Old Navy to Lift Gap

Calling the all-important fourth-quarter 2004 "disappointing," Paul Pressler, president and CEO, pointed to "missed opportunities in each brand" and set forth priorities to correct course this year during a year-end conference call. Total 2004 sales rose to $16.3 billion, a 3% increase over the prior year. However, same-store sales chain wide were flat for the year, compared with a 7% increase in 2003, compared with the year before. Fourth-quarter 2004 sales company wide declined 3%, and overall fourth-quarter sales growth was zero.

Brand by brand, here is how Gap Inc.'s full-year same-store sales stacked up –and down –by year-end 2004: Gap US, up 2%; Gap International, down 8%; Banana Republic, up 6%; and Old Navy, flat.

Traffic was the challenge for Gap-brand stores, Pressler said and partially blamed the company's failure to address fourth-quarter gift-giving opportunities. Of the precipitous drop in Gap's international performance, he said, "more merchandising decisions must be based locally, particularly in Japan and Europe," a situation the he said has been corrected.

"Old Navy had solid traffic improvement" that was offset by an overbought inventory, particularly in performance fleece and down outerwear, product categories for which customer demand was less than expected, according to Pressler. Increased dialog, now underway, is seen as the cure. He called Banana Republic's performance "solid," and said that brand is experiencing "an elevated position."

The company expects to open 175 new stores this year and close 135 existing ones, primarily in the Gap brand. This calls for an overall increase of 2% sf, most of which will be in expanded space for Old Navy. Not only will the company open 75 new Old Navy units, but also add product extensions to many of its existing stores. By the end of this quarter, Pressler said, Old Navy Maternity will be in 331 units, and Old Navy Plus Size will be in 177 units.

To a lesser degree, product extensions are underway for Gap and Banana Republic. Seventy Gap units will add Gap Maternity, and Banana Republic Petite will be added at 26 locations of that store brand.

When a Wall Street analyst suggested the company was not "clicking on fashion," Pressler said the disappointments "were less about styling than about how we weighted our assortments." For this spring, Gap adult fashion, he said, "is very focused on khaki." Calling khaki "iconic" to Gap, he said this year's khaki "will have great colors designed in a very feminine way."

Bermuda shorts are a top spring trend for Old Navy, "which we will do in our own way," he said. Advertising for the Bermudas breaks the first week in March. "Banana Republic's styling is luscious –a little more feminine and flirty," Pressler promised.

As of Jan. 31 this year, Gap Inc.'s total realm encompassed 3,075 stores. They include 1,427 Gap US, 367 Gap International, 438 Banana Republic, and 843 Old Navy units.