Gap reports sales slump — and its shares slump, too

Gap’s chief executive warned of an “extremely challenging” period for the clothing retailer as weaker-than-forecast sales and a profit warning for the full year sent its shares tumbling 10 per cent.

All three of divisions of the company, which is planning to break itself up in an effort to revive its long-declining fortunes, posted falls in quarterly like-for-like sales. It is the latest sign of trouble in US retail, with several big name groups disappointing Wall Street in recent days.

The biggest decline was at the eponymous Gap brand, down 10 per cent, yet they also fell 1 per cent at its better-performing Old Navy division and 3 per cent at Banana Republic. Across the group they fell 4 per cent in the three months to the start of May, wider than the 0.9 per cent dip analysts had forecast, according to S&P Capital IQ.

Art Peck, chief executive, said in a statement that the company would press ahead with its plan to separate Old Navy from the rest of the group. “This quarter was extremely challenging, and we are not at all satisfied with our results,” he added. “We are committed to improving our execution and performance this year.”

Gap’s flagship brand was once synonymous with all-American style but peaked in the 1990s. Shoppers have defected to trendier rivals such as H&M and Zara. The rise of ecommerce has added to the pressure.

The San Francisco-based company has shaken up its management and rejigged its product offering as part of a turnround effort, but financial results have continued to underwhelm.

Gap said on Thursday it now expected diluted earnings per share for the year to come in between $2.04 and $2.14. Three months earlier it forecast $2.11 to $2.26.

Net sales in the first quarter fell 2 per cent from last year to $3.7bn. Lower expenses helped net income improve from $164m last time to $227m.

Shares in the Gap, which have lost 56 per cent of their value since 2014 highs, shed another 10 per cent in after-hours trading.