As Gap Sales Slide, Apparel Chain Looks to Streamline Operations -- WSJ

By Josh Beckerman and Khadeeja Safdar

Gap Inc. warned of weak sales across its brands and said it would take steps to streamline its business, including evaluating its Banana Republic and Old Navy operations outside North America.

The apparel retailer Monday said it expects sales at stores open at least a year to fall 5% in the first quarter. The San Francisco company forecast a profit for the quarter that fell well short of Wall Street's expectations.

In after-hours trading, shares fell 9.9% to $19.65. The stock has fallen 45% in the past 12 months through Monday's close.

The company blamed a "tepid macro environment for apparel retail" but also acknowledged that changes it has been making to its product designs and selections have been slow to drive sales. "The change in our business trajectory is not happening at the pace we had hoped," the company said.

Gap is being squeezed by fast-fashion retailers such as Hennes & Mauritz AB and Zara owner Inditex SA, which push low-price items and shift their selections quickly. To combat the sales slump, Gap CEO Art Peck has brought in new executives and promised to source goods more quickly.

The company has also been shrinking its footprint, by closing dozens of locations in its home market. On Monday, the company indicated it would revamp its overseas operations.

"They really need to simplify and focus on their core business," said John D. Morris, senior analyst at BMO Capital Markets. "For them to be able to expand internationally across multiple brands is a tall order when they need to be simplifying."

As of Jan. 30, the company had 3,721 stores around the globe, including 480 Gap branded stores outside North America. Banana Republic and Old Navy have just 61 and 65 locations, respectively, located outside North America and the majority of those are in Japan.

"We are committed to growing sales in our global brands, anchored in regaining market share in our largest market, North America, and continued growth in China," a Gap spokeswoman said.

For the first quarter, the company forecast a per-share profit of 31 cents to 32 cents, below market expectations of 44 cents a share. The company said its Gap brand comparable sales fell 3%, while Banana Republic dropped 11% and Old Navy fell 6%. Total sales for the quarter fell to $3.44 billion from $3.66 billion, below analysts' expectations of $3.54 billion.

Write to Josh Beckerman at josh.beckerman@wsj.com and Khadeeja Safdar at khadeeja.safdar@wsj.com

Write to Josh Beckerman at josh.beckerman@wsj.com

Corrections & Amplifications: Gap's forecast for first-quarter earnings is 31 cents to 32 cents. An earlier version of this article misstated the forecast as 31 cents.

(END) Dow Jones Newswires

May 10, 2016 02:49 ET (06:49 GMT)

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