ANALYSIS: CEO frustrated by Gap's fluctuating fortunes
Gap has focused on its revamped 1969 denim range
Even though Gap Inc managed to beat second-quarter earnings forecasts with the help of higher revenues at its Old Navy and Banana Republic chains, the retailer's boss admits to being "disappointed" that sales at its namesake chain continue to run below par.
Speaking on a conference call with analysts yesterday (19 August), chairman and CEO Glenn Murphy revealed that same-store sales at the chain were down 4% in the quarter - well below the 1% rise in comps across the company as a whole.
"I was disappointed in our inability to generate the sales that we had expected to generate in the second quarter," he said.
One of the missed opportunities, he confessed, was "not enough tops in the business" after the retailer focused instead on its revamped 1969 denim range and a new and improved range of black trousers being launched for autumn.
"While we made the strategic investment in bottoms, we did not leave ourselves enough room on tops," he said. Specifically, "we just didn't have the right tops."
He also promised "a slight improvement in October, a little better coming into holiday and definitely better in spring," in part due to a change late last year that put Patrick Robinson in charge of total global Gap design, with an international design team based in New York and trend managers on the ground, who between them assemble the global range.
Not only does the move ensure continuity of the brand around the world but also leads to the creation of "one line that our merchants around the world can buy from." The upcoming autumn and holiday lines will be the first for this team.
The retailer also warned that its investment in key categories this autumn - including uniform at Old Navy, denim at both Old Navy and Gap, and the launch of premium black pants at Gap - is leading to higher inventories.
Inventory dollars at the end of the second quarter were up 11% to $1.6bn - a rise of 12% per square foot. This compares to down 14% in 2009 and down 17% in 2008. The accompanying concerns, of course, are that if sales don't reach projected levels it could be forced into deeper discounting to clear stock.
"We expect inventory per square foot at the end of Q3 to be up in the high single digits," explained CFO Sabrina Simmons. She added: "It has always been our intention that following these initial fall inventory buys, inventory levels would come down over time."
There's no doubt Murphy continues to be frustrated by Gap's fluctuating fortunes.
Gap "definitely have corrective measures they can take to get the business positioned the way we expect it to be to deliver the growth that we planned for," he said.
"It's going to be a little lumpy when it comes to Gap brand given the seven-year history we've been dealing with...and maybe for now a two step forward, one step back quarters is something that from a patience perspective I'm willing to live with.
But he warned: "I see some definite improvement coming...[but] my patience is not indefinite."
Click here to see Gap Inc's second-quarter results.
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