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Gap's profit drops on less buying

GAP Inc has reported its first-quarter profit fell almost 14 percent as the clothing chain faced sluggish consumer demand during the recession, but the results narrowly beat Wall Street estimates.

The San Francisco-based chain, which operates Banana Republic and Old Navy stores as well as The Gap, on Thursday said it earned US$215 million, or 31 US cents per share, for the three months that ended May 2. In the same period a year earlier, it earned US$249 million, or 34 cents per share.

Revenue dropped 8 percent to US$3.13 billion, from US$3.38 billion.

Sales at stores open at least a year, or same-store sales, fell 8 percent. Same-store sales are considered a key indicator of a retailer's health.

Analysts had forecast profit of 30 cents per share on revenues of US$3.14 billion.

Many clothing retailers are struggling with weak sales. To drive customer traffic, Gap is testing new store models for all three of its chains.

In particular, the company hopes its low-price Old Navy chain, which has been retooled to cater in part to frugal moms, will be a vehicle for growth. The company launched an ad campaign for Old Navy in February and is overhauling its fashions.

Right products

"We remain focused on increasing traffic and gaining back market share across all our brands by offering customers the right products and shopping experience," said Glenn Murphy, chairman and chief executive, in a statement. He added that he is "particularly encouraged" by Old Navy's performance.

Gap's North American division suffered a 12 percent same-store sales decline, while same-store sales at Banana Republic's North American division dropped 13 percent. Old Navy posted just a 3 percent decline.

Gap has been in a better position than some of its rivals because it started slimming its inventory before the recession as part of its turnaround effort, which has otherwise stalled because of the sudden retreat of consumers.


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