse added.

Morgan Stanley slashed its earnings and stock price target in light of the report, adding that the weak results raised the possibility that a “bear case” for the chain was becoming more likely.

Morningstar analyst Bridget Weishaar was more generous, noting that other retailers have also struggled and that “sales can be reinvigorated through product improvements and a more nimble supply chain.”

Weishaar said streamlining the chain’s international footprint was “sound,” but that returning sales to growth could be slowed by sluggish macroeconomic growth. – Rappler.com