Gap has slowed the pace of its decline but Q2 sales continued to tumble

Gap has slowed the pace of its decline but Q2 sales continued to tumble

Gap Inc's overall pace of decline has moderated since last quarter but sales continued to fall in its second-quarter, with US revenue declines worse than last year, weighed down by a heavy fall in sales at its Banana Republic brand. 

Foreign currency fluctuations negatively impacted earnings for the US speciality clothing retailer in the three months to the end of July, which slumped to US$125m from $219m a year earlier. 

CEO Art Peck expressed dissatisfaction with the results, despite the company taking "critical steps" to executive its restructuring plans and build a more efficient brand. Despite this, he pointed to "signs of progress" in the quarter thanks to healthier merchandise margins.  

Net sales in the period fell to $3.85bn from $3.90bn in the year ago period, while comparable store sales were down 2% from a 2% decline last year. For the Gap brand, comparable sales slid 3%, and for the Banana Republic brand, sales fell 9%. Old Navy sales remained flat versus a 3% increase in the year ago period. 

Sales for Gap in the US were down nearly 2% to $2.97bn, while Europe sales fell 10.2% to $176m. Asia sales declined 8.4% to $375m. 

The company updated its reported diluted earnings per share guidance for fiscal year 2016 to be in the range of $1.37 to $1.47.

Gap has been repositioning itself for long-term growth with more of a focus on "geographies with the greatest potential", in addition to streamlining its operating model. As part of this effort, Old Navy will be shifting focus to markets most favourable to the brand's growth, which will result in the closure of its fleet of 53 stores in Japan this year.  Additionally, Gap expects to close select dilutive Banana Republic stores, primarily internationally, this year.

Gap to close 75 stores amid "disastrous" Q1

Neil Saunders, CEO of Conlumino, noted: "Although we believe that the company is serious about creating a step change at its main brand, and while we think the fall "#DoYou" campaign and its associated merchandise represent a small step forward, we remain largely unconvinced that Gap has done enough to correct the problems in its business.

"We retain our view that Gap Inc. is a troubled retailer without much of a plan – a plan that is desperately needed as its net profit decline of 43% in this quarter aptly shows."

Earlier this month, Gap reported a 4% decline in July comparable sales that missed analyst estimates, while net sales in the period dropped to $1.1bn from $1.12bn.

Gap shares tumble on July sales decline