San Francisco based clothing company, Gap Inc., has experienced reduced earnings due to weakening foreign currencies this year; however, it performed better than expected as shown in the fourth quarter results. Gap Inc. operates Old Navy and Banana Republic chains as well as namesake stores. Gap Inc. had seen higher same store sales for eight consecutive quarters. In recent times, the company has faced competition from Forever 21 Inc. and Inditex Group Inc’s Zara. Gap Inc. posted 1% increase in same store sales in the year whereas the sales dropped in the Banana Republic stores (Prior, n.d.).
On the other hand, same store sales remained the same at Old Navy. The company earnings are expected to fall by 5% in the current year, however, the share earnings doubled despite these effects. Analysis carried out by Thomson Reuters projected a growth of 11 percent in earnings to $3.02. The company’s overall earnings dropped from 351 million dollars in the previous year to 307 million dollars this year. The growth margin of the company also reduced from 37.6 last year to 34.8 this year (Prior, n.d.).
The retailer’s sales reduced considerably in the US, Canada and Europe. However, Asia posted a 2.8% rise in sales in the year. The company therefore plans to expand its market in the continent by establishing more branches. The first branch is to be opened in Shanghai China with five more stores to be established in the country (Prior, n.d.).
The company has used past information to inform its future actions. Previous events don’t usually predict future actions accurately e.g. before 1980s the worst decline in stock prices was 10% but in October 1987 the prices tumbled by 23%. This shows that history is not reliable and the fact that sales have increased in Asia is not a guarantee of a continued future trend. The company should put into account the randomness inherent in economic variables (Cunnyngham, 2012).
A company cannot assume that it can find precedents for anything and use it to predict everything, Today’s world is not similar to the past and situations of interdependence and non-linearity have increased and therefore the company can still perform well in the face of emerging competition (Cunnyngham, 2012).
Prior, A. (n.d.) Gap warns of currency risk.
Cunnyngham, J. (2012). The short-term forecasting ability of econometric models. NBER, unpublished.