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Gap to close Old Navy in Japan, warns of earnings shortfall

Gap Inc., under pressure to turn around operations amid a prolonged sales slump, said it plans to close all its Old Navy stores in Japan and some Banana Republics mostly outside of North America by the end of its business year.

The San Francisco company also gave a cautious outlook for the remainder of the year, saying it needed “trends in the apparel retail environment” to improve from the first quarter to achieve Wall Street’s consensus earnings target for the year. On Thursday, Gap reported its fifth straight quarter of lower revenue and profit.

Altogether, Gap said it would close about 75 stores, largely abroad, and said it would book about $300 million in restructuring charges before taxes. It estimated the moves would save about $275 million a year.

The restructuring efforts, which follow dozens of store closings in North America last year, weren’t enough to protect the company’s investment grade credit rating. S&P Global Ratings downgraded the retailer to junk status Thursday. Fitch Ratings downgraded Gap to junk status last week.

“We believe meaningful industry headwinds have more than offset the company’s various operating initiatives and hurt the company’s competitive standing on a sustained basis,” wrote S&P credit analyst Helena Song, “as the company has weakened brand appeal and lost share to fast fashion retailers, online competitors, and off-price retailers.”

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