Gap falls through the inflation gap

People pass by the GAP clothing retail store in Manhattan, New York, U.S., August 15, 2016.

TORONTO, April 22 (Reuters Breakingviews) - Gap (GPS.N) has highlighted the uncertainty facing clothing retailers. Shares in the San Francisco-based purveyor of jeans and casual sweatshirts fell over 19% in Friday morning trading, the day after it announced that Old Navy boss Nancy Green was leaving the division. The $4 billion company also warned sales in the three months to the end of April would be down by more than 10%, worse than previously expected.

Though Gap talked of the macroeconomic dynamics it is facing, its warning of “execution challenges” at Old Navy is more ominous. Chief Executive Sonia Syngal said in March that lower-priced brands like Old Navy could benefit in times of inflation as consumers trade down. But now the company plans to start discounting Old Navy merchandise, hitting margins in a business that accounted for more than 50% of Gap’s top line in the 52 weeks ended January 29. Gap shares, which are down over 30% year-to-date compared to just 5% at rival Macy’s (M.N), also suggest the company’s woes go deeper than rapidly rising prices. (By Sharon Lam)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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Editing by Peter Thal Larsen and Pranav Kiran

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