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Gap slashes jobs
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August 9, 2001: 1:37 p.m. ET
No. 1 U.S. apparel chain to cut 1,300 jobs as it tries to cut costs, boost sales
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NEW YORK (CNNfn) - Gap Inc. is eliminating 1,300 jobs and taking a $30 million charge in the second quarter as the nation's biggest apparel retailer tries to boost its sagging bottom line by consolidating and cutting costs, the company said Thursday.
The cuts come as the chain, which also owns Banana Republic and Old Navy, reported a 12 percent drop in July sales at stores open at least a year, a key retailing gauge known as same-store sales.
San Francisco-based Gap (GPS: down $1.74 to $25.43, Research, Estimates), which has been struggling with a glut of basic fashions and a slowing economy that has affected most retailers, said it laid off 800 employees throughout its worldwide headquarters in July and eliminated an additional 500 unfilled positions.
"I think the company went through an aggressive analysis of where they needed to be on staffing, and the final tally was little bit lower," Merrill Lynch retail analyst Mark Friedman said.
Of the 800, Gap said 240 jobs came from management at its Fresno, Calif., and Rugby, England, distribution centers. An additional 425 will be cut when Gap closes a Ventura, Calif., distribution center and transfers its London headquarters to Rugby.
Gap said it anticipates a $30 million charge related to the job cuts in the second quarter, with earnings coming in at 9 cents a share, when it reports results Aug. 16 after the close of markets.
Excluding the charge, Gap expects earnings of 11 cents a share, in line with Wall Street's consensus forecast of analysts, according to earnings tracker First Call.
Separately, Gap blamed its July same-store sales drop on lower store traffic, particularly at Gap and Old Navy, and higher-than-planned markdowns and promotions.
"While we expected July to be a big clearance month, we did experience difficult traffic patterns in Gap and Old Navy," Chief Financial Officer Heidi Kunz said during a recorded announcement Thursday.
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Kunz said merchandise margins at Gap and Banana Republic stores fell below plan due to markdowns, which erode profit.
She said July was a more promotional month than expected.
"Looking at inventory, we ended the month with somewhat more inventory at markdown this year versus last year,. But the second-quarter inventories are below plan, and we still expect inventory per square foot to be down more than 15 percent from last year's levels," Kunz said. 
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Gap Inc.
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