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Troubled by the uncertainty, many analysts took the Gap's stock off their list of recommended buys. The company's shares fell by 8 5/8 the next day. Then over the weekend, Chairman Fisher finally announced the firm's projections for third-quarter earnings: 40 cents to 55 cents a share, in contrast to 60 cents last year. It was this news that drove the stock down another 10 1/4 points last Monday. On Tuesday, when the Dow Jones industrial average climbed a record 75.23 points, the Gap managed an anemic 5/8-point rise. It closed on Friday at 36 3/4, down 10 1/2 points for the week.
What could account for such a collapse? Some factors were plaguing the entire retail industry. A hot summer and late Labor Day meant that the normal back-to-school spending sprees never really revved up. Some shoppers, it seems, were just not sure what they wanted to buy. Many were wondering, for example, if the miniskirt was really back. Once inventories piled up, stores had to cut prices to keep their merchandise moving. That depressed earnings. The Limited's stock price dropped 27% over the past month, and the Dress Barn was down 25%.
But the Gap apparently made some mighty miscalculations of its own. Analysts say its fall colors, weighted heavily toward gray, beige and olive, were too drab for many shoppers. The chain's staples -- roomy buffalo-plaid flannel shirts, ten-button Tees and jeans -- did not offer buyers anything fresh. Even Banana Republic's safari look was running out of steam. Meanwhile, copycat stores seemed to be appearing on every corner.
Some industry experts predict that the Gap will regroup in time for Christmas. In San Francisco and two other locations the company is trying out a tony kind of store, new for the Gap, called Hemisphere shops, to cater to an upscale market. "We're going to adapt," vows Drexler. "It's a matter of speeding up our creative process." And despite last week's setback, the Gap remains one of the most profitable chains in the country. "I see some hopeful developments for 1988," says Loeb. "You do sometimes have a season that is wrong, but that doesn't mean the company is going to fold." That should console Chairman Fisher. In the past month the value of the 9.5 million Gap shares that he and his wife own fell by close to $360 million. That is quite a gap to fill.