Pull-Back on Promotions Weighs on Gap June Sales

Gap

Gap Inc. posted a drop in June comparable store sales, weighed down by a pull-back on promotions at its Gap and Banana Republic brands.

The San Francisco-based retailer said comparable store sales at its Gap and Banana Republic brands each dropped 7% during the five weeks to July 5. Old Navy, however, booked a 7% increase in comparable store sales.

Net sales edged up 1% to $1.54 billion from $1.53 billion a year ago.

“Old Navy’s performance was stellar this month, and we’re pleased to see the brand continue its strong quarter-to-date momentum,” said chairman and CEO Glenn Murphy. “Despite softer June results at Gap and Banana Republic, we remain focused on delivering in the upcoming fall season.”

FBR Capital Markets & Co analyst Susan Anderson believes Gap’s weakness stemmed from weak assortment but was exacerbated by a pull back in promotions.

She added that similarly Banana Republic attempted to increase regular-price selling in June, which likely held back comps.

“Overall, we believe that promos will continue to be necessary to drive comps, which could result in additional gross margin pressure relative to plan.

“While we are encouraged by solid execution at Old Navy, we think that a combination of Banana Republic/Gap assortment and competitive pressure could continue to weigh on results until the fall.”

Richard Jaffe, analyst at Stifel, is slightly more optimistic. “We anticipate that the strength at Old Navy in 2Q will offset the weakness at the Gap and Banana Republic divisions. We anticipate better results from Gap and Banana Republic beginning fall.”

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