Gap Inc. (NYSE: GPS) has disappointed investors again, and they have paid the price. Revenue for its most recent quarter was down 2% to $3.7 billion. That does not tell much of a terrible story.
Net operating margins for the entire company were only 6%, which means many locations lost money. Sales at of its flagship Gap brand dropped 10% in the quarter, after a 4% drop in the comparable quarter last year. The Gap brand can barely close stores fast enough to keep up with the decline. Its alternative is to kill the brand and keep its healthier Old Navy and Banana Republic operations.
Gap already has decided to spin off Old Navy to shareholders, which is a radical plan. Its success contrasts with the trouble at the rest of the company. The spin-off will happen sometime next year. The idea is that Gap management can focus on its damaged brands, but what does it really have to focus on? The Gap brand will close 230 stores in the next two years. The 10% plunge in Gap store sales last quarter begs the question of whether an effort to save the brand is worthwhile at all.
Gap’s third brand, Banana Republic, seems worth saving. It is smaller than the other two brands. At the end of last quarter, it had 600 stores, compared to 1,082 for Gap and 1,160 for Old Navy.
In an age when e-commerce already has wrecked or nearly wrecked some of America’s largest and most iconic retailers, decisions for brick-and-mortar retailers to retrench or close are ever more frequent. Sears went bankrupt, and it has barely risen from the ashes. Only 400 Sears stores will remain from a total that was close to 2,300 in 2006.
Dressbarn recently disappeared and closed its 650 stores. Toys “R” Us is gone. So are Bon-Ton, Charlotte Russe and Gymboree.
Gap’s share price is down over 50% in the past five years, while the S&P 500 is 43% higher. Gap has started to retrench, aggressively, to pull shareholders out of that spin. However, it will take the only really valuable large brand, Old Navy, it has left and pass it on to shareholders. What is left behind? Primarily, a Gap brand that, by almost any measure, won’t make it. It’s already among the retailers closing the most stores.
Want to Retire Early? Start Here (Sponsor)
Want retirement to come a few years earlier than you’d planned? Or are you ready to retire now, but want an extra set of eyes on your finances?
Now you can speak with up to 3 financial experts in your area for FREE. By simply clicking here you can begin to match with financial professionals who can help you build your plan to retire early. And the best part? The first conversation with them is free.
Click here to match with up to 3 financial pros who would be excited to help you make financial decisions.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.