Gap Inc. ends tough year with some gains amid more exec changes; may close flagships

Gap Inc. ended a disappointing year on a slightly upbeat note with fourth-quarter results that topped Street estimates. It also is making more leadership changes and is considering closing some flagships, including its locations in Times Square.

On March 6, the struggling retailer named Sonia Synga, current chief executive of Old Navy, as CEO of Gap Inc., effective March 23, succeeding Art Peck, who abruptly left last November. The company also named board member Bobby Martin as executive chairman, succeeding Bob Fisher, who has been serving as interim CEO since Peck’s departure. 

In newly announced changes, Katrina O’Connell, CFO of Old Navy, will become Gap Inc.’s CFO, succeeding Teri List-Stoll who has served in the role since January 2017. List-Stoll will remain with the company for several months to ensure a smooth transition. Also, Nancy Green will step up to lead Old Navy while the company searches for a permanent president and CEO of the brand.

Gap reported a net loss of $184 million, or a loss of $0.49 per share, for the quarter ended Feb.1, compared with net income of $276 million, or 72 cents a share, in the year-ago period. Excluding the charges, Gap earned $0.58 per share during the quarter, better than the $0.41 cents analysts had expected.

The retailer recorded an impairment charge of $296 million during the quarter related to the store assets and operating lease assets of its flagship stores. Specifically, Gap said it has started to consider closing or subleasing some of its flagships, including the Gap and Old Navy flagships in Manhattan’s Times Square, “given their declining importance as marketing and brand awareness tools.”

Net sales climbed about 1% to $4.67 billion, topping the $4.55 billion analysts were expecting.

Same-store sales (including) fell 1%, not as much as analysts were anticipating. By brand, same-store sales at Old Navy and Banana Republic were flat. Same-store sales rose 2% at Athleta and dropped 5% at Gap. 

For all of 2019, net income fell to $351 million, from $1 billion in the previous year. Sales fell 1% to $16.4 billion. Same-store sales were down 1%.

“While fiscal 2019 was a challenging year, I am proud of our teams and their commitment to Gap Inc.,” stated Fisher. “Thanks to their efforts, we began to see stabilization in our business in the fourth quarter, driven primarily by improvement in Old Navy’s performance. The current environment presents new challenges, but I am confident in Sonia’s leadership and her ability to deliver the transformational change required.” 

Gap expects 2020 same-store sales and net sales in fiscal 2020 to be down low-single digits.

The company also said “it is not currently possible” to quantify the impact that the coronavirus will have on its business in 2020 -- with the exception of approximately $100 million in sales (or $0.10 in earnings per share)  for the first quarter impact in Asia and Europe. 

“Due to the evolving coronavirus situation, we are facing a period of uncertainty regarding the potential impact on both our supply chain and customer demand,” said Syngal. “During our 50-year history, Gap, Inc. has weathered many storms. We will benefit from our strong balance sheet and cash generation as well as our important vendor relationships during this current challenging period.