Even Old Navy Sales Are Down as Gap Continues to Struggle

Plans are still underway to separate Old Navy in 2020.
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Photo: Drew Angerer/Getty Images

Photo: Drew Angerer/Getty Images

Gap, Inc. is not off to a good start this year. For the first quarter of 2019, the company's comparable sales were down 4 percent and net sales down 2 percent. By brand, they were down 10 percent at Gap, 3 percent at Banana Republic and 1 percent at Old Navy. While declines have unfortunately become expected at Gap and Banana Republic, Old Navy is usually a bright spot on the company's earnings report — but not this time.

"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., in a statement. "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." It won't happen quickly, though: The company reduced its outlook for fiscal 2019, and now expects comparable sales for the year to see a low single-digit decline, suggesting we won't see any significant improvement over the next three quarters.

Peck and CFO Teri List-Stoll spent much of the call blaming all three brands' poor performance on the weather. February was cold and wet, and shoppers weren't able to find the "wear now" products they wanted from the spring collections that were on shelves at Gap, Banana Republic and Old Navy. They didn't blame everything on external forces (or "macro" trends, per industry speak) though: Peck admitted the company "missed opportunities" and recognizes that consumer needs are changing, which, he explained, is part of the reason for the plans to spin off Old Navy into its own company. "The needs of specialty [Gap, Banana Republic] and value [Old Navy] customers are diverging," he said.

Fortunately, things at Old Navy weren't all bad. Store traffic was flat, but online traffic and sales increased. Plans are still underway to open 70 new Old Navy stores this year; there are also plans to open 25 new Athleta stores. At Gap though, an "aggressive store closure" plan is on track, and a big marketing push around back-to-school is in the works. According to Peck, the company plans to "reinvest" in the kids and baby categories as he feels there is plenty of market share that's up for grabs.

While sales are sure to be slow, it's going to be a busy year for the company as it tries to get back on track and prepares for the separation of Old Navy. 

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