Distribution Center Fire And Old Navy Drag Down Sales In November For Gap Inc.

December 6th, 2016 by Trefis Team
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Apparel retailer Gap Inc. (NYSE:GPS) posted soft comparable store sales for the month of November. Further, net sales of $1.53 billion fell 2.5% on a year-on-year basis, over the same period last year. This is somewhat disappointing, given the expected robust e-commerce growth from the Black Friday weekend, and a more favorable macro backdrop to consumer spending. The decline was the result of an unexpected fall in sales at Old Navy, the only division that had been performing well for the company, and the negative impact of the fire at its Fishkill distribution center in the summer.

Gap November Sales

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The retailer posted a 1% fall in same store sales in November, although this was better than the 8% drop in the same month last year. The company estimates a negative impact of three percentage points as a result of the fire at its distribution center. The company also stated that a majority of the fire-related impact in the fourth quarter occurred during the month, and hence in the rest of the quarter, the comps should not have such a heavy impact. By brand, comps fell 3% at Gap Global, and a positive 1% if the fire impact is excluded. At Old Navy, the metric slipped 2%, with a one percentage point impact from the fire. Banana Republic, which has been the weak link for the company in recent times, reversed its trend of posting negative comps, with a 5% rise in November, and an 8% growth if the negative impact from the distribution center fire is not included. Moreover, when compared with a 19% fall in the same month last year, the performance of the brand has been quite impressive. This growth in the brand has been a result of a positive customer response to its latest product assortments.

Banana Republic & Gap Inc. Comps

Sabrina Simmons, chief financial officer at Gap Inc., stated that while November traffic trends were challenging, they improved as the month progressed. This is encouraging for the remainder of the quarter, with the company focused on executing its holiday plans. Given that the impact of the Fishkill fire will subside as the quarter wears on, the hopes of a turnaround may finally be in the cards.

The company’s distribution center in Fishkill, New York primarily held Gap and Banana Republic products for distribution to stores, and fulfilled online orders for Gap and Old Navy in the Northeast region of the United States. In its aftermath, the company has taken a number of steps to mitigate the overall impact to the business. This includes utilizing the company’s other distribution centers in North America, and rerouting the inbound freight, intended for the Fishkill distribution center, to other centers. Gap has also constructed a temporary fulfillment center at the Fishkill campus, which has begun processing orders.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Gap Inc.
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