Gap Sales Fall And Loses Mount, Driving Management Changes

Weak fourth quarter performance at GapGPS
reflects the continuation of general softness and poor merchandising planning that has plagued the company throughout 2022. The grim sales and earnings report for Q4 has prompted several management changes. The company’s report is discussed below.

Immediate action was announced by Bob Martin, Executive chairman and interim CEO of the company. Among the changes announced: Mary Beth Laughton, President and CEO of Athleta, has left the company, and Sheila Peters, Chief People Officer for Gap, Inc., will leave the company at the end of the year. The role of Chief Growth Officer has been eliminated as well. The company also announced that a new CEO will join the company shortly and a new brand chief will join the company in May.

In addition to these management changes, the company is also implementing strategies to streamline its operating model that will result in fewer management layers and more consistent organizational structures across all four brands. It also intends to further optimize its marketing efforts and rationalize technology investments to achieve additional savings.

Here are fourth quarter results by division:

1. Old Navy: Net sales in Q4 of $2.2 billion were down -6%. Comparable sales were down -7%.

2. Gap: Net sales in Q4 of $1.1 billion were down -9%. Comparable sales were down -4%.

3. Banana Republic: Net Sales in Q4 of $578 million were down -6%.

3. Athleta: Net sales in Q4 of $436 million were down -5%.

Of course, there are several reasons for these weak results – some reflecting widespread economic pressures while others specifically tied to the company. In general, the demand softness across lower income groups dampened sales – especially for Old Navy. On top of that, the shutdown of Veezy Gap negatively impacted growth by about 2 percent and the Banana Republic weakness was, according to the company, driven by weak sales in outerwear and sweaters.

Collectively, these issues combined to dampen sales; fourth quarter reported net sales of $4.24 billion, down -6% to from last year. Comparable sales were down -5% compared to last year. Store sales decreased by -3%. In contrast, the report says that on-line sales decreased by -10% but still represented 41% of total net sales (this is a sharp drop from last year’s 44%.)

For the full year, the company reported net sales of $15.6 billion or a drop of-6%. Comparable sales were down -7%. On-line orders decreased by -7%. The company had a reported operating loss of $69 million. The adjusted net loss was $145 million, excluding the impairment charges related to inventory, costs related to the Old Navy Mexico transition, and gain on the sale of a distribution center in the U.K. At the end of the day, Gap reported an adjusted diluted loss per share of ———$0.40.

POSTSCRIPT: One is aghast when reading the Gap’s report. It makes it all too clear that the company is rudderless and without a merchandising leader who would create new excitement. I hear that there is little or no demand for the merchandise, especially in apparel, and that is causing the company to suffer loss of market share. Old Navy has some improvement since the company had appealing new occasion dressing.

The holiday selling season was difficult for every retailer. On top of inflationary pressures, the weather was too warm during most of December, with only occasional cold blasts. All retailers had a difficult time, but Gap showed its comparative weakness and desperate need for strong merchant leadership, it needs an individual with vision and creative insight.