Fri Jan 08 2016
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Fall in Old Navy Pulls Comps Down: Gap in Deep Trouble?

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Shares of Gap Inc. (GPS – Analyst Report) fell 8.6% to $ 24.45 in the after-hours trading session yesterday, as the company disappointed investors once again with dismal holiday sales results.

The apparel retailing giant’s downfall in the holiday season was characterized by dismal sales and comparable-store sales (comps) performances extending into December after the bleak results showcased in November. Apart from continued comps declines at the Banana Republic and Gap Global brands, December comps were impacted by the second consecutive monthly sales decline at the Old Navy brand, which was once a savior for the company. Additionally, adverse foreign currency movements continued to play spoilsport.

Coming to the sales results, Gap’s comps for December decelerated 5%, against a 1% increase in the prior-year period. Net sales for the five weeks ended Jan 2, 2016, totaled $ 2.01 billion, down 4% year over year. On a currency neutral basis, sales for the month were down 3%.

Brand-wise, December comps for Gap Global dropped 2% compared with a 5% decline recorded in the year-ago period, while comps for Banana Republic Global fell 9% against flat comps recorded last year. Further, after reporting a comps decline in November, comps for Old Navy Global declined 7%, whereas the figure was up 8% in the prior-year period.

In November or the early part of the holiday season, the company reported comps decline of 8%, against a 6% increase in the prior-year period. Net sales totaled $ 1.57 billion, down 9% year over year. On a currency neutral basis, sales for the month were down 8%.

The company is evidently losing its sheen given the repeated dismal sales performances, mainly hurt by intensifying currency headwinds. Further, disappointing performance of its core Gap and Banana Republic Global brands are pressing concerns for the company. Persistence of these headwinds is likely to dent the top line and weigh on Gap’s overall performance.

Apart from Gap, certain other retailers also posted their comps data for December. Though the picture for the holiday season is not clear yet, the sales data provided by a handful of retailers reveal that the key season this year was challenging. Retailers felt the pinch of declining customer traffic at stores and malls, as online stores stole the limelight. Moreover, retailers were forced to offer promotions as buyers were keen on availing discounts. This weighed on retailers’ pockets as profits declined.

Affected by the aforementioned factors, Rite Aid Corp. (RAD – Analyst Report) and Zumiez Inc. (ZUMZ – Analyst Report) witnessed comps decline of 0.1% and 8.9%, respectively. However, comps for the Victoria’s Secret owner, L Brands Inc. (LB – Analyst Report) rose 8%.

Gap, which carries a Zacks Rank #5 (Strong Sell), is scheduled to release its January comps on Feb 8, 2016.

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See more at: http://www.zacks.com/stock/news/203245/fall-in-old-navy-pulls-comps-down-gap-in-deep-trouble#sthash.rhIT3wIp.dpuf

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