Gap Outlook Dims as 4th-Qtr. Profit Declines

Gap Inc. said Thursday that fiscal first-quarter earnings may miss estimates because of disappointing February sales, and fourth-quarter profit fell 34% on price cuts.

The biggest U.S. clothing retailer may earn 10 cents to 15 cents a share in the quarter ending May 5, Gap said. Analysts’ average estimate is 20 cents, according to First Call/Thomson Financial.

Sales at stores open at least a year fell 6% in the fourth quarter, as a slowing U.S. economy curtailed consumer spending. Gap offered discounts to clear out inventory, reducing the amount of profit made on each sale. February same-store sales fell as consumers continued to keep a lid on spending. That means first-quarter profit margins also may be hurt, the company said.

“Business has been very difficult so far,” Chief Financial Officer Heidi Kunz said.

Net income in the quarter ended Feb. 3 fell to $271.8 million, or 31 cents a share, from $413.9 million, or 47 cents, a year earlier. It was Gap’s third consecutive quarterly profit decline. Sales rose 19% to $4.58 billion.

“Gap is very clearly past its prime,” said Kurt Barnard, president of Barnard’s Retail Report. “They have to reinvent themselves.”

San Francisco-based Gap’s shares fell as low as $24.75 in after-hours trading after closing at $26.07, down $1.17, on the New York Stock Exchange. The stock has dropped 46% in the last year. Gap released earnings after the close of regular U.S. trading.

Gap last month said fourth-quarter profit would be less than the already reduced 33-cent average estimate of analysts polled by First Call. Analysts cut the estimate further to an average 30 cents, First Call said.

The company said it expects business to improve in the second half of this year. Same-store sales declines were led by the Old Navy chain, which had a “low-double digit” fall, the company said.