Retailer Gap (GPS 27.69) has been a huge disappointment this year. Its stock is down 34% year-to-date and is trading at levels seen previously in 2012. The root of its problems is that customers just aren't responding favorably to the product assortment in its stores. Once again, that was made clear in the company's October sales update and an earnings warning for the third quarter.
The new wrinkle for Gap is that the Old Navy segment, which has been a regular bright spot, appears to be losing some of its shine as it bumps up against some tough comparisons in a tough competitive environment.
Old Navy Global still managed to achieve a 2% comparable sales increase in October, which was better than the year-ago period when comparable sales were flat. The comparable sales increase in October, however, marked a deceleration from the 4% comparable sales increase seen in September.
For Gap Global, comparable sales declined 4% in October on top of a 7% decline last year. Comparable sales at Banana Republic Global, meanwhile, plunged 15% versus a 2% decline last year.
Overall, comparable sales were down 3% in October versus a 3% decrease last year.
Things don't line up all that well on a quarterly basis either. To that end, Gap Global comparable sales fell 4% versus a 5% decline in the third quarter last year and Banana Republic Global's comparable sales decreased 12% versus being flat last year. Old Navy diverged in a good way, reporting a 4% increase on top of a 1% gain last year.
Notwithstanding Old Navy's strength, third quarter comparable sales overall declined 2% versus a 2% decrease last year.
Gap will release its third quarter earnings on November 19, yet the company acknowledged that it expects adjusted diluted earnings per share to be in the range of $0.62 to $0.63, which is about 7% below analysts' average expectation.
Gap added that it now expects year-over-year inventory dollars per store at the end of the third quarter to be slightly lower than the guidance of "down slightly compared with last year." This suggests Gap could potentially be less promotional in the fourth quarter than it otherwise might have been. Nonetheless, the chronic sales weakness at its namesake Gap and Banana Republic brands should ensure that Gap will be pushing sales aggressively during the holiday selling period.
For now, investors keep selling the stock. Shares of GPS are trading 7% lower in pre-market action.