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Gap Inc pegs coronavirus losses at $100 million and counting

March 13, 2020, 5:15 PM UTC

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It hasn’t taken long for some retailers to feel the bite from the coronavirus outbreak.

Gap Inc said late Thursday that it has already lost about $100 million in sales in the first fiscal quarter of 2020, which started in early February. And that’s just sales lost in markets like China—which only generates 3% of its total sales—Japan, and Europe.

The company, whose brands include The Gap, Banana Republic, Old Navy and Athleta, said it could not yet quantify the hit to its business in North America. That’s by far its largest market with about 88% of its sales and where the coronavirus outbreak is only just beginning, meaning the financial impact is likely to grow much larger. (The U.S. will reportedly declare a state of emergency on Friday.)

Gap Inc gave a 2020 sales forecast but cautioned investors that it doesn’t include any possible effect from the outbreak globally beyond that initial $100 million hit.

“Due to the evolving coronavirus situation, we are facing a period of uncertainty regarding the potential impact on both our supply chain and customer demand,” said Sonia Syngal, the incoming CEO of Gap Inc who currently heads Old Navy, by far the company’s biggest brand.

The company, whose Gap and Banana Republic brands have been in decline for years, already expects sales to shrink by a low single digit percentage in 2020. Gap Inc had revenue of $16.4 billion in 2019.

So the pandemic could be devastating to those already vulnerable brands. And it will complicate things for Syngal, who takes the helm on March 23. Gap’s interim CEO, Bob Fisher, a son of the company’s founders, said as much on a call with investors, noting the possibility of a “meaningful deterioration” in business or disruption to its supply chain.

On that front, the impact so far has been manageable, according to the company. Gap Inc currently gets 16% of what it sells from China, down from 21% last year. The company also sources from various Southeast Asian and Central American countries.

Many retailers have been trying to reduce their reliance on China in recent years, with that trend accelerating in 2019 because of tariffs imposed by the U.S. Best Buy, for example, is looking to lower Chinese sourcing to 40% from 60% last year, while Abercrombie & Fitch said last week that 22% of what it sold in 2019 was China-made, down from 42% a year earlier.

Gap Inc is one of the first major retailers to give any numeric estimate of the outbreak’s impact on business. Adidas said on Thursday it expected a $500 million reduction to its 2020 profit. Some like Target, Walmart, and Best Buy have only said they are monitoring the situation. Others like Costco and Dollar General have said there could be some lift to sales as consumers stock up on essentials.

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