By  on November 18, 2005

NEW YORK — Gap Inc. delivered a largely anticipated weak third-quarter earnings report Thursday due to soft traffic levels at all three brands and disappointing customer response to fall merchandise.

The company said because November traffic levels have deteriorated more than expected, it sharply lowered full-year earnings expectations to below Wall Street estimates.

In the three months ended Oct. 29, the San Francisco-based company earned $212 million, or 24 cents a diluted share, compared with $265 million, or 28 cents, a year ago. Analysts had expected a profit of 24 cents.

Revenues fell 3 percent to $3.86 billion, and consolidated same-store sales were down 7 percent. By division, sales at Gap North America were flat at $1.4 billion, while Banana Republic saw sales decline slightly to $537 million from $538 million. Old Navy had a 5.9 percent decline in sales to $1.6 billion, and internationally, sales were down 4.7 percent at $324 million.

Year-to-date, the specialty retailer had earnings of $775 million, or 86 cents, up from $772 million, or 81 cents, a year ago. Revenues fell slightly to $11.2 billion from $11.37 billion.

Gap maintained that its merchandising issues are "fixable" and that it is taking "aggressive" actions to resonate again with customers. Gap said on a post-earnings conference call that it will focus on the three fundamentals of retailing: product, including providing key merchandise items to deliver its "fresh, casual, American-style" aesthetic; store experience, including visual displays, customer service and remodels, and marketing, including its holiday "magalogue" and appropriate television and print campaigns.

Paul Pressler, president and chief executive officer of Gap Inc., said on the conference call that, during the past two years, Gap focused on building critical infrastructure and operating efficiencies "at the expense of creating amazing product and a compelling store experience." Now, he said, the company is "100 percent focused on the customer and improving product and the in-store experience."

In terms of product, Pressler said Gap and Old Navy specifically will adjust sourcing so that designers and merchants will work with vendors to chase trends and provide some updated product in stores faster than the company's typical nine-month pipeline.Looking to the current quarter, Pressler said the company is "not optimistic ... recognizing that it will take time to win back some of the customers that we've disappointed."

As such, Gap lowered its full-year earnings-per-share guidance to $1.12 to $1.17, down from a prior estimate for $1.30 to $1.34. Analysts are expecting a profit of $1.25 in the full year and 40 cents in the fourth quarter.

To access this article, click here to subscribe or to log in.

To Read the Full Article

Tap into our Global Network

Of Industry Leaders and Designers

load comments
blog comments powered by Disqus