Gap to test faster fashion next spring as profits dip and sales weaken

Gap 2015 campaign

Gap has come to the conclusion speed to market is the way forward for its signature brand with the US retail giant taking steps to compete against its more nimble, fashion-focused rivals.

The retailer has announced plans to test small batches of product in selected Gap stores next spring and then quickly reorder if they are popular. It’s a strategy that has already made its mark on sister brand Old Navy, which is currently Gap Inc’s star performer.

Gap chief executive Art Peck said the company was trying to build the speed-to-market capability as quickly as it can.

And the change can’t come quickly enough as profits growth and confidence look to be in short supply at the company. The news about the new initiative came on Thursday after it reported a second consecutive fall in quarterly earnings, hurt by weak sales at the Gap brand where fashion missteps dulled shopper appetite for its safe offer. And Gap said nobody should expect a pick up in sales before the key Holiday period either.

For a retailer that normally prides itself on turning in a good profit even when sales are soft, the latest figures make tough reading, although they were predicted.

Net income fell by more than a third to $219m/52 cents per share for Q2 ended August 1, from $332m/75 cents a year ago. Not that Gap itself was entirely to blame as crucial costs related to its turnaround, plus the stronger dollar and shipment delays over which it had no control took their toll.

The company said it expects to record $130m-$140m in restructuring charges alone for the year, including store closure costs.

Excluding the negative impact of about $0.12 from the strategic actions, the company earned 64 cents per share, in line with analysts’ view.

Sales continue to suffer too. Total sales fell 2% to $3.9bn, missing analysts’ estimate, and comparable sales fell 2%, hurt by a 6% drop at Gap brand and a 4% decline at the Banana Republic division.

Gap’s Old Navy, however, continues to steady the ship with its ability to attract customers by offering affordable fashion.

Comparable sales at Old Navy increased 3% in the quarter, and sales rose to $1.67bn.

Gross margin, meanwhile, narrowed to 37.4% from 39.4% a year earlier.

Gap affirmed its full-year earnings at $2.75-$2.80 per share.

“I remain confident in our strategies to improve business performance and drive loyalty going forward,” said Peck.”Our evolving product operating model is laying the foundation to more consistently deliver on-trend product collections across our portfolio.”

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