Gap Inc. on Thursday logged its first earnings gain in seven quarters but joined other California apparel retailers in lowering profit projections more than expected as shoppers looked to bag ever bigger bargains.
Taking a cue from customers, many retailers have adopted a cautious mood. Among those trimming forecasts for the current quarter are Anaheim-based Pacific Sunwear of California Inc., Foothill Ranch-based Wet Seal Inc. and Bebe Inc. of Brisbane.
Shoppers are skittish amid a wave of economic uncertainties, including a slumping housing market and a gyrating stock market. The high rollers are still spending, but others have pulled back.
"There's a big difference between the haves and the have-nots," said Christine Chen, an analyst at Needham & Co. "The A malls are busy, the B malls are not."
And that does not bode well for the holiday shopping season.
"I think the die is cast on the holiday as being weak," said Robert Buchanan, an analyst at A.G. Edwards & Sons. "I think back-to-school and early fall really helped to set the tone. Clearly, business is not good."
Gap, which has eliminated 2,200 positions this year as it streamlines its business, has been in a three-year sales slump. But it made some headway in the fiscal second quarter.
The parent of almost 3,100 Gap, Old Navy and Banana Republic stores said earnings rose 19% to $152 million, or 19 cents a share, for the period ended Aug. 4, compared with $128 million, or 15 cents, a year earlier. Profit was in line with analysts' expectations. Sales fell 1% to $3.69 billion from $3.7 billion in the year-earlier period.
Gap cut per-share profit projections for the fiscal year to 83 cents to 88 cents. Analysts had expected earnings of 93 cents.
Meanwhile, Gap's new chief executive, Glenn Murphy, said he had been traveling the country, touring stores, meeting with employees and getting "grounded in the business."
"It's been a good beginning," said Murphy, a former Canadian drugstore executive.
He didn't indicate whether he planned to unveil any major changes but said he supported turnaround efforts that already are underway.
Gap, which has been buying back stock since 2004, also said that its board had authorized purchasing an additional $1.5 billion worth of shares.
The top priority for the company is stabilizing its two largest chains -- Gap and Old Navy -- and giving shoppers a reason to return to the stores.
