Saturday, February 9, 2002
Gap will cut its capital spending from $1 billion to $400 million as sales suffer.
SAN FRANCISCO CHRONICLE
Gap Inc. has said it will cut back on plans for new stores and other spending after watching sales tumble further than expected in January, the San Francisco retailer's 21st straight month of bad news.
Gap's report came against a broad backdrop of sales reports that provided an important gauge on how the year began for many major retailers following one of the toughest holiday seasons on record.
The bottom line, by now familiar, remains that discounters such as Wal-Mart and Target continue to cash in on national economic uncertainty and their own growth momentum. At the same time, many department and specialty stores are still struggling with weak apparel sales and shoppers' general unwillingness to splurge.
A look at figures: Gap said its year-to-year monthly sales fell 16 percent internationally and 22 percent domestically at Gap stores open at least a year. Same-store sales are a key industry barometer, eliminating new or recently closed stores that might skew sales numbers.
Same-store sales in January fell 7 percent at Banana Republic, compared with a 9-percent decline for the year-ago period. They also fell 14 percent at Old Navy, compared with a 23-percent decline for the same period last year, parent company Gap reported.
Gap's setbacks are stubborn but not as stark as its worst monthly showing in November, when same-store sales fell 25 percent compared with the same month in 2000.
Still, analyst Jennifer Black of Wells Fargo Van Kasper in Portland, Ore., was encouraged by the January results. "Despite the difficulty that the company has had in achieving positive earnings results, Gap has made progress in controlling its cash and debt levels," she said. She called for Gap to close under-performing stores and improve the merchandise selection for all of its brands.
Fourth-quarter results: In a preliminary report, the company also reported a loss of 3 cents to 5 cents per share in the fourth quarter as sales fell 5 percent to $4.1 billion. Full fourth-quarter results will be reported on Feb. 27.
Gap's second consecutive quarterly loss prompted the specialty retailer to slash capital spending by 60 percent this year, to about $400 million. Gap previously planned to devote $600 million to $650 million after spending about $1 billion last year to increase the number of stores by 13 percent, from 3,676 stores to 4,171 stores.
The cutbacks underscore Gap's steps to reduce its $2 billion in debt, which Moody's Investors Service downgraded last month to its lowest investment-grade level.
Analysts have been calling for Gap to trim debt and update fashions to meet consumer tastes -- and, in some cases, close stores -- before the company delves into new stores.
During a typical year, Gap closes 30 to 70 stores, usually when the company decides to allow leases to expire in consideration of stores' performance, said Gap spokeswoman Claudia Hawkins.
The company does not expect a "significant difference" in the normal number of store closures this year, she said.