By Khadeeja Safdar 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 24, 2018).

Gap Inc.'s struggles to revive its flagship brand continued in the latest quarter as declining sales muted gains at the retailer's other units.

Comparable sales at the company's flagship brand declined 5% in the most recent quarter from a year earlier, sending shares down 6.6% in after-hours trading.

Chief Executive Art Peck called the performance unacceptable and attributed the problems to an inventory backlog that he said the company was working to correct. "We believe the worst is behind us," he said on a conference call Thursday.

Companywide comparable sales increased 2% in the second quarter from the year-earlier period. That includes Old Navy, which increased 5%, and Banana Republic, which edged up 2%

Earlier this year, Gap Inc. parted ways with the leader of its flagship brand, Jeff Kirwan, and gave the job to Neil Fiske, who previously worked at Billabong. Mr. Peck said the company is still working to clear inventory at the brand and expects to see improvement later in the year.

Several executives have tried to revive the Gap brand, but wardrobe basics have evolved since its heyday. In recent years, the brand has lost market share to fast-fashion rivals like Zara. Old Navy, the company's budget brand and biggest division by sales, has been a bright spot, helping to shore up companywide results even as Gap has struggled.

Gap brand needs to revamp its product offering, said Neil Saunders, managing director of GlobalData Retail. "While the market is moving forward, Gap is, at best, standing still," he said in a note on Thursday. "That the brand cannot deliver, even over a period of very robust consumer spending, is evidence that it is still broken."

Buoyed by rising wages and employment as well as tax cuts, Americans are spending more on products as diverse as jeans, handbags and wall paint. The rising consumer confidence has translated to better sales at several retailers.

Mr. Peck said he has made improvements on the company's supply chain and is rolling out initiatives like a loyalty program that can be used across brands, technology to help store staff replenish inventory and a service that lets customers buy online and pick up in the store. He is adding plus sizes in Old Navy, in a bid to attract more customers.

Mr. Peck said his plan to remodel stores is paying off, providing a sales lift. In the past year, the company has opened more Old Navy and Athleta stores, while closing some Gap and Banana Republic stores, leaving it with more than 3,000 locations. "The simple fact is, is that most apparel is still sold in stores and will continue to be sold in stores," said Mr. Peck.

Write to Khadeeja Safdar at khadeeja.safdar@wsj.com

 

(END) Dow Jones Newswires

August 24, 2018 02:47 ET (06:47 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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