Has Gap finally turned its business around?
Looking at the latest quarterly results — a two percent gain in overall sales — you would be hard pressed to conclude that Gap Inc. is on a roll. But Gap CEO Art Peck believes the recent gains plus trends favoring his company will add up to more positive results going forward.
Speaking on yesterday’s earnings call, Mr. Peck, who is his second year as CEO, said he and his team “underestimated the magnitude and speed of the changes taking place” in the apparel market. Despite that, Mr. Peck also said he was “pleased” with Gap’s progress in a market that has gone through “significant disruption.”
As to the numbers, Gap’s fourth quarter positive sales performance compared to a seven percent decline last year. For the year, the company saw its same-store sales decline two percent compared to a four percent drop in 2015.
Old Navy remained the strongest performer among Gap chains. The company’s comps improved one percent compared to flat in 2015. The chain gained market share in categories including denim, dresses and knits.
The Gap chain’s comp sales declined three percent in 2016, up from minus six percent the year before.
Banana Republic’s comps, while also still negative, showed some improvement year-over-year. The chain’s 2016 final tally was down seven percent compared to negative 10 in 2015.
Mr. Peck said that the disruption taking place in the market should work to Gap’s favor. The company’s “structural advantages” in terms of size and scale along with improvements it has made on “product and experience” present the company with “a significant opportunity to consolidate and gain market share.”
He pointed to progress the company has made in the supply chain by cutting development cycles for many categories of products from 10 months to eight to 10 weeks. “Time,” Mr. Peck said, “is the enemy in this business.”
Mr. Peck said the company is converting its retail distribution centers to handle consumer direct fulfillment, as well. He said the retail DCs “are not fully utilized” making it possible to bring both functions under one roof without having to invest in added space.
- Gap Inc. Reports Fourth Quarter and Fiscal Year 2016 Results – Gap Inc.
- Gap (GPS) Q4 2016 Results (Earnings Call Transcript) – Seeking Alpha
DISCUSSION QUESTIONS: What do you see as positives working in Gap Inc.’s favor going forward? What are the challenges facing the company?