World News

Gap sees 2020 profit above estimates, flags $100 mln virus hit to sales

By Nivedita Balu

(Reuters) – Gap Inc <GPS.N> leaned on its turnaround plan to forecast 2020 profit above market expectations on Thursday, but flagged a $100 million sales hit in Asia and Europe from the coronavirus, which has also started impacting its home market.

The disruptions due to the health crisis is the latest headache for newly named Chief Executive Officer Sonia Syngal as she tries to revive demand for its apparels in a competitive retail market marked by slowing traffic in malls.

Separately, Gap named Old Navy’s finance chief Katrina O’Connell as its next chief financial officer, who will take charge along with Syngal later this month.

“With the U.S. cases that are just emerging, we started to see some impact on traffic here,” outgoing Chief Financial Officer Teri List-Stoll, told analysts in a conference call.

Several retailers have warned of a sales hit as a clamp down put in place to slow the spread of the virus sharply reduced shopping in China and the United States. China is Gap’s most impacted region and makes up for 3% of its total sales.

To revive slowing sales in the United States, Gap has been focusing on its Old Navy brand that offer affordable styles for the entire family and has partnered with apparel resale platform thredUp to bring in more environment-conscious and millennial customers.

Its Old Navy label helped the company limit a fall in comparable sales to just 1% in the fourth quarter, compared with the expectations of a 3.58% decline.

“They (Old Navy) have refocused on the customer. They looked at the trends and they just interpreted the trends very well for the consumer… It seems like that is starting to work,” said Gabriella Santaniello, founder of retail consulting firm A Line Partners.

On an adjusted basis, Gap earned 58 cents per share, 17 cents above expectations.

However, it reported a net loss of $184 million compared with a profit of $276 million, due to an impairment charge related to the closure of its flagship store in New York.

Excluding the hit from the outbreak, Gap forecast earnings of between $1.80 per share and $1.92 per share for fiscal 2020. Analysts had forecast $1.68 per share, according to IBES data from Refinitiv.

(Reporting by Nivedita Balu in Bengaluru; Editing by Arun Koyyur)