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A Look at Banana Republic, Gap’s Weakest Link

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Banana Republic’s sales collapse

Banana Republic, which accounts for 16% of GAP’s (GPS) total revenue, is clearly its weakest link. The brand has reported negative same-store sales for six consecutive quarters, with average same-store sales declining 10% over the period. In fact, the brand has seen positive comps (comparables) only once in the last 14 quarters. Its sales comps have either been negative or zero except in 4Q15 when they increased 1%.

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Neil Saunders, CEO (chief executive officer) of consulting firm Conlumino, recently commented, “The assortment is at the heart of Banana’s issues and symbolizes a brand that has simply lost its way.” He added “The spring and summer collection is best described as predominantly bland with a generous sprinkling of oddness thanks to garments with strange cuts and pattering.”

The brand’s weak position was also mentioned by Art Peck, CEO of Gap, during the 2Q16 earnings call. Peck said Banana Republic was “nowhere close to the performance that the brand is capable of, nor what we expect and want to hold it accountable for.” He added, “We have urgency and we have a lot more work to do.”

Investors looking to invest in Gap through ETFs could choose to invest in the iShares Morningstar Mid-Cap Value (JKI), which invests 0.44% of its holdings in Gap.

Banana Republic and competition

Banana Republic’s competitor Ralph Lauren (RL) has also witnessed sluggish traffic at its stores and has reported a slowdown in same-store sales in the last couple of quarters. The company’s sales comps fell 6% for the quarter ended July 2, 2016, after reporting six consecutive quarters of negative same-store sales.

In its last reported quarter, Tommy Hilfiger (PVH) reported a 10% decline in sales comps in North America and an 8% increase in comps in international markets.

Handbag and accessory companies such as Kate Spade (KATE) and Michael Kors (KORS) are also in a slump. Kate Spade, whose same-store sales increased at an average of 15% between 2Q15 and 1Q16, saw comp growth of just 4% in 2Q16, which ended July 2, 2016.

Next, let’s take a look at the performance of Gap stock.

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