Gap, Inc. (GPS) Reports In-Line Q1 EPS; Plans to Refocus on Key Geographies, Streamline Ops
Gap, Inc. (NYSE: GPS) reported Q1 EPS of $0.32, in-line with the analyst estimate of $0.32. Revenue for the quarter came in at $3.44 billion versus the consensus estimate of $3.51 billion.
Comps fell 5 percent.
“As the pace of change across the apparel industry increases, now is the time to accelerate our transformation by scaling our product and operating capabilities across our global portfolio,” said Art Peck, chief executive officer, Gap Inc. “By taking every opportunity to exploit our strategic advantages, our brands will be able to more fully harness the power of the enterprise to better serve their customers across channels and geographies.”
As part of Gap Inc.’s continued commitment to better position the company for long-term growth, the company has announced the following measures to better align talent and financial resources against its most important priorities:
- Focus on geographies with the greatest potential. The company remains committed to growing its brands in regions where it has a structural advantage and the greatest opportunity to gain market share. As part of this effort, Old Navy will strategically shift its focus to markets most favorable to the brand’s growth, resulting in the closure of its fleet of 53 stores in Japan in fiscal 2016. Old Navy’s near-term growth ambitions will be anchored in North America, including its most recent debut of company-operated stores in Mexico, as well as China and its global franchise operations. Japan remains an important market for Gap Inc.’s portfolio, with a continued strong presence of more than 200 Gap and Banana Republic stores. Additionally, the company expects to close select dilutive Banana Republic stores, primarily internationally, in fiscal year 2016. In total, the company expects to close about 75 stores related to these measures.
- Streamline its operating model. The company will take steps to create a more efficient global brand structure, enabling its portfolio of brands to more fully leverage its scale advantage and move even faster in anticipating and responding to the ever-changing environment and needs of customers.
The company estimates that together these measures will result in annualized pre-tax savings of about $275 million and operating margin improvement of nearly 2 percentage points. The company estimates an annualized sales loss of about $250 million associated with the store closures and expects to recognize restructuring costs in fiscal 2016 of about $300 million pre-tax, about $100 million of which is non-cash, from the store closures and streamlining measures.
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