Gap’s Q3 income plunges amid falling sales; Old Navy spin-off plans move forward

Gap Inc.’s problems continued in the third quarter amid disappointing performances across all three of its divisions.  

“This is a pivotal time for the company,” said Robert J. Fisher, during the company’s quarterly earnings call. Fisher, son of the founding family of Gap, was named interim president and CEO earlier this month following the departure of Art Peck. “Taking on the role is incredibly important to me. I’ve gained a deep understanding of the company’s operations and the retail space. I am approaching the role with a clear view of where we are and where we need to go. Clearly, the company is pressured by uneven execution.”

During the call, and in a prepared statement, Fisher made it clear that the departure of Peck would not alter Gap’s plans to spin off its value-oriented Old Navy division, saying that he and board continue to believe “in the strategic rational of the separation.”

“We continue to make progress against our separation plans, which will provide improved focus and a further catalyst for transformation,” Fisher said in his statement. 

Gap also announced that it plans to exit Old Navy from China in early 2020, focusing instead on “under-served” North American markets.

The retailer had advised earlier this month that it was expecting poor results, and its earnings and sales topped the Street’s lowered expectations. But there was no sugar-coating the dismal results. The company’s net income fell to $140 million, or $0.37 a share, in the quarter ended Nov. 2, from $266 million, or $0.69 cents per share, in the year-ago period. Excluding one-time items, Gap earned $0.53 cents per share, topping the $0.51 analysts had expected.

Net sales dropped to $4.0 billion from $4.09 billion a year ago, beating expectations for $3.96 billion.

Total same-store sales were down 4%. By global brand, same-store sales fell 7% at Gap, 4% at Old Navy and 3% at Banana Republic.

During the call, Fisher acknowledged the challenges that the company’s namesake brand faces as it moves forward.

“Significant improvement is required, a lot of transformation is going on and will continue with urgency,” he said.