Gap Again Warns of Earnings Shortfall

Retail giant Gap Inc. may be about to go out of fashion again on Wall Street.

The San Francisco-based clothing retailer said late Wednesday that fiscal second-quarter earnings missed already lowered forecasts because of weaker-than-expected July sales.

The company, which owns the Gap, Old Navy and Banana Republic chains, also said that third-quarter profit could be at the lower end of analysts’ estimates.

The stock crumbled $4.88 to $32.13 in after-hours trading.

Gap’s shares (GPS) rebounded from under $29 in late June to a recent peak of $38.63 as some investors bet the company’s sales would improve. Gap in June had said that quarterly earnings would miss forecasts of 26 cents a share, as sales at stores open at least one year declined.

Late Wednesday, Gap said earnings for the quarter ended July 29 will be 2 to 3 cents short of the latest 23-cent average estimate of analysts surveyed by First Call/Thomson Financial.

Gap also warned that third-quarter earnings could be toward the lower end of the current range of analysts’ estimates of 40 cents to 44 cents a share.

The company said sales at stores open at least a year fell 1% in July.

Same-store July sales at Banana Republic were almost unchanged, while sales at Old Navy were down sharply--in the “negative high teens,” the company said.

At Gap’s namesake U.S. stores, sales rose at a low-double-digit rate in July, the company said.

“Some retailers went too young” in their spring and summer styles, said analyst Marcia Aaron at Deutsche Bank Alex. Brown.