You remember when the Gap was hip and innovative? They made khakis and basic tees cool. Banana Republic made preppy cool. Old Navy made you want to wear board shorts and flip flops with annoying commercials you couldn’t get out of your head. Somewhere along the line they lost their way – while almost all retailers are struggling in an extremely tough environment, the Gap seems to have missed out on the bubble-induced spending orgy altogether. With Q1 results in, they have now reported 19 consecutive quarters of negative same-store sales growth:
Management would like to have you believe that this performance isn’t too shabby considering the state of the consumer and compared to the results of their competitors:
“The market conditions, from our perspective, continue to be challenging. With that said, I think our performance in Q1 was respectable. None of us like to produce results in the quarter below last year. I don’t think any business would ever want to produce results below last year but with the conditions in which we are operating in, I think it was respectable and versus a lot of our competitors, I was pleased with our performance in the first quarter.”
If we look at their recent sales performance against a couple of the competitors we talked about last week, minus Aeropostale since they are a clear out-performer, this statement seems to hold up:
However, if we look back a little further, you can see that the idea that their performance is a result of economic conditions becomes a little hard to believe. I wonder what their excuse was back in 2005 & 2006:
This is not a recent phenomenon – growth has been stagnant for quite awhile now:
With improving consumer sentiment, there is hope that overall retail sales are in a bottoming process. In April, Old Navy reported its first positive same-store sales results in over 2 years. However, if we look at same-store sales by brand we can see it will be at least a few months before this is any reason to cheer:
The one consistent bright spot for the company has been their direct-to-consumer business, which surpassed $1 Billion in total sales for 2008. Gap was an early entrant into the online channel, and have more than doubled their direct sales since 2003:
While Gap certainly has had some struggles over the past few years, they also have a pristine balance sheet with almost no debt and about $1.8 Billion of cash. However, in an extremely tough retail environment with intense competition, there will need to be drastic change to return to the days when we’re all humming Old Navy tunes in our heads…
