The GAP Delivers Higher Profits on Lower Sales, How?
November 21, 2008 by Tisa Silver
Filed under Finance
I invested in shares of Gap (Ticker: GPS) many years ago because I loved their clothes. Simple white button downs, jeans, khakis, peacoats and the like.
Then came the weird patterns, stripes and polka-dotted stuff…driving me into the arms of Old Navy and Banana Republic (only on sale days!). Both are part of Gap, Inc., so the company could still count on me for a tiny contribution to their revenue.
Then the crazy patterns made their way to Old Navy. :( I still haven’t figured out where to go next!
Apparently, I am not the only one that was turned off by the Gap’s brands. Gap’s sales have been sliding for quite some time and in the most recent quarter, Old Navy and Banana Republic suffered the greatest sales declines, 18 and 11 percent respectively.
As a result of the sad sales situation, the Gap’s stock has struggled for years. The company shuffled around the board room and paid serious dollars for ad campaigns featuring celebrities, but when companies need higher profits there are only two things they can do: increase revenues or cut costs.
In an economy like this, the latter is probably most viable and Gap got it right this time!
Gap’s overall revenue for Q3 was down almost 8 percent from the same quarter last year, but this year the Gap’s Q3 profits were almost 17 percent higher. How did they do it? According to the company’s press release, Gap has employed new inventory and cost management measures to offset the tough sales environment.
I’d like to know some specifics, but I don’t expect any greater detail than the press release contained. If the Gap is on to something it would be best to keep it quiet.
Kudos to Gap! Now restore the product line and I can resume shopping. Wall Street has already resumed buying the stock, Gap shares were up 18 percent by noon today.
BTW: At a recent book signing, Michael Phelps accidentally revealed his Banana Republic briefs while putting on his coat. Maybe his unintentional product endorsement will help the Gap’s sales!
