Gap stumbles in Q2 amid what CEO calls ‘challenging environment’

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Gap stumbles in Q2 amid what CEO calls ‘challenging environment’

By Marianne Wilson - 08/23/2019
Gap Inc. turned in a disappointing second-quarter performance as sales fell across all its banners.

Net income fell to $168 million, or $0.44 cents per share, from $297 million, or 76 cents a share, in the year-ago period. Excluding one-time items, the company earned $0.63 cents a share, beating Street expectations of $0.53.

Net sales fell 2% to $4.0 billion, missing estimates of $4.2 billion. Total comparable sales were down 4%, compared with a 2% increase last year.

By brand, same-store sales fell 7% at Gap and 3% at Banana Republic. In a surprising drop, same-store sales fell 5% at Old Navy, which has been driving the company’s growth in recent quarters as its strongest performing division.

“We are operating in a challenging environment, but I remain confident in the strength of our brands and our plans for the future as we work to launch two independent, public companies,” said Art Peck, president and chief executive officer, Gap Inc. “Heading into the second half of the year, we remain highly focused on inventory and expense discipline to improve results, as well as delivering exceptional product supported by powerful marketing to drive customer engagement.”

The company continues to expect to close about 30 company-operated stores, net of openings and repositions in fiscal year 2019. The guidance also includes about 130 closures (as previously announced) related to the Gap brand fleet restructuring, the majority of which are expected to close in the fourth quarter of fiscal 2019. The company continues to expect store openings to be focused on Old Navy, Athleta and Gap China locations.

Gap it now expects to earn a profit of between $1.88 and $2.08 per share in its current fiscal year, down from a prior range of $2.04 to $2.14 a share. It estimates overall same-store sales for fiscal 2019 to be down low-single digits.

“Heading into the second half of the year, we remain highly focused on inventory and expense discipline to improve results,” Peck said.

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