Problems at The Gap

Gap Inc. (San Francisco) reported a 20 percent drop in its fiscal third-quarter profit, the worst sales slump the specialty apparel retailer has suffered in more than three years.

The company said it earned $212 million for the three months ended Oct. 29, 2005, compared with $265 million a year earlier.

Revenue in the quarter fell 3 percent decline and same-store sales fell 7 percent, the largest three-month decline in same-store sales since the second quarter of 2002.

Same-store sales have either declined or remained flat in each of the last 12 months, an indication that its clothing is not pleasing some fashion tastes. Like other retailers, Gap has also been hurt by the sharp rise in gasoline prices. These added expenses have prompted many consumers to curb their spending on discretionary items. As shopping traffic continued to falter this month, Gap’s management has dimmed its outlook for the holiday season.

“Our third-quarter results were unacceptable,” said ceo Paul Pressler, said. “However, the issues we face today are fixable, and we are aggressively executing plans to provide more compelling product and exceptional store experiences for our customers.”

By division, Gap North America had flat sales in the quarter and a 4 percent drop in same-store sales; Banana Republic North America had nearly flat sales and a 7 percent drop in same-store sales; Old Navy North America had nearly flat sales and an 8 percent drop in same-store sales; and International business was down 5 percent with a 10 percent drop in same-store sales.

Through October 29, the company had opened 99 store locations and closed 11. Net square footage for the third quarter increased 3 percent. For fiscal 2005, the company now expects to open about 195 store locations, up from its previous guidance of 190, weighted toward Old Navy. Furthermore, the company now expects to close about 145 store locations, up from its previous guidance of 140, weighted toward Gap North America. Net square footage is still expected to increase 3 percent for the year.