Blog: Leonie BarrieGap in recovery mode?

Leonie Barrie | 23 May 2008

Signs of a long-awaited turnaround may finally be starting to show at US retailer Gap Inc – and ironically its good news comes at a time when many of its competitors are struggling to make any headway of their own against the consumer slowdown.

A focus on managing costs and controlling inventory has helped the US’ largest specialty clothing retailer to a 40% jump in first-quarter profit to $249m, and led to speculation that the firm may finally have turned the corner under CEO Glenn Murphy who will have been at the helm a year in July.

But there are also concerns that while this strategy has worked up to now, costs may well have been pared back as far as they can. Earlier this year Gap said it planned fewer new stores (down to 100 shops worldwide compared with 214 last year) and reductions to the size of many existing outlets, as well as cuts to its advertising budget.

Falling sales continue to be a thorn in the retailer’s side, with a 5% drop in the quarter to $3.38bn. Old Navy is its biggest problem on this front, with same-store sales in the quarter down 18%. This compares to a drop of 7% at Gap, 4% at Banana Republic, and a 5% drop in international sales.

But the company also needs to make progress on the product side, and even though it has hired designers Todd Oldham and Patrick Robinson to help revamp merchandise at Gap and Old Navy, it remains to be seen whether their input will help to draw core customers back to the stores. On the basis of the results from some of its rivals this week, it’s probably also wise to question whether shoppers are going to be running to any specialty clothing stores over the coming year.

US: Gap Q1 profit rise of 40% outstrips expectations


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