Gap's Q3 earnings slip; trims Q4 forecast

20 Nov '15
3 min read

It is a winter of discontent for American multinational clothing and accessories retailer Gap. The company has warned that a grim third quarter was going to bleed into an even more difficult fourth. It trimmed its earnings forecast for the year, and its shares dropped 6 per cent in after-hours trading, according to an agency report.

Gap's shares have plunged 40 per cent so far this year. On the earnings call, Gap CEO Art Peck said, “The company knows what its problems are and that we should expect better Gap and Banana Republic products this Spring.” But consumers may not wait around to find out.

For the third quarter of fiscal year 2015, Gap Inc.'s net sales decreased 3 per cent to $3.86 billion compared with $3.97 billion for the third quarter last year, Gap said in a press release. Gap's comparable sales for the third quarter of fiscal year 2015 were down 2 per cent against a similar decrease last year.

While Gap's global sales were a negative 4 per cent against -5 per cent last year, Banana Republic's global sales were a negative 12 per cent against flat sales figure last year while Old Navy's global sales rose 4 per cent against a one per cent rise last year.

Gap has been hit by high-profile departures at its subsidiaries including those of Stefan Larsson, the Old Navy brand president who went on to become CEO of Ralph Lauren, and Marissa Webb, the creative director of Banana Republic, who lasted just 18 months. Those departures have raised questions about the company's strategy,

While sales at Banana Republic stores have declined for eight of the past nine months with October sales down by 15 per cent from the year before, sales at its Old Navy stores have kept growing.

The gap between the two reflects a bifurcation seen throughout retail. Shoppers are either flocking to lower-end chains or higher-end luxury brands, while mid-line retailers get squeezed. Customers are now so trained to seek out discounts and off-price retailers for wardrobe essentials like jeans or black blazers that they no longer bother with traditional, mall-based fashion store chains, if all they are selling are basics that can be found elsewhere for cheaper, the repport said.

At Old Navy, Larsson figured out how to give personality to a brand that had grown boring. He kept the clothes cheap, but gave shoppers a reason to go there, with items like fashion jewelry and athletic wear that mimicked Lululemon's designer yoga pants and bra-tops, at a fraction of the price.

In contrast, Banana Republic hasn't been able to bring its plain-vanilla work wear more fashion-forward. It's lagging behind competitors like H&M and Zara, which are churning out fashionable styles more quickly and cheaply. Banana Republic started out as a way for Gap to serve a market looking for affordable luxury. Now it's neither affordable enough for the lower end of a divided market nor luxurious enough for the higher end. (SH)

Fibre2Fashion News Desk – India

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