Gap Says Improvement at Namesake Unit Is a Year Off--update

By Suzanne Kapner 

It could be another year of mending for Gap Inc.'s namesake brand.

After reporting a 10% drop in existing Gap stores that dragged the broader company's results down for the three months through May 2, Chief Executive Art Peck said improvements might not be visible until next spring. That is because much of the merchandise for earlier seasons was already ordered by the time he put a new team in place to tackle the brand's problems.

Spring is a "no excuse moment," Mr. Peck told analysts on a conference call to discuss the company's first quarter earnings.

Profit fell 8% to $239 million from $260 million a year earlier, as overall sales fell 3% to $3.7 billion. Online sales, a source of revenue growth at most retailers, fell to $563 million from $575 million a year earlier.

Gap and the smaller Banana Republic brands were the weak spots. The company's Old Navy chain has fared better.

Sales at Old Navy's existing stores climbed 3% in the period after posting several strong quarters of gains. It has borrowed techniques from "fast fashion" retailers, such as shortening its supply pipeline so it can test styles and quickly reorder items that sell well.

Mr. Peck said the Gap brand is starting to borrow some of those techniques, but also needs to do a better job of designing clothing and accessories that are on trend and within the brand's aesthetic.

Earlier this year, Mr. Peck brought back Wendi Goldman, a Gap veteran to helm the design of the namesake brand. Mr. Peck said she hit the ground running, but that neither he nor Jeff Kirwan, the brand's president, is happy with its performance so far.

Existing-store sales at the company's more upscale Banana Republic unit fell 8% for the period. Mr. Peck said the brand was a work in progress, and that it had too much black and white and not enough color for the spring season.

Overall, Gap Inc.'s sales and earnings were also hit by the strong dollar and delayed shipments resulting from a slowdown at West Coast ports.

Inventory was up about 4% at the end of the quarter. The company said delays at the West Coast ports resulted in a greater amount of inventory being in transit during the period. It expects inventory to be up slightly in the current quarter as it sells through some of the late-arriving goods.

Despite the challenges, Gap is sticking with its full year earnings projections of $2.75 to $2.80 a share.

Write to Suzanne Kapner at [e-mail]

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