Gap Sinks After Reporting Weakness at Banana Republic, Athleta
(Bloomberg) -- Gap Inc. slumped in late trading after stubborn weakness at Banana Republic and Athleta offset strength at its Old Navy and namesake brands.
At Banana Republic, which has the highest price point among Gap's brands and is focused on leisurewear, revenue fell 3% in the fiscal first quarter ended May 3 from a year earlier. Progress has been slow at the chain, and Gap said it's focused on 'reestablishing' the brand and 'improving the fundamentals.'
The company is taking a similar approach to the sportswear brand, Athleta, where net sales fell 6%. 'Work is being done to reset the brand and improve product and marketing, which will take time,' Gap said.
The results contrasted with Old Navy and Gap, where comparable-store sales rose 3% and 5%, respectively. Revenue of $3.5 billion in the period also outperformed expectations.
Gap shares fell 15% at 4:22 p.m. in extended New York trading. The stock has advanced 18% so far this year.
Gap estimates an impact of $250 million to $300 million from tariffs if their level remains at 30% for most goods from China and 10% for other countries. The company, which kept its guidance stable from the previous quarter, says it has strategies to mitigate more than half of that cost.
Since Richard Dickson took over as chief executive officer of the San Francisco-based retailer nearly two years ago, the Old Navy and Gap brands have rebounded on refreshed product lines, including Gap's collaborations with brands such as Dôen and Cult Gaia. The company is also updating layouts and displays at some stores to make them more enticing.
'Gap and Old Navy are the largest brands in the portfolio, and therefore are the two leading indicators of the execution of our playbook,' Dickson said in an interview. Sales of denim and activewear were standouts at the brands, he added.
Dickson has focused on making the company cool again — which has included tapping celebrities like Lindsay Lohan and Troye Sivan for its advertising and bringing on celebrity designer Zac Posen.
Together, Old Navy and Gap generated about 78% of the company's sales in the fiscal first quarter. The brands have made inroads across all income groups, Dickson said.
Retailers have posted uneven results for the start of this year as abrupt changes in US trade policy under President Donald Trump erode consumer sentiment. Cautious shoppers have pulled back on some discretionary purchases, but the impact has varied among companies.
American Eagle Outfitters Inc. pulled its full-year outlook, citing 'macro uncertainty,' as well as discounts across the industry and merchandise missteps. In contrast, Abercrombie & Fitch Co. boosted its sales guidance, suggesting the hit from tariffs will be manageable.
(Recasts story to focus on weakness at Banana Republic, Athleta)
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