Gap CEO Committed to Elevating Product Before Boosting Marketing

Gap Brand Is Focused On Reviving Product By Spring 2016

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Gap, Inc. is working to elevate its product offerings before boosting marketing for its ailing namesake brand and Banana Republic, said CEO Art Peck.

"The best marketing is good product," said Mr. Peck, on a conference call with analysts. He offered the spring of 2012, when business improved due to modest marketing coupled with strong product, as an example. "As we feel better about the product, that will help us think about the marketing that we're willing to put behind it. … I do believe that your marketing should lag good product, and that a lot of what will drive a bounce in the business is good product in the stores, which you then put some marketing behind in maybe the next period."

Mr. Peck, who took the reins in February, said the company is concentrating on reviving Gap brand product by spring 2016, under the direction of new global merchandising head Steven Sare. Banana Republic's product selection is expected to strengthen in the second half of this year.

Marketing expenses for the second quarter were $131 million, down $11 million from last year, the San Francisco-based company said in a statement Thursday. The decline was driven mainly by the Banana Republic brand; the absence of the Piperlime e-commerce brand, which Gap shuttered during the first quarter of 2015; and the Gap brand, to a lesser extent, said Chief Financial Officer Sabrina Simmons, on the conference call. Marketing expenses are expected to shrink again in the third quarter, Ms. Simmons said, adding that it's too early to comment on holiday because planning is still underway.

Net sales fell 2% to $3.9 billion during the second quarter, while profits dropped to 64 cents a share, excluding the impact from a move to close about 175 Gap stores and eliminate 250 corporate jobs.

Comparable sales for the Gap and Banana Republic brands declined 6% and 4%, respectively. Old Navy remained a bright spot during the quarter with a 3% rise in comparable sales, down from a 4% increase this time last year.

-- With contributions from Bloomberg News --

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