Gap Inc. (NYSE GPS) announced its third-quarter earnings. The numbers were not encouraging, nor was the company’s forecast. Results from Gap, one of the company’s three major brands along with Banana Republic and Old Navy, were particularly troubling. In the wake of reporting the numbers, Gap’s CEO said he was looking at the future of hundreds of stores, some of which he may close. The Gap brand launched the company in 1969
While total company sales rose in the quarterly period which ended November 3 from $3.8 billion last year to $4.1 billion this year, net income barely budged. Net for the third quarter of last year was $229 million which rose to $266 million. The Old Navy brand is the company’s flagship in terms of growth. Same-store sales for the brand were up 4%. Gap Global brand same-store sales fell 7%. Banana Republic same-store sales were up 2%.
On a brand basis in the quarter, Old Navy revenue was $1.95 billion, up from $1.76 billion. Gap Global revenue fell from $1.32 billion to $1.28 billion. Banana Republic revenue rose to $601 million from $557 million.
As Gap announced the earnings, Art Peck, president, and chief executive officer was not pleased with the Gap brand performance. He said “We are clearly not satisfied with the performance of Gap brand. We know this iconic brand is important to customers, and we are committed to taking the bold and necessary steps to ensure that it delivers value to shareholders.”
Peck left the worst news to the company’s conference call held after earnings. He said”…there are hundreds of other stores that likely don’t fit our vision for the future of Gap brand specialty store, whether in terms of profitability, customer experience, traffic trends, importantly, the rod structure, and/or near- and long-term relevance to the brand. These stores are a drag on the health and a drag on the performance of the brand.” He added, “There likely will be a cash cost to exit many of these stores, which we will attempt to minimize with appropriate sequencing, but I plan to exit those that do not fit the future vision quickly.”
Gap has closed hundreds of stores in the past as the company’s original flagship brand has faded. In 2017, Gap said it would close 200 Gap and Banana Republic stores. In 2015, it announced it would close 175 stores
The CEO of Gap Inc. believes his future is based on fewer Gap stores. That means more will almost certainly disappear soon.