Gap Profit Falls Amid Revamp of Flagship Brand

The retailer's new CEO is still confident his strategy to fix the Gap stores will improve financial performance.
Katie Kuehner-HebertAugust 21, 2015

As it continues to revamp its flagship brand, Gap has taken a 30% tumble in second-quarter earnings, with same-store sales dropping 2%.

The San Francisco retailer said net income fell to $219 million, or 52 cents per share, in the second quarter ended Aug. 1, from $332 million, or 75 cents per share, a year earlier. Excluding the negative impact from strategic moves including lease buyouts, asset impairments, and employee-related costs, adjusted diluted earnings per share were 64 cents, meeting analysts’ estimates.

“I remain confident in our strategies to improve business performance and drive loyalty going forward,” Gap CEO Art Peck said in a news release. “Our evolving product operating model is laying the foundation to more consistently deliver on-trend product collections across our portfolio.”

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Peck, who took over as chief executive in February, has focused on fixing the Gap brand, closing underperforming stores and trying to bring clothes to stores quicker.

As Reuters reports, the brand has been hit by a series of fashion misses, particularly in women’s merchandise, that have turned shoppers away from Gap toward competitors such as American Eagle Outfitters, Urban Outfitters, H&M, Forever 21 and Zara.

“Analysts have said the Gap brand needs to focus on clothing that is more feminine instead of relying on basics such as skirts, dresses, jeans, t-shirts and shorts,” Reuters noted.

For the Gap stores, second-quarter comparable sales were  down 6%, while the Banana Republic chain experienced a 4% drop. The bright spot was the lower-end Old Navy brand, which posted 3% growth in comparable sales.

Gap shares were down nearly 3%, at $32.67, in trading Friday. The stock had dropped 20% this year through Thursday’s close.