The Gap Can't Seem To Shake Its Blue Period

The Gap , iconic for its denim roots, can’t seem to shake the blues.

The retailer reported poor first quarter comp-store sales last week, and its earnings report tomorrow won’t be much prettier, analysts predict.

While Gap Inc.’s Old Navy spin-off is thriving, the retailer’s namesake brand has slipped into another funk: April comp-store sales at Gap Global sank 15%, versus a 3% rise last year.

“While management did not comment on margins, we tweak our first quarter and second quarter gross margin estimate down slightly given April comps below our estimate and inventory dollars +4% per store,” according to a research note last week from Cowen & Company. “The Gap division has an aesthetic journey ahead – and we will monitor for more alluring product.”

The retailer’s existential malaise reflects a reversal of fortunes: It looked like the Gap brand had turned a corner back in 2013.

After posting about five years of negative and flat comp-store sales and a string of fashion missteps, Gap shook up its management team: It replaced Marka Hansen with Art Peck (now CEO) as president of Gap North America, and formed the Gap Global Creative Center in New York.

The changes seemed to pay off. The new team produced a fashion hit that got a lot of attention: Brightly colored jeans. Orange , pink and sea-blue denims put the Gap back on the fashion map, and the retailer logged a string of positive same store sales in 2013.

 Déjà Vu

But now it’s like déjà vu, as once again, the Gap has lost its fashion groove.

“None of us are satisfied with the performance that we are seeing at Gap,” Peck said during the company’s fourth quarter conference call in February.

Hence, another round of top-merchant management changes.

Peck named Wendy Goldman, who served former stints at L Brands (formerly The Limited) and Goldman Sachs, executive vice president of product design, while Rebekka Bay, the brand’s creative director, saw her position eliminated.

“I made a very quick change with senior leadership there,” he said. “I did this because we were not seeing the performance improvement in the business that we needed to see and specifically I was not seeing the women’s product back on track the way it needed to be for the brand to perform to its potential.”

While the Gap’s troubles are partly self inflicted, the proliferation of competition that’s resonating with shoppers is also playing a big role, Anjee Solanki, national director of retail services for Colliers International, told Forbes. “They’re getting crowded out,” she said.

Fast-fashion retailers Zara, Forever 21 and H&M are offering more on- trend jeans and tops than the Gap for a fraction of the price; and Japanese retailer Uniqlo, spreading its U.S. wings, “is another threat.”

“They’re expanding into the “mall and urban [markets] with very similar product to the Gap, and the quality is quite good,” whereas “the gap is now beige,” Solanki said.

Indeed, The Gap has a longtime tendency to lapse into monochromatic, Garanimals-for-grownups clothing cycles that fail to excite shoppers.

We’ll see what tomorrow’s earnings report brings for the chain. As of last week, analysts don’t see the potential for an improvement to turn up in Gap's stores until later this year or next year.

“Product acceptance risk at Gap division points us towards lack of near-term upside, as merchandise margins could be under pressure due to assortment fixes taking time,” according to the Cowen & Co. report.

“Customers are not responding to current product, thus management remains focused on the possibility of showing improvement in the business by holiday 2015, with a real focus on Spring 2016 as the 'no excuses’ period for the turnaround,” said Dana Telsey, CEO of Telsey Advisory Group, in a research note.