Gap’s Sales Slump Continues In The Third Quarter

Gap Inc. (NYSE:GPS) recently reported its October sales, wherein it reported a 1% drop in same-store sales for the month, citing a negative impact of three percentage points from the August fire in one of its distribution centers. What is encouraging for investors is that the fall in comps was primarily caused by the fire, and if that event had not occurred, the company would have reported a positive 2% growth in same-store sales. The third quarter sales fell slightly to $3.8 billion from $3.86 billion in the third quarter of the previous year.

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There are signs the company may finally be on the road to recovery, with promising results posted in the month. It is also a second month in a row when the company has posted encouraging results. In September, Gap had stated its comparable sales fell 3%; however, if the negative impact of the fire, which occurred in a building on its Fishkill, New York distribution center campus, are excluded, it would have resulted in a flat performance. Old Navy has continued with its streak of positive comps, with 3% reported in the month. Once this figure is adjusted for the fire’s impact, it would translate to a 4% growth in same-store sales. Even Banana Republic improved on its previous performance, with -4% comps reported, a flat performance if the fire impact is excluded. The one positive to come out of the distribution center fire was the gross margin and merchandise margin improvement, with more full-price selling and less inventory as a result of the Fishkill losses.

The Banana Republic brand is banking on its collection co-signed by fashion personality Olivia Palermo, their newly hired global style ambassador, to help pull itself out of a rut. The collection, which debuted at the New York Fashion Week, went on sale online alongside the presentation, in continuation of their see-now-buy-now strategy. Like other mall-based retailers, the company is being hurt by the declining foot traffic, and a shift in consumer spending towards travel and experiences, rather than on clothing. The retailer’s strategy of never-ending discounts has also trained customers to avoid buying at full price. In its earnings call in May, CEO Peck acknowledged the damage done to the Banana Republic brand by its excess promotions. The company has now tightened its promotions, and instead of discounts, the brand is offering its limited-edition collection with Palermo in order to attract more customers.

Gap is also bullish on the long term opportunity in China, despite the slowdown in the economy. The Gap specialty and factory stores continue to resonate well with the consumers, and the online business has very attractive economies. However, in general, and particularly in the US, the retail environment continues to be challenging, with slowing traffic. The company is undertaking a number of steps, including holiday campaigns, to continue the improvement of the business. Earlier in the year, the company had announced the closing down of 140 of its 675 North American stores, and the shedding of 250 corporate jobs by the end of the fiscal year (ended January).

Have more questions about Gap Inc? See the links below:

• Distribution Center Fire To Play A Dampener On Gap Inc.’s Earnings
• Gap Inc.’s Stock Rises Despite A Fall In October Sales
• How Gap Inc. Is Cashing In On The Athleisure Trend
• Banana Republic To Shutter Its UK Stores Amid A Sales Slump
• Gap Inc. Shares Soar Despite A Fall In Sales
• How Is Gap Expected To Perform In 2016?
• Gap Reports Yet Another Month Of Declining Comparable Sales
• Can Old Navy Win The Back-To-School Market?
• What Are The Problems Plaguing Gap Inc.?
• Gap Reports A Weak Outlook For FY 2016
• Fall In Sales To Weigh On Gap In The Second Quarter
• After Positive Results In June, Gap Returns To A Sales Decline
• Are There Signs Of A Turnaround At Gap, Or Is It Just A Blip On The Radar?
• Are Gap Inc’s Earnings Volatile?
• What’s Gap Inc’s Revenue & Net Income Breakdown In Terms Of Different Brands?
• By How Much Did Gap Inc’s Revenue & EBITDA Grow In The Last Five Years?
• What Is Gap Inc’s Fundamental Value Based On Expected 2016 Results?
• By What Percentage Can Gap Inc’s Revenues Grow Over The Next Three Years?
• How Are Gap Inc’s Old Navy Revenues & Earnings Expected To Grow Over The Next Five Years?
• How Are Gap Inc’s Banana Republic Revenues & Earnings Expected To Grow Over The Next Five Years?
• How Much Revenues Can Gap Inc’s Athleta Brand Add By 2020?

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