On Thursday, Gap Inc. announced that it was shutting down 75 Old Navy and Banana Republic stores, and redirect focus on more successful and profitable stores. The company said in a statement that of the 75 stores, 53 were Old Navy stores in Japan.
Even though the numbers represent only a small fraction of the 3,700 stores Gap Inc operates globally, the move will save the retail giant approximately $275 million annually, before taxes.
The closure announcement comes after a reported 47 per cent drop in Q1 profits. Gap Inc said its revenues fell by almost 6 per cent and all three brands – Gap, Old Navy and Banana Republic – suffered declines in a key sales measure.
According to a report in the Associated Press: Gap indicated it might not meet its earlier profit forecast for the year, noting the clothing business would need to improve in order to achieve that goal.
The San Francisco clothing retailer suffered another blow when Standard & Poor’s credit rating agency downgraded Gap’s debt on Thursday.
Standard & Poor said it cut the rating one notch “reflecting our view of the company’s weakened competitive position in the challenging apparel retail space”.
Gap has long been struggling, unable to get shoppers to buy its clothes without offering big discounts. CEO Art Peck, who came to the helm in February 2015, has been trying to overhaul the business. But Peck now sees he has to step up the pace after a promised turnaround this spring hasn’t come to fruition.
Even Old Navy, which had long been a bright spot in the company, has seen sales declines recently.
For the recent quarter, Gap said that net income was $127 million, or 32 cents per share. That compares with $239 million, or 56 cents per share, in the year-ago period. Revenue fell to $3.44 billion, from $3.66 billion in the year-ago period.
Analysts had expected 32 cents on revenue of $3.44 billion, according to FactSet. Gap had cut its first-quarter earnings guidance in early May.