Can Gap Inc get its namesake oldest child to ever match favourite sibling Old Navy’s storming performance? Will more sophisticated sister Banana Republic settle down and find her niche? And will little sis Athleta live up to her promise?
What’s the story at Gap Inc now the clothing giant has delivered its Q3 results? More of the same, it seems. The company admitted today that the quarter was “challenging” but is staying resolutely upbeat (as always). CEO Art Peck said the firm is “sharply focused on holiday execution across all channels [and] driving forward on our key strategies designed to fuel future growth.”
That’s all very well, but Gap has spent a lot of years focusing on strategies for future growth and doesn’t seem to have any further forward in Q3. Just look at the numbers. Just like a year ago, group comp sales dropped 2% and, again, like a year ago the performances of the various units varied a lot.
Old Navy’s comps rose 4% (no surprise there and better than a year ago), while Gap’s dropped by the same amount. That was, at least, an improvement on last year’s 5% fall, but it’s also a sign that the chain is still struggling.
If Gap’s engaged in a struggle, Banana Republic is in the fight of its life and it doesn’t look like it’s winning – BR’s comps plunged 12% last quarter having been flat in the year-ago period. Ouch!
Group net sales fell 3% to $3.86bn, although they were flat on a currency-neutral basis with the weaker Japanese yen and the Canadian dollar helping currency effects to dent takings by as much as $100m.
It’s a given that all of this translated into lower profits. The company reported net income of $248m/61 cents per share, down from $351m/80 cents a year ago.
In the results announcement, Art Peck highlighted Old Navy’s strength as the brand powers ahead in existing markets and expands in Mexico. He also said Gap “has made clear progress on its transformation agenda,” as well as talking up its forthcoming spring collection, “which embodies elevated American style.”
Looking beyond the corporate-speak, it means the company is paying serious attention to Gap’s hoped-for turnaround with a new product operating model (presumably more like Old Navy’s fast-response model) and is building a “smaller, more vibrant fleet of stores” as it focuses on profitable locations.
The company’s also continuing to grow Athleta’s footprint. The chain, which targets the growing athleisure market, recently unveiled its first ever designer collaboration (with Derek lam 10 Crosby) and will end the year with around 120 US locations.
Another focus is online with the company introducing new features to boost its m-commerce offer. Online sales rose from $621m a year ago to $635m this time – not a huge leap compared to some sector peers, but a move in the right direction.
But throughout the earnings release, the elephant in the room was Banana Republic. We didn’t get any extra info on that unit. Given its dire performance during the quarter, an update or explanation really would have been welcome.