Gap underwhelms as Q3 profit, sales drop

Gap Inc. delivered another weak quarter as store closures outside of North America impacted its profitability and sales continue to slump at its namesake and Banana Republic divisions.



The retailer earned $204 million, or 51 cents per share, in the quarter ended Oct. 29. That compares with $248 million, or 61 cents per share, last year. Adjusted results were 60 cents per share, which matched estimates from FactSet.



Gap noted that its results were impacted by the August fire at its Fishkill, N.Y. distribution center. Total same-store sales in the quarter were down 3%, including an estimated negative impact from the fire of approximately 2 percentage points. By brand, comp sales were down 8% at both Gap and Banana Republic. Old Navy posted a 3% increase.



Total company revenue decreased 2% to $3.8 billion.



Gap CEO Art Peck remains upbeat.



“I’m pleased to see improved product across our brands, as well as areas of healthier merchandise margins, even against the backdrop of challenging traffic trends during the quarter,” he said. “As we move into the holiday season, our teams are sharply focused on execution and delivering great experiences across the portfolio.”



Some industry experts, however, offered a critical take on the quarter.



“This is a company in a tail-spin with no real clue how to pull out of it,” said Neil Saunders, CEO of Conlumino. “Over a two year period, third-quarter net income is down by 40%. These are serious declines which puts Gap on a trajectory where it will eventually run out of financial head-room to engineer changes and reinvent its business.”



Gap ended the quarter with 3,742 stores in 50 countries, of which 3,281 were company-operated. It opened 36 and closed 28 company-operated stores in the quarter.



Gap said it now expected to close about 65 company-operated stores this year, up from its previous forecast of about 50 stores.