Chillin' out till it needs to be funded
Of course, in keeping with the series’ semantics and character, because both GAP and Esprit have been out of Retail Lifestyle Winner shortlists for a long time and may remain so, but luxury retail has already tried with private Equity and failed, Hyper markets and Superstores chains like Sears have failed consistently at restructuring initiatives and Walgreens’ and Macy’s continue to try with a mixed success yet positive traction in the Retail economy even during troubled times.
However if you are not the Winner like a Coke or a Disney (recently) and a MacDonalds’ the semantics always unfairly put you in the also rans. Gap(GPS:US) has not tried to be a Macy’s or set up a design and merchandising unit in Europe. It has also not planned setting up 100 stores in Asia and despite our proclamations to the contrary, it also seems to have got out of being on the chopping block. Esprit on the other hand is a little more unfortunate. After reporting a USD 71 M profit for the first half of 2012, the company just now reported the resignations of its Chairman and CEO together as its shares (listed on Hongkong) have lost more than 62% according to the Reuters report that incited this analysis piece (Retailer Esprit in the doghouse, Thomson Reuters: Reuters Insider http://reut.rs/Ln15dj)
Esprit(330:HK) reported over $4.2 B in Sales in the latest 12 months though large losses after its HK listing in the second half of 2011 to the tune of $250M seem to have marred a good run from the retailer. Kraft’s recent bifurcation or Macy’s and Sears attempts at restructuring do not seem to inspire these box retailers either. They also do want to consistently cling on to their brand edge yet are seemingly still mired in costly troubles exacerbated for Esprit by its European sales losing lustre. H&M works with Designers that rake in the positive slice of brand awareness while Inditex ( ITX:US) which owns Zara seems to have impressed watchers with fast product launches. The loss of CEO Van der Vis and Chairman Hans Joachim Korber on the eve of an expected new CFO announcement seems to have put this hot retailer in a soup for the end of the road looks nigh. A recent acquisition of Avon by Coty however did not materialise and any suitors for Esprit will again likely falter at the price bar as the brand is unlikely to be valued for pennies despite the recent escalations in Costs. The June half year results are only going to bring in losses of $13-15 M (million) which is hardly germaine. The retailer has lost 75% of its valuation from December 2010 to $2.2 B
The Esprit brand was parented in Frisco in 1968 by the Tompkins and sold to its HK agent Mike Ying in the 90s when it listed in Hongkong. its February data was a 74% drop in profits from 2011 half year results.
Gap on the other hand has 3000 super speciality stores selling casuals assortments of clothes from Old Navy and Banana Republic among others which only look like they are for everyday wear. It is present in 90 countries though it has been losing place in Europe since 2005. Gap was also conceptualised in Frisco. Its market cap has grown from $8B to $12.5B in the last one year and has been reporting a Topline of $14.5 B for the last four years till January 2012, though the most recent Net Income of 833 M is a drop of nearly 20% over last year. Its best was achieved last year when it reported $2 B in Gross Profit and $1.2 B in Net Profit.
Gap set up its Global Design center in New York in 2011, appointing Ad man Seth Farbman the Global CMO. It plans to export the Old Navy brand thru Stores outside North america and introduce Gap’s casual luxury to China in this year’s plans, having sourced products from over 100 vendors and has hardly decreased 3000 employees across its 37 M square feet of space from the bottom of the retail trough in January 2009 when its Market Cap was nearly $7 B or 44% lower. Its plans in India and China depend on regulatory approvals and changes underway.
Under CEO Murphy it has been concentrating on 6000-10000 sft sized stores since 2008 leaving larger properties except in meetropolitan high traffic areas ( with comparable co-tenants) As late as Feb 2011, NA CEO Marka Hansen left the company after a dismal Holiday season. Same store sales were down 4% in the January 2012 report. The chain has also added back Franchise owned stores to 227 hile operating 3069 stores on its own.
May 2012 Sales increased 4% Y/Y to $1.1 B. Comparable same store sales for the 17 weeks to May 28, 2012 were up 3% after a 3% decline last year to May 30(17 weeks) The company’s Q1 margins were lower despite 5.5% jump in sales though diluted earnings jumped 205 to 47 cents a share and it recently revised its earnings forecast up by 14-17% at $1.78 – $1.83 for the FY2013 ( January 2013) with a tax rate of 39.5% and a Op Margin of barely 10%. Only a 1000 of its 3000 stores are located in the US whence it would be reducing its US and Canada presence to 700 stores for the GAP brand by end 2013
1 in 4 stores in New York city will be closing down. it will reduce 1 million sft in space, reducing the Old Navy footprint and it seems allloing a total of 250 Gap Outlets to keep the total US and Canada presence to a 1000
Online accessories brand Piperlime and Sports brand Athleta will be firming up brick and mortar plans this year and may be the only groing franchises in home country here on.
Though Divestments can be costly, GAP has been safeguarding its cash ( Balance sheet cash of $2 B)