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Gap 1Q Profits Drop 16.8%

Gap Inc. reported first-quarter results on Thursday that indicated more time is needed to turn around the company.

NEW YORK — Gap Inc. reported first-quarter results on Thursday that indicated more time is needed to turn around the company, and the retailer said that progress might not be reflected in financial results until the second half of the year.

For the three months ended April 29, income fell 16.8 percent to $242 million, or 28 cents a diluted share, from $291 million, or 31 cents, in the same year-ago quarter. Sales declined 5.1 percent to $3.44 billion from $3.63 billion, while same-store sales decreased 9 percent.

By division, sales at Gap stores in North America dropped 8.3 percent to $1.1 billion from $1.2 billion while comps declined 8 percent. Banana Republic stores in North America reported mixed results during the quarter, gaining 1.2 percent in sales to $518 million from $512 million. Comps, however, decreased 5 percent in the period. Sales at Old Navy stores in North America declined 6.25 percent to $1.5 billion from $1.6 billion, as comps fell 11 percent. The international segment posted a 12.9 percent drop in sales to $296 million from $340 million as comps also decreased 11 percent.

“During the first quarter, we made progress in each of our brands to improve the product and store experience,” Paul Pres­sler, president and chief executive officer, said in a statement.

Pressler said that the company remains “confident” in the strategies under way to turn around the business, and that it expects to see the progress reflected in the financial results for the “second half of the year.”

Inventory per square foot was down 5 percent at the end of the first quarter compared with being up 5 percent last year. The company expects inventory per square foot at the end of the second quarter to be flat, versus a 3 percent decline in the comparable period a year ago.

Gap reiterated guidance for fiscal year 2006 earnings per share of $1.23 to $1.27, which included certain pretax expenses.

At the end of the quarter, Gap operated 3,070 stores worldwide under its different nameplates. The company opened 17 new stores during the period. The most recent addition to the Gap family, the Forth & Towne nameplate, operated just five stores in the quarter.

This story first appeared in the May 19, 2006 issue of WWD.  Subscribe Today.

First-quarter results were released after stock markets closed.