As Gap Inc. reported disappointing fiscal first quarter results after coronavirus forced store … [+]
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The rub isn’t the 43% decline in first-quarter sales Gap Inc.
GPS
reported Thursday after it shut about 90% of its global store fleet because of coronavirus and local governments’ orders to keep non-essential stores closed.
As government data showed U.S. clothing retailers saw a nearly 90% slide in April retail sales from a year earlier, following a 50% plunge in March, San Francisco-based Gap wasn’t immune from the shutdown impact. The company’s biggest unit, discount chain Old Navy that represented about half of the retailer’s total sales and had been a bright spot, saw its physical store sales slump 60% in the quarter that ended May 2.
The retailer’s eponymous Gap brand, the second largest unit accounting for 28% of the company’s $16 billion in sales last year, saw brick-and-mortar store sales slide 64%.
But here’s the contrast. While Old Navy and the company’s smaller Athleta chain saw declining physical store sales due to closings, online for each of them shot up instead, a familiar pattern that was also seen in the results from other specialty apparel retailers including American Eagle Outfitters
AEO
, Abercrombie & Fitch
ANF
and Urban Outfitters
URBN
.
On the other hand, Gap brand’s online sales fell 5%, suggesting the iconic American brand’s struggle to regain its favor as a key wardrobe staple shows few easing signs. Same with the online decline in the more upscale Banana Republic label, the company’s third largest label making up about 15% of the total.
Gap management acknowledged there’s work to do with its namesake brand and said it will continue to trim Gap brand’s physical footprint, including using the pandemic as an opportunity to get out or renegotiate lease terms with landlords.
“Gap has been a challenge for us,” said CEO Sonia Syngal on a conference call late Thursday, adding one of the turnaround strategies for the label includes instilling “creative confidence.”
Both Gap and Banana Republic’s combined store count had declined by about 170 stores to 718 last year while the better performing Old Navy and Athleta together rose by more than 180 stores to nearly 1,400.
With the pandemic, now coupled with the looting threatening clothing retailers’ store reopening demand, the company said it’s continuing to lower costs. Gap has suspended dividends and buyback and has halted rent payments while stores were closed. It also plans to cut jobs, with most of the headcount reduction coming from its namesake unit.
With nearly 4,000 stores worldwide, the apparel company said more than 1,500 stores have been reopened in North America. It expects to have a “vast majority” reopened this month. Similar to other retailers that have reopened some stores, it observed better performance at stores outside of enclosed malls. About 20 stores recently suffered “extensive damage” from the looters amid protests over the death of George Floyd.
The company’s shares dropped 6% in after hours trading after it posted a bigger-than-expected loss and decline in total sales. The stock also was under pressure after the largest U.S. mall operator Simon Property
SPG
reportedly sued Gap for choosing not to pay its rents amid the shutdown.
With various wildcards complicating its turnaround plan, Gap brand’s attempt to be cool again with consumers will face a tall order.
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