Gap Inc Earnings Preview: Why The Retailer’s Sales Crashed & What’s Next?

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Gap Inc is scheduled to report its Q1 fiscal 2016 earnings on May 19th, though it has already reported its sales figures  for both the quarter and the final month in a recent press release. The company’s comparable sales decline has gotten worse over the past couple of years as it has failed to keep up with shifting buying preferences. Its Old Navy brand, which has been the lone shining spot for the retailer for many quarters, has at last faltered as well.

GPS earnings preview corrected version

Of the 6% decline in net revenues, 5% is attributed to a fall in comparable sales and the remaining is from store consolidation of mainline brands. The drastic decline in EPS can be justified with a significant fall in gross margins owing to traffic driving promotional activities and inventory clearing markdowns.

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Looking ahead, the company is planning to review the store fleet of Old Navy and Banana Republic, which essentially means that it may be looking to scale these brands down outside North America to focus on its core markets. Over the last couple of years, Old Navy has expanded aggressively in Asia, while Banana Republic’s store fleet has remained relatively stable.

GPS looking ahead store count

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Gap Inc
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