In the wake of the departure of former CEO Art Peck amid sluggish sales, Gap Inc. reported that fiscal year 2019 comparable sales were down 4 percent versus flat last year. Gap Global’s same-store sales dropped 7 percent from the prior year, while sales dropped 4 percent for its Old Navy Global and 3 percent for its Banana Republic Global.
Executive Vice President and Chief Financial Officer Teri List-Stoll said Q3 was a “challenging quarter” and traffic remained soft across the company’s brand with continued product acceptance challenges, particularly Old Navy. The company was not pleased with Old Navy’s performance, but “we entered the quarter knowing we would face headwinds particularly around traffic,” List-Stoll said. She noted that the company identified opportunities for better execution, particular when it comes to merchandising and marketing.
It has added a new chief creative officer role. And, while the full vision of the new executive will not be likely realized until 2020, List-Stoll noted that a strong bench of creative talent has been working hard at incorporating third-quarter learnings into holiday plans. Going forward, “we have an opportunity to better execute on Old Navy’s unique value equation and positioning,” she said, with style, fit, quality, price, all working in balance.
The executive also noted, “We believe that we are better positioned for the holiday season given that we were able to fully infuse key learnings and insights from holiday 2018 into our plans.” List-Stoll did note, however, that marketing has been too heavily dependent on messaging around discounting instead of brand messaging focused on value as well as product that resonates with the brand’s consumer.
For the fourth quarter, the company recalibrated its messaging to focus on product stories, “highlighting some of our big design ideas” for the holiday. The company has also increased its marketing investments with new partnerships and campaigns. Earlier in the month, it rolled out a holiday TV campaign with Neil Patrick Harris. List-Stoll said early test results had been some of the most positive the firm has seen for its celebrity-led campaigns.
The company is also a retail partner for Netflix’s first-ever animated holiday movie “Klaus.” The partnership includes character-inspired products, in-store activations and augmented reality (AR) experiences that will bring the movie to life to those who shop at Old Navy stores. When it comes to The Gap, the team keeps focusing on profitability, primarily via improved product assortment and inventory composition as well as reduced promotional activity.
During the quarter, the brand reduced the number of all-box discount events in store and online versus last year. The brand converted to more flexible promotional messaging, focusing on an up-to a certain percent off as opposed to blanket promotions on all products. List-Stoll also said the company made strides closing the gap between in-store and online promotional activity. She noted the company believes that the pricing transparency will build the confidence of shoppers that they are receiving the best possible price regardless of the channel they choose to shop. That, in turn, would ultimately help to boost Gap’s overall brand image.
The Banana Republic And Athleta
When it comes to Banana Republic, List-Stoll described the overall quarter’s results as disappointing. It faced sales challenges due to product softness, especially related to warmer-than-anticipated weather and a sub-optimal mix in sizes as the brand works to implement a new inventory management tool. In the bigger picture, however, she noted that the brand is continuing to engage with consumers in new ways.
It recently launched a rental business, which has attracted a following that List-Stoll said was larger than planned and was providing valuable insights already. The company has amassed 7,000 rental customers to email lists, and List-Stoll noted the company was pleased to see a large number of signups coming from new customers to the brand. And buy online, pick up in store (BOPIS) was fully rolled out to the retailer’s fleet and, as of Q3, makes up almost 5 percent of online sales already.
For Athleta, the brand grew market share during the quarter and maintained strong performance in key franchise collections. The girls’ business continues to be a consistent growth lever delivering another double-digit comp. But the brand did see some softness in the business at the start of Q3, which was diagnosed quickly and was largely associated with in-store traffic as well as assortment mix.
Despite the drop in same-store sales and the departure of its former chief executive, Gap. Inc. posted better-than-expected earnings and sales for the third quarter. The apparel retailer reported sales of $4 billion and a profit of 53 cents per share compared to analyst estimates of $3.96 billion and 51 cents per share.
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