Gap Sales Miss Estimates, Underscoring New CEO’s Challenge

Gap Inc. reported second-quarter comparable sales and revenue that missed the average analyst estimate, underscoring ongoing weakness at the retailer’s four brands.

(Bloomberg) — Gap Inc. reported second-quarter comparable sales and revenue that missed the average analyst estimate, underscoring ongoing weakness at the retailer’s four brands.

The results come three days into Chief Executive Officer Richard Dickson’s tenure, who joined the company from Mattel Inc. after his success with the Barbie franchise. While Dickson has yet to lay out a vision for the future of Gap, he’s expected to bring stability to a company that has faced leadership upheaval in recent years amid prolonged weakness.

Read More: Gap Turnaround Depends on CEO With Barbie Past and Mixed Results

“We have to do things differently, with a clear focus on redefining our brands’ meaning to consumers, focusing on creativity, designing for relevance as a pursuit rather than a goal, and leveraging our remarkable legacy,” Dickson said in a statement.

Comparable sales fell 6% across Gap’s four brands in the second quarter, a third consecutive drop. That was due mostly to large declines at Old Navy, Banana Republic and Athleta. Net sales also narrowly missed the average estimate. 

Inventories fell 29% from a year ago, suggesting that Gap continues to make improvements to its assortment after facing an inventory pileup last year.

Sales at Old Navy, Gap’s largest segment, were pressured by “softness in the active category as well as continued slower demand from the lower-income consumer,” the company said.

Athleta, which in recent years had supported the company’s growth, faced “product acceptance challenges,” Gap said in its statement, adding it has taken actions to improve performance. The brand appointed Chris Blakeslee, a former executive at the buzzy activewear company Alo Yoga, as its CEO last month.

“Restructuring is challenging, and change of this magnitude doesn’t come fast,” Dickson said on a call with analysts. “This time we’ll do it differently, with a clear focus on brand revitalization.”

Earnings per share, excluding some items, were 34 cents, compared with the average analyst estimate of 10 cents. For the full year, Gap now expects net sales will decrease in the mid-single digit range from a year earlier. The company sees third-quarter sales down in the low double-digit range, in part due to the sale of Gap China earlier this year.

The shares climbed 1.5% at 6:04 p.m. in late trading in New York after posting declines earlier, inching higher as Dickson spoke on the conference call. 

Chairman Bob Martin, who has served as interim CEO, executed a restructuring plan that’s expected to save $300 million in annual expenses. But reinvigorating Gap’s brands will take more than cost savings. Investors will be watching closely for details of Dickson’s turnaround plan in the coming quarters as he settles into the top job.

“Gap isn’t in a good place,” Neil Saunders, managing director at GlobalData Plc, said in a note. “It means the new CEO will have a baptism of fire as he starts the long hard slog of trying to restore a once iconic company to its former glory.”

Gap’s report follows mixed results from other apparel retailers. While department stores including Macy’s Inc. and Kohl’s Corp. also showed sales declines, specialty stores like Abercrombie & Fitch Co. and Urban Outfitters Inc. have held on to shoppers and reported sales growth.

(Adds CEO comment from earnings call and analyst quote. An earlier version of this story corrected the financial metric that missed estimates in the headline.)

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