Gap’s stock tumbles after namesake brand’s sales decline worsens

Old Navy has been Gap Inc.’s savior in recent quarters, but its strength — along with a companywide jump in profit — wasn’t enough to quell investors’ concerns about Gap’s namesake brand.

The San Francisco company announced Thursday that its profit rose nearly 10% to $297 million for the quarter that ended Aug. 4.

But the Gap brand posted same-store sales that fell 5% in the quarter — more than double the decline projected by analysts. Although ongoing gains at the Old Navy value chain helped shore up results, the apparel retailer’s stock still dropped in after-hours trading after the results were announced.

Gap has increasingly relied on Old Navy and its Athleta brand while it works to revive its namesake unit. In June the company named Neil Fiske chief executive of the Gap brand, and his priority has been to fix problems with late deliveries that caused inventory to swell in the first quarter. That swollen inventory led the retailer to resort to discounts.

Gap shares fell as much as 9.2% to $29.44 in after-hours trading. The stock had dropped 4.8% this year through Thursday’s close.

Comparable-store sales at the Gap brand were expected to fall 2.3%, according to Consensus Metrix. The company has been unable to turn the unit around, with that measure falling in 16 of the last 18 quarters. Comparable-store sales, which measure results at established stores, are a key gauge of a retailer’s health.

At Old Navy, comparable-store sales rose 5%, beating the expectation of a 4% gain. Banana Republic’s comparable-store sales increase of 2% was in line with projections.

Companywide, sales at comparable stores improved 2%, compared with 1% in the same quarter last year.

Gap Inc. reported net income of $297 million, or 76 cents a share, in the quarter. That was up from $271 million, or 68 cents, in the year-earlier quarter, and it beat the 72 cents per share profit that the analysts surveyed by Zacks Investment Research expected.

The clothing company posted revenue of $4.09 billion in the period, which also topped forecasts. Nine analysts surveyed by Zacks had expected $3.98 billion.

The Associated Press was used in compiling this report.