Old Navy is one of the most successful stores in retail right now - but Gap's struggles are raining on its parade
- Gap is struggling while its sister brands thrive.
- In its most recent earnings results, reported on Tuesday, same-store sales at the Gap brand were down 7%, while Old Navy and Banana Republic reported a 4% and 2% increase, respectively.
- Gap Inc. CEO Art Peck told investors that the company is looking to close hundreds of Gap stores, including its flagship locations.
Tuesday's earnings results were bittersweet for Gap Inc. - the parent company of Gap, Old Navy, Banana Republic, and Athleta - which has watched its namesake brand increasingly fall out of favor and be outshined by its sister brands.
During the third quarter, same-store sales at the Gap brand were down 7%, while Old Navy and Banana Republic reported a 4% and 2% increase, respectively.
CEO Art Peck said during the earnings call that the company is now looking to close hundreds of Gap stores, including flagship locations.
"This is the piece of the business that we are firmly committed to addressing with urgency," he said, adding that the company would be closing stores that were unprofitable, had low traffic, or didn't offer a good customer experience.
"We have had a lot of stores that are in the bottom half of the fleet that have continued to deteriorate over time. And it is my strong belief that we've kicked the can down the road on this and offered a deteriorating customer experience ... These stores are a drag on the health and a drag on the performance of the brand," he said.
Meanwhile, Old Navy, its low-cost sister brand that has a cult following of price-conscious shoppers, is growing exponentially. While Gap has struggled, Old Navy has seen positive same-store sales growth for the past five years.
Read more: We visited Old Navy and saw why it's Gap's biggest asset
"Old Navy has continued to deliver and deliver consistently," Peck said.
Old Navy was previously slated to open 60 stores this year, but Peck updated this number to 70 in the call.
Even Banana Republic, which has struggled in the past, is making its way toward a comeback.
"Gap's lack of performance is more than made up for by Old Navy," Neil Saunders, managing director of GlobalData Retail, wrote in a note to clients on Tuesday.
However, its ongoing issues are "raining on what would otherwise be a sunny parade," he said.
Saunders said that Gap's woes come down to its image and assortment, which is not something that can be resolved by simply trimming real estate.
"Gap's brand image is still lackluster and it is not bringing anything new or exciting to the market," he said.
He continued: "Products are still samey and boring and they are being discounted because Gap is unable to sell them at full price."