Gap Lowers Profit Forecast as Sales Slump at Namesake Brand

SAN FRANCISCO, United States — Gap Inc., the biggest U.S. apparel- focused retailer, cut its annual profit forecast as sales at its namesake brand continue to struggle.

Earnings per share in the year through January will be $2.73 to $2.78, the San Francisco-based company said in a statement today. That’s down from the company’s earlier guidance of $2.95 to $3. Analysts estimated $2.91, on average.

Chief Executive Officer Glenn Murphy has been working to improve merchandise at Gap-brand stores, which have slashed prices to clear out slow-selling styles. Same-store sales at Gap slid 5 percent in the quarter. Murphy, 52, said last month that he’ll step down as CEO in February and hand the reins to Art Peck, president of Gap’s growth, innovation and digital unit.

The “third quarter was not a quarter for the record books as Gap brand underperformed,” Tom Filandro, a New York-based analyst at Susquehanna Financial Group, wrote in a note to clients yesterday. He has a neutral rating on the shares.

Gap shares gained 1.2 percent this year through the close of regular trading yesterday, compared with an 11 percent increase in the Standard & Poor’s 500 Index.

Net income in the quarter ended Nov. 1 rose 4.2 percent to $351 million, or 80 cents a share, from $337 million, or 72 cents, a year earlier. The average of analysts’ estimates compiled by Bloomberg was 79 cents. Net sales fell 0.1 percent to $3.97 billion.

Brands’ Sales

Sales at stores open at least a year and online declined 2 percent last quarter, compared with a 1 percent gain in the same period a year earlier. Comparable-store sales at the Banana Republic brand were little changed, versus a 1 percent decline a year earlier. Sales on that basis at Gap's discount Old Navy brand rose 1 percent after being little changed a year ago.

Murphy has been working to integrate the company’s website and stores to better compete with online rivals. In addition to its reserve-in-store feature, the retailer said this week that it’s introducing an online tool that allows shoppers to create wishlists of products across all of its brands.

By Lindsey Rupp; editors: Nick Turner, Kevin Orland, Niamh Ring.