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Gap posts 19% profit drop in second quarter

Gap blamed the decline on rising costs and deep discounts on merchandise. Total sales rose 2% to $3.39 billion.

August 19, 2011|By Andrea Chang, Los Angeles Times
  • Gap Inc. reported earning $189 million, or 35 cents a share, in the second quarter, down from $234 million, or 36 cents, a year earlier. Above, a Gap store in San Francisco.
Gap Inc. reported earning $189 million, or 35 cents a share, in the second… (David Paul Morris, Bloomberg )

Apparel giant Gap Inc. had another weak quarter, reporting a 19% decline in profit and a slump in sales at stores open at least a year.

The San Francisco company — parent to the Gap, Banana Republic and Old Navy chains — said Thursday that its fiscal second-quarter profit fell to $189 million, or 35 cents a share, from $234 million, or 36 cents, a year earlier.

Sales at stores open at least a year, known as same-store sales and considered an important measure of a retailer's health, fell 2%.

Major divisions Gap North America, Banana Republic North America, Old Navy North America and International all posted the same or worse same-store sales results than in the second quarter of 2010.

Total sales rose 2% to $3.39 billion.

The company attributed the drop in profit to rising costs and deep markdowns at its stores; Gap's near-constant deals have worried analysts, who say shoppers have become trained to wait for discounts and won't pay full price.

"Despite a difficult quarter, we still delivered a net sales improvement, and I continue to believe we have far greater opportunities than challenges ahead of us," Chief Executive Glenn Murphy said in a statement. "Every brand, division and geography is focused on what matters most."

Christine Chen, a retail analyst at Needham & Co., said in a recent interview that although Gap has had success with its jeans and black-pants lines, its tops aren't resonating with shoppers. Moreover, the company continues to have trouble convincing customers that its clothes and stores are trendy.

"That's something they've really struggled with — getting the coolness factor, the hipness factor, back," she said.

Gap released its earnings after the markets closed. During regular trading, its shares fell 90 cents, or 5.5%, to $15.52.

andrea.chang@latimes.com

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