Gap cuts 2019 profit forecast

Gap cut its 2019 profit forecast and posted the biggest drop in same-store sales in at least three years at its Gap brand, underscoring its struggles to compete with fast-fashion retailers in the face of changing customer preferences.

Shares of the company, once a trendsetter with its casual logo emblazoned hoodies and khaki cargos, fell 11% in after-hours trading on Thursday.

Chief Executive Officer Art Peck called the quarter “extremely challenging” and cited unusually cold weather in February, late spring breaks, a delayed Easter and lower tax refunds as reasons for the dour performance.

Unseasonably cold weather has been a drag for most US apparel retailers in the first few months of 2019, with Gap Inc’s Old Navy especially hit as most of its apparel is tailored toward warmer weather.

However, analysts were unconvinced and felt the absence of in-fashion products was weighing on Gap brand’s turnaround efforts.

“Every quarter management claims that products are improving and that the (Gap brand) is responding to changing consumer demand,” said Neil Saunders, managing director of GlobalData Retail. “And yet every season, Gap churns out the same bland range of undifferentiated product which has barely changed over the past 20 years.” On a post-earnings call, Chief Financial Officer Teri List-Stoll acknowledged the lack of strong products at both Old Navy and Gap in the first quarter and said the company had held back on marketing until designs and assortments improved.

Sales at established Gap brand stores fell 10% in the three months ended May 4, steeper than the 4% decline analysts had estimated.

Reuters