Gap Cuts Annual Profit Forecast as Sales Continue to Slide

Gap Inc., the largest apparel-focused retailer in the U.S., cut its full-year profit forecast after declining sales and heavy discounting dragged down results.

Earnings will be $2.38 to $2.42 a share this year, excluding some items, the San Francisco-based company said in a statement Thursday. The company had previously forecast profit of as much as $2.80.

The outlook provided a bleak view of Gap’s holiday season, its biggest sales period of the year. The company has struggled to adapt to fashion trends and get customers into stores, especially at its Gap and Banana Republic chains. And even sales at its Old Navy division, long a bright spot, missed analysts’ estimates last month. Gap also recently lost Old Navy President Stefan Larsson to Ralph Lauren Corp., putting additional pressure on the company.

“A weak third quarter doesn’t bode well for the fourth quarter,” said Ed Yruma, an analyst at Keybanc Capital Markets. “The environment is worse than we all thought, but Gap wasn’t expecting the holidays to be a quick fix. It will take some time for them to get back to where they were.”

Gap fell as much as 5.8 percent to $23.63 in late trading after the results were announced. The shares already had declined 40 percent this year through Thursday’s close.

Chief Executive Officer Art Peck, who took the job in February, has reshuffled management in a bid to reignite the company. He also announced last month that Banana Republic’s creative director, Marissa Webb, would step down. That chain has been particularly weak, with same-store sales plunging 12 percent last quarter.

Spring Rebound

Peck has said that his comeback plan will begin to pay off in the spring, signaling that the holidays will be a tough stretch for the retailer.

Third-quarter net income fell to $248 million, or 61 cents a share, from $351 million, or 80 cents, a year earlier. Comparable sales fell 4 percent at Gap, while Old Navy posted a 4 percent gain.

Gap, started in 1969, was a pioneer in specialty-apparel but has more recently played catch-up to rivals like Express Inc. and Lululemon Athletica Inc. In a bid to make the company faster and more flexible, Peck is paring back its operations. In June, Gap announced it would close almost a quarter of its Gap locations and cut 250 corporate jobs as part of its comeback plan.

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