This was supposed to be the moment Gap Inc (GPS) began to emerge from its long sales slump.
Last year, CEO Art Peck told investors and analysts that the moves he was implementing would halt sales declines and put the Gap and Banana Republic brands back on track and growing just like the Old Navy brand, its biggest, by spring. Instead, all three banners have been reporting month after month of comparable sales declines, a losing streak that continued into April. The namesake brand had its 24th straight month without an increase in comparable sales, which exclude newly opened or closed stores.
The Gap brand’s comparable sales fell 4% last month, while at Old Navy the drop was 10%, and at Banana Republic it was 7%. That compares to analyst expectations for Gap rising 0.5%, a tiny 0.1% drop at Old Navy, and a 5.9% decline at Banana, according to Consensus Metrix. No wonder shares fell 10% on the news of the 13th straight month of declines. Gap stock is now down 50% from its 52-week high.
On a recorded call, the head of Gap Inc’s investor relations, Jack Calandra, pointed to a “tepid macro environment” for retail and store traffic problems that worsened in April even as he incredulously claimed that Gap is making “good progress” in righting itself.
The company has suffered major turmoil. In the last year-and-a-half, Gap has seen the head of Old Navy bolt to Ralph Lauren, where is now CEO, while the creative directors of both Gap and Banana also made their way to the exits. But Peck in June said Spring 2016 would be the company’s “no excuses moment.” Gap has been buffeted by fast fashion retailer H&M and T.J. Maxx’s (TAX) aggressive expansion and low prices. It has changed its production and sourcing practices in a bid to adapt, but to little avail so far.
Other mall-based retailers have fared even worse: Aéropostale and Pacific Sunwear have each sought Chapter 11 bankruptcy protection in recent weeks, while Sears (SHLD) and Macy’s (M) have each closed dozens of stores this year.
Gap Inc has seen its share of the U.S. apparel market fall to 4.4% last year from 5.4% a decade earlier, according to Euromonitor data. Meanwhile, the fast fashion chains continue to chip away away at Gap’s pricing power.
The company said on Monday it would examine the international store fleets of Banana Republic and Old Navy and “sharpen” its focus on the most promising markets, hinting at store closings. Though the company will provide more details when it reports first quarter results on May 19. Calandra singled out China as a promising market, suggesting that stores in Europe and the rest of Asia could be at risk of closing.
In North America, The Gap brand’s continued decline has prompted many to say it needs to shutter many more locations. Last year, Gap shared plans to close a total of 175 stores over the next few years. But Deutsche Bank said in a note last month that Gap would have to cut dozens more stores. In a recent interview with The Street, General Growth Properties (GGP) CEO Sandeep Mathrani asked rhetorically, “Do you really need 800 Gap stores, I mean who needs 800 stores in the country.” (The Gap brand ended 2015 with 866 namesake stores stores in North America after closing 128 locations.)