Gap Workers Prepare for Layoffs

Gap Inc. (NYSE: GPS), the longtime casual clothing retailer that helped define how Americans dressed for decades, has been falling apart for several years. This has caused a revolving door of leadership as Gap searches for a mix of products that will draw customers back to its stores. The company announced another setback in the process.

Gap’s board dumped Chief Executive Officer Sonia Syngal after about two years. Just over a year ago, she was hailed by the board as the single person who could make the company one of America’s premier retailers. To add an insult, director Bob Martin, previously of Walmart, was made interim CEO. Gap’s largest division, Old Navy, will be run by Horacio “Haio” Barbeito, who, of all things, most recently ran Walmart Canada, the equivalent of overseeing U.S. military forces in Alaska.

At the close of the announcement about the management change was a short sentence: “Furthermore, the company now anticipates second quarter fiscal 2022 adjusted operating margin percentage to be zero to slightly negative.”

In Gap’s most recently posted quarter, overall revenue fell 13% year over year to $3.5 billion. Gap posted a net loss of $162 million. The worst part of the announcement was that Old Navy showed revenue that dropped 19% to $1.8 billion. Gap management explained that inventory ordered recently was a mismatch for the clothing size many of its customers wanted.

Gap started layoffs as a solution to poor revenue in 2015, when it shut 175 Gap stores. It has used layoffs since then to improve weak margins. In October 2020, management said it would close another 350 stores. At that time, it made it clear to investors that Old Navy was the most critical part of Gap’s future financial health.

One part of the retail industry that repeats itself over and over is that slowing sales and losses trigger store closings and layoffs. It is a good bet that when Gap makes its next earnings announcement, the new management, former executives at Walmart, will say the company has to make cuts again.

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