Gap to close net 30 stores this year, misses on Q1 earnings

Gap Inc. fell short of Wall Street expectations during the first quarter of fiscal 2019 as it moves ahead with plans to reduce its store count.

Gap reported net sales of $3.71 billion, down 2% from $3.78 billion in the first quarter of fiscal 2018 and short of analyst predictions of $3.77 billion. Adjusted earnings per share came in at $0.24, while analysts had expected EPS of $0.32. Same-store sales were down 4%, compared to a 1% increase in the prior year period and an expected 1% decrease.

Looking at same-store sales by banner, Old Navy global same-store sales fell 1%, compared to 3% growth a year earlier. Gap global same-store sales declined 10%, compared to a 4% drop in Q1 2018, and Banana Republic global same-store sales decreased 3%, compared to 3% growth in the prior year period.

Gap now expects to close about 30 company-operated stores, net of openings and repositions, in fiscal year 2019. The updated guidance reflects about 10 additional store openings for both Old Navy and Athleta. This guidance also includes about 130 closures related to the Gap brand fleet restructuring, the majority of which are expected to close in the fourth quarter of fiscal 2019. The company expects store openings to be focused on Old Navy, Athleta, and Gap China locations.

Gap also expects about $100 million of expansion costs related to a headquarters building and a buildout of its Ohio distribution center.

Looking ahead financially, Gap updated its reported diluted earnings per share guidance for fiscal year 2019 to be in the range of $2.04 to $2.14. The company expects its as adjusted diluted earnings per share to be in the range of $2.05 to $2.15. Gap now expects same-store sales for fiscal year 2019 to be down low single digits.

“This quarter was extremely challenging, and we are not at all satisfied with our results. We are committed to improving our execution and performance this year,” said Art Peck, president and chief executive officer, Gap Inc. “We remain confident in our plan to separate into two independently traded public companies in 2020, and we are focused on setting up both companies for long term value creation and profitable growth.”

Gap ended the first quarter of fiscal year 2019 with 3,849 store locations in 44 countries, of which 3,335 were company-operated.

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