Gap’s Profit for Quarter Declines 11%

After unwrapping a disappointing holiday season, Gap Inc. forecast Thursday a dreary spring as the struggling clothier tries to lure shoppers back with more tempting offerings.

Gap shares lost more than 4% after the San Francisco-based retailer said profit for its fourth quarter ended Jan. 28 fell 11%. Also troubling to investors: declining sales that raised questions about Gap’s attempted turnaround.

Sales at stores open more than a year slid 6% and the company said they probably would linger in negative territory through the first half of the fiscal year before turning “modestly positive” in the second half.

Merrill Lynch analyst Mark A. Friedman called it “a disappointing end to a tough year” in a note he wrote after the announcement.

The parent of 3,100 Gap, Old Navy and Banana Republic stores had logged 14 consecutive months of flat or declining same-store sales through December, before nudging up 1% in January. So far in February, however, the company said that same-store traffic was down 13%.

In the crucial holiday quarter, Gap earned $337 million, or 39 cents a share, compared with $378 million, or 40 cents, in the same period the previous year. Revenue slipped 2% to $4.8 billion.

“None of us is satisfied with our overall 2005 business results,” Chief Executive Paul Pressler said. “This past year, we pursued new approaches to gain market share, but did not deliver on our expectations. We know we can do better.”

For the year, Gap earned $1.1 billion, or $1.24 a share. That was 3% less than 2004’s $1.2 billion, or $1.21 a share. Sales for the year fell 1% to $16 billion while same-store sales fell 5%.

“They’ve disappointed people so long that traffic continues to be down,” said Christine Chen, an analyst with Pacific Growth Equities who owns shares of the company’s stock.

In a conference call with analyst, Gap executives said the company’s turnaround would take time and outlined plans to win back customers, including improving merchandise and moving products into stores more nimbly to stay on top of trends.

Chen, who has a neutral rating on the stock, said the offerings already looked better in Gap and Old Navy stores. She predicted its turnaround would be evident by fall.

“It’s baby steps, but it is an improvement,” Chen said. “With the number of stores they have, you won’t see a transformation overnight, but they are moving in the right direction.”

Shares of Gap fell 4 cents to $19.10 in regular trading and tumbled an additional $1.05 in late trading after the earnings announcement.

The retailer also said it planned to increase its annual per-share cash dividend by 78% to 32 cents this year. Further, its board has authorized an additional $500 million to continue repurchasing shares.

Gap was one of many retailers releasing earnings results this month, offering investors insight into how much of the companies’ holiday revenue migrated to the bottom line.

Nordstrom Inc. said Thursday that profit rose 36% in the quarter ended Jan. 28 on strong sales as it controlled costs and did a better job of managing inventory.

Nordstrom earned $190.4 million, or 69 cents a share, up from $140 million, or 50 cents, the previous year. Sales jumped 9.3% to $2.3 billion. Same-store sales rose 5.8%.

For the year, earnings rose 40% to $551.3 million, or $1.98, compared with $393.5 million, or $1.38, in fiscal 2004. Revenue rose 8.3% to $7.7 billion while same-store sales increased 6%.

Spokeswoman Brooke White said the retailer was “very positive” about its prospects and was “really pleased with the whole holiday season.”

But the Seattle-based retailer also predicted less aggressive profit growth than some expected. Further, it anticipates “low single digit” same-store sales growth.

“We think they’re being conservative” in guiding expectations, as they were in 2005, said independent analyst Jennifer Black. “To me, it means nothing.”

Nordstrom shares nonetheless slipped after hours, dropping to $39.25 after falling 15 cents to $40.12 in regular trading.

Limited Brands, parent of Victoria’s Secret and Express, also filed better-than-expected fourth-quarter earnings Thursday, as did Kohl’s Corp. Other retailers that recently beat expectations included Federated Department Stores Inc., Wal-Mart Stores Inc., Target Corp. and J.C. Penney.

Apparel retailers got a boost in 2005 from an upturn in clothing sales, according to a report released this week by NPD Group. Strong sales of T-shirts, high-end jeans, pajamas, suits and sports coats helped push apparel sales up 4% to $181 billion. It was the second annual uptick in apparel sales, following three years of declines, NPD analyst Marshal Cohen said.

“The rumor of apparel’s death is not true,” said Cohen, who predicted a 3.3% increase for the current year.