Gap narrows Q1 loss amid cost cutting as sales decline; still looking for a CEO
Gap Inc. put a big dent in its net loss from a year ago even as sales fell across its four brands.
Despite the sales declines, the retailer said it is making progress as it works to restructure and turnaround its business. In April, the company said in a SEC filing that it plans to reduce its headquarters and “upper field” workforce by approximately 1,800 employees. The cuts come after Gap eliminated roughly 500 corporate jobs in September. The retailer has also closed hundreds of namesake stores during the last three years. Decreasing supply chain costs have also helped the bottom line.
On the earnings call, executive chairman and interim CEO Bob Martin, said that Gap’s balance sheet is strong, with 40% more cash. Inventory is down by 30%.
“Consistent with what you’ve heard from us over the last few quarters, we continue to take the necessary actions to drive critical change at Gap Inc., to further improve the trajectory of our business and to get us back on a path to delivering consistent results,” Martin told investors.
Martin has been serving as interim CEO since last July, following the abrupt departure of Sonia Syngal. On the call, he said Gap’s search for a permanent CEO continues.
“When I took the role of interim CEO in July, I did not expect to still be speaking to you in our first-quarter earnings call,” said Martin. “But this only underscores how strongly the board is committed to appointing the right person as our next CEO, one that has passion, strong vision and customer obsession that will take this company forward.”
Gap’s net loss narrowed to $18 million, or $0.5 per share, for the quarter ended April 29, from a loss of $162 million, or $0.44 a share, in the year-age period. On an adjusted basis, earnings totaled $3 million, or $0.1 per share. Analysts had expected a loss of $0.16.
The company’s operating loss totaled $10 million, down from a loss of $197 million in the year-ago period.
Sales fell 6% to $3.28 billion, missing estimates of $3.29 billion. Comparable sales were down 3% and store sales fell 4%. Online sales decreased 9%, and accounted for 37% of total net sales.
Here is the breakdown of sales by banner.
•Sales at Old Navy, which accounts for the majority of Gap’s revenue, fell 1% to $1.8 billion and comparable sales down 1%.
•Sales at Gap fell 13% to $692 million, with a. 1% increase in comp sales.
•Sales at Banana Republic fell 10% to $432 million in sales.
•Sales at Athleta fell 11% to $321 million, and comparable sales were down 13%.
Gross margins increased by 5.6 percentage points to 37.1% compared to the year-ago quarter amid lower air freight expenses and less discounting. (In Gap’s most recent fourth quarter, margins were 33.6%.)
We continue to take the necessary actions to drive critical change at Gap Inc., ultimately getting us back on a path toward delivering consistent results long-term,” Martin stated in the earnings release. “The need for lasting change is permeating the organization and I want to express my gratitude to our employees for embracing a new operating model and organizational structure, a renewed focus on our customer, and for their continued belief in our incredible brands.”
The company plans to open a net 25 to 30 Old Navy and Athleta stores in its current fiscal year, a third of which will be Old Navy. It expects to close 50 to 55 Gap and Banana Republic locations, more than half of which will be Gap.
Gap Inc. ended the quarter with 3,453 stores around the world, of which 2,601 were company operated.