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Gap’s Profit Jumps 39%

From Times Wire Services

Gap Inc. said Thursday that its fiscal second-quarter profit surged 39%, but the company slashed its 2005 earnings forecast, becoming the latest clothing retailer to disappoint investors as it struggles to reinvigorate its sluggish sales.

Gap shares fell 60 cents, or 3%, to $19.55 in after-hours trading after losing 32 cents to $20.15 in the regular session.

The San Francisco-based company, which operates the Gap, Banana Republic and Old Navy stores, lowered its fiscal year 2005 profit estimate to $1.30 to $1.34 a share, well short of Wall Street’s average forecast of $1.41 a share. Gap previously had forecast earnings of $1.44 to $1.48 a share.

The company blamed “August month-to-date results, which are significantly below expectations, and concerns about the macroeconomic climate” for the weak outlook.

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Other retailers have turned in disappointing results and forecasts this week during the crucial back-to-school shopping season, including Hot Topic Inc. whose shares tumbled 17% on Wednesday after the company cut its outlook for the rest of the year.

“You have a culmination of forces now coming together to conspire against apparel retailers, and Gap can’t escape that,” said John D. Morris, a retail analyst at Harris Nesbitt. With higher gas prices, higher interest rates and fewer tax benefits, “consumers are just starting to feel exhausted.”

In addition to those factors, Gap is having persistent problems with its merchandising, Morris said. “The brands continue to be on the ropes,” he said.

Gap said its earnings for the quarter ended July 30 increased to $272 million, or 30 cents a share, from $195 million, or 21 cents, for the same period last year. Wall Street analysts on average had forecast earnings of 29 cents a share.

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Sales were $3.7 billion, unchanged from the same period last year, and sales at stores open at least a year, or same-store sales, fell 3% during the quarter.

North American same-store sales fell 4% at both the company’s Gap and Old Navy divisions and dropped 3% at its Banana Republic chain. Same-store sales at its international stores rose 1%.

Company executives said that store traffic had been down since July across the three chains. The company said it planned to turn its focus at its Gap chain back toward denim with “iconic looks that are clean, casual, versatile,” and that it would launch new personal care lines at Banana Republic and Gap.


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