Gap to close 230 stores in restructuring as comparable sales plunge

Along with its results for the fourth quarter and fiscal 2018, Gap Inc. announced plans to separate into two publicly traded companies: Old Navy, and a yet-to-be-named company, which will consist Gap brand, Athleta, Banana Republic, Intermix and Hill City. The company also announced that as a part of its restructuring effort, it will close about 230 Gap specialty stores over the next two years. The company reported fourth quarter diluted earnings per share of 72 cents compared with reported diluted earnings per share of 52 cents or 61 cents on an adjusted basis for previous year’s fourth quarter. For the full year, diluted earnings per share were 2.59 dollars compared with fiscal year 2017 reported diluted earnings per share of 2.14 dollars or 2.13 dollars on an adjusted basis.

“Operational discipline allowed us to deliver our earnings per share guidance even in the face of macro headwinds and softer trends,” said Art Peck, President and CEO, Gap in a statement, adding, “As we look ahead to 2019 and beyond, we know what we need to do to win and, combined with the separation we announced today, we will be well positioned to leverage the power of our brands and the talented teams that lead them to accelerate the pace of change, improve execution and deliver profitable growth.”

Gap to close 230 stores over the next two years

The company estimates an annualized sales loss of approximately 625 million dollars as a result of 230 store closures. Additionally, the company estimates pre-tax costs associated with these actions to be about 250 million dollars to 300 million dollars, with the majority expected to be cash expenditures. The company estimates that these actions will result in annualized pretax savings of about 90 million dollars and expects that the remaining specialty fleet will serve as a more appropriate foundation for future growth of the brand across the specialty, outlet and online channels, with nearly 40 percent of sales coming from online, and the remainder split fairly evenly between the specialty and value channels.

The company’s fourth quarter comparable sales were down 1 percent compared with a 5 percent increase last year. Comparable sales by global brand for the fourth quarter were flat versus positive 9 percent last year at Old Navy Global, negative 5 percent versus flat last year at Gap Global and negative 1 percent versus positive 1 percent last year at Banana Republic Global.

For fiscal year 2018, the company’s comparable sales were flat compared with a 3 percent increase last year. Comparable sales by global brand for fiscal year 2018 were positive 3 percent versus positive 6 percent last year at Old Navy Global, negative 5 percent versus negative 1 percent last year at Gap Global and positive 1 percent versus negative 2 percent last year at Banana Republic Global.

The company paid a dividend of 2425 cents per share during the fourth quarter of fiscal year 2018, an increase of over 5 percent compared with last year. In addition, on February 26, 2019, the company announced that its board of directors has authorized a first quarter dividend of 2425 cents per share.

Gap reveals earnings outlook for FY19

For fiscal year 2019, the company expects reported diluted earnings per share to be in the range of 2.11 dollars to 2.26 dollars. Excluding the estimated costs related to the Gap brand fleet restructuring, diluted earnings per share is expected to be in the range of 2.40 dollars to 2.55 dollars.

The company expects comparable sales for fiscal year 2019 to be flat to up slightly. The company expects to close about 50 company-operated stores, net of openings and repositions in fiscal year 2019. This guidance includes about 130 closures related to the Gap brand fleet restructuring, the majority of which are expected to close in the fourth quarter of fiscal 2019. The company expects store openings to be focused on Old Navy and Athleta locations.

Picture:Facebook/Gap