Gap Sees Same-Store Sales for Key Brands Fall in First Quarter

The first quarter of 2019 did not go well for Gap Inc., the San Francisco purveyor of blue jeans and other casualwear.

The San Francisco company reported on May 30 that net sales for the first quarter, ending May 4, were down 2 percent to $3.7 billion compared to $3.78 billion during the same period last year.

But net income was up 38 percent in the first quarter to $227 million from $164 million in the same period last year.

Same-store sales at all of the company’s name-brand retail stores slipped, with Old Navy seeing a 1 percent decline in comp-store sales in the first quarter over the previous year.

The Gap retail chain saw same-store sales slump 10 percent, and Banana Republic had a 3 percent decline in same-store sales over last year.

“This quarter was extremely challenging, and we are not at all satisfied with our results,” said Art Peck, the company’s president and chief executive.

Highlighting slowing sales was the fact that the company’s inventory was up 10 percent in the first quarter, year over year, to $2.24 billion. This was also affected by the $35 million acquisition this year of high-end childrenswear retailer Janie and Jack plus net-store growth.

The company is actively monitoring the threat of increased tariffs on Chinese apparel imported into the United States. Currently, there is an additional 25 percent tariff on Chinese-made textiles and handbags, but that tariff could be expanded to include apparel and footwear if the Trump administration decides to ramp up the trade war.

“This translates into a tax on the American consumer,” Peck said in an earnings call with analysts.

He explained that for several years Gap has been moving its sourcing out of China. Three years ago, 25 percent of Gap products were made in China. That is now down to 16 percent. “We are actively monitoring the [tariff] issue and managing our sourcing operations accordingly,” Peck said.

Gap Inc. is in many ways a company that operates on many fronts. Its Old Navy chain of stores offers value-priced merchandise while Banana Republic caters to the workingman and -woman with higher-priced goods. Gap stores offer casualwear at mid-range prices. The company’s other brands are Athleta, Intermix and Hill City.

Earlier this year, Gap Inc. announced it would spin Old Navy, the workhorse of all its retail brands, into a separate company next year, creating two independent publicly traded companies.

One company will be called Old Navy. The other company, consisting of all the other Gap Inc. brands, does not have a name yet but is being referred to as NewCo.

As part of the revamping, some 230 Gap stores will be closed over the next two years as the company expects about 40 percent of future Gap sales to come from online purchases.

For the rest of fiscal 2019, Gap executives said they expect company sales to be relatively flat and company comparable sales to be in the low single digits.