Gap’s net income continues decline

Gap Inc.’s turnaround efforts faltered again in its fiscal third quarter as the clothing retailer’s profit tumbled 11% amid a more than two-year sales slide that was likely to extend into the holiday shopping season.

Signaling the tough times still ahead, management lowered Gap’s earnings outlook for the second time in three months.

The San Francisco-based company said Thursday that it earned $189 million, or 23 cents a share, during the quarter that ended Oct. 28. That compared with net income of $212 million, or 24 cents, last year.

Sales for the period totaled $3.86 billion, unchanged from a year earlier.

New stores opened in the last year pumped up the latest sales figures. But sales at stores open at least a year, a key measure of retail health called same-store sales, fell 5%.

It marks Gap’s ninth consecutive quarter of eroding same-store sales, a gloomy stretch that has raised questions whether a management team led by Chief Executive Paul Pressler has enough fashion sense to rejuvenate one of the nation’s largest retailers.

Gap operates more than 3,100 stores under three primary brands -- Gap, Old Navy and Banana Republic. As part of his remedy for the company, Pressler recently launched a fourth chain, Forth & Towne, that caters to middle-aged women.

Investors have been betting that the worst is over for Gap, helping to lift the company’s stock price by nearly 20% since its last disappointing quarterly earnings report in August.

On Thursday, Gap shares decreased 22 cents to $19.80 before the company released its latest results, then shed 35 cents in after-hours trading.

The lackluster performance wasn’t a surprise because Gap had already provided a snapshot of the quarter two weeks ago. The earnings were a penny above the average estimate among analysts polled by Thomson Financial.

Discouraged by Old Navy’s steadily sinking sales, Gap lowered its full-year profit forecast to $1.01 to $1.06 a share, down from a range of $1.08 to $1.12 a share. The average analyst estimate had been $1.06 a share, according to Thomson Financial.

Six months ago, Pressler had predicted that Gap’s fortunes would be rising by now. But he lowered expectations after summer sales got off to a slow start, foreshadowing a malaise that has extended into autumn. Gap’s profit forecast now stands about $175 million below management’s projections as the year began.

Gap’s prolonged funk has spurred Wall Street chatter that the company’s board might fire Pressler, a former Walt Disney Co. executive who was hired in 2002 near the end of a 2 1/2 -year sales downturn.

Banana Republic, the company’s luxury stores, provided Gap with some hope as the chain’s same-store sales rose 3% during the quarter. But the much-larger Old Navy and Gap chains both suffered same-store sales declines of 7%.

Pressler has replaced the heads of Gap and Old Navy in the last 18 months. He appointed former Disney executive Cynthia Harriss to run Gap last year and last month lured Dawn Robertson from an Australian department store to steer Old Navy.

“We are maniacally focused on our turnaround in the short run,” Pressler told analysts during a conference call Thursday.