Gap's third-quarter profit drops nearly 18 per cent

NEW YORK, N.Y. – Gap’s third-quarter profit fell nearly 18 per cent, undercut by costs related to store closures outside North America.

Gap Inc. shares fell nearly 5 per cent in after-market trading Thursday as the company said the slump in the number of people visiting its stores continues as it heads into the critical holiday shopping season.

San Francisco-based Gap is facing the same problems as other fashion retailers, with shoppers buying less clothing in general and also favouring off-price chains like T.J. Maxx. But Gap is also struggling with identity problems, mired in a slump as its fashions just don’t stand out in an overcrowded landscape.

The company that operates mainly its namesake, Banana Republic and Old Navy stores reported earlier that revenue at stores opened at least a year fell 3 per cent in the quarter. By brand, Gap and Banana Republic both suffered an 8 per cent drop for the quarter. Old Navy has seen improvement and posted a 3 per cent increase.

Gap announced in May that it was shuttering 75 Old Navy and Banana Republic stores outside North Americas as it focuses on regions where it sees it has the best potential under CEO Art Peck, who took the helm in 2015.

In August, a fire damaged a building on Gap’s Fishkill, New York, distribution centre campus, hampering business.

“The retail environment and the apparel environment continues to be challenging,” said Peck in a conference call with analysts. “Traffic remains challenging and, as a planning assumption, we believe that will carry forward as well.”

One of the company’s bright spots is its athletic-inspired Athleta brand, which now has 130 stores as of the end of the quarter. It has done well with innovative products like the launch of Sculptek, a new fiber technology that sculpts and supports.

The retailer earned $204 million, or 51 cents per share, in the three-month period that ended Oct. 29. That compares with $248 million, or 61 cents per share, a year earlier.

Adjusted results were 60 cents per share, which matched estimates from FactSet. Gap posted revenue of $3.8 billion, down 1.5 per cent from the year-ago period.

The company reaffirmed its adjusted earnings results to be in the range of $1.87 to $1.92 per share for the fiscal year.

Gap’s shares fell $1.48 to $29.23 in after-market trading following the release of the earnings report.