Gap to shut more stores as demand remains sluggish

People pass by the GAP clothing retail store in Manhattan, New York.
People pass by the GAP clothing retail store in Manhattan, New York.PHOTO: REUTERS

NEW YORK (REUTERS) - Apparel chain Gap Inc said it would shut more stores than forecast previously and that it expected a further drop in traffic during the crucial holiday shopping season.

The company's shares fell 4.9 per cent to US$29.21 after the bell on Thursday (Nov 17).

"Given that challenging traffic trends have continued, we are investing meaningfully in marketing across our portfolio brands during the holiday season," outgoing chief financial officer Sabrina Simmons said on an earnings call.

Gap said it now expected to shut about 65 company-operated stores this year, compared with its previous forecast of about 50 stores.

Traditional apparel chains are struggling with the growing popularity of online retailers and fast-fashion chains such as H&M, Forever 21 and Inditex's Zara, which are known for offering trendier clothes at cheaper prices.

Gap reaffirmed its adjusted profit forecast of US$1.87 to US$1.92 per share for the full year. Analysts on average were expecting US$2.02, according to Thomson Reuters I/B/E/S.

The company reported its seventh straight quarterly sales decline in the three months ended Oct 29 as demand for its Gap and Banana Republic brands remained sluggish.

Gap has been trying to replicate the success of its low-end Old Navy brand at its Gap and Banana Republic chains since Art Peck took over as chief executive last year.

The company's net income fell to US$204 million, or 51 cents per share, in the third quarter ended Oct 29 from US$248 million, or 61 cents per share, a year earlier.

Excluding restructuring costs, the company earned 60 cents per share, in line with analysts' estimates.

The company said same-store sales fell 3 per cent in the quarter, in line with analysts' estimate, according to Consensus Metrix.

Net sales fell to US$3.80 billion from US$3.86 billion.

Up to Thursday's close, the company's stock has risen 24.3 per cent this year.