Gap’s 1Q profit falls 8 per cent on currency rates, sluggish sales at Gap

NEW YORK, N.Y. – Gap Inc. reported an 8 per cent decline in its first-quarter profit, as results were hurt by currency fluctuations and persistent sluggish sales at its Gap and Banana Republic stores.

The San Francisco-based company, however, stuck with its annual profit outlook Thursday.

Gap is among the companies struggling with the impact of the strong dollar as sales in foreign currencies are worth less once they are translated back into the U.S dollars. As with many retailers, the chain has also been hurt by the West Coast port slowdown that delayed shipments of merchandise. But the retailer is also grappling with uneven performance of its brands. The company’s Old Navy brand has been a bright spot, while it’s trying to turn around weak business at Banana Republic and Gap.

Under the direction of Art Peck who took over the role of CEO in February, the company has made changes in its executive ranks and is trying to appeal to a consumer who is jumping back and forth from the store to a mobile device. The company is also overhauling its fashions to make them resonate with shoppers.

The latest results show that Peck faces challenges, particularly with its namesake brand, which has many times failed to keep up with the right trends of the season.

“I continue to be disappointed but not surprised by Gap’s performance.” Peck told investors on the conference call following the earnings release. “I believe we’ve diagnosed it correctly… and I can promise you that the team is all over it.”

The retailer reported earnings of $239 million, or 56 cents per share, for the three-month period ended May 2. That is down from $260 million, or 58 cents per share, for the year-ago period. Revenue slipped 3.1 per cent to $3.66 billion.

Analysts expected earnings of 56 cents per share on revenue of $3.69 billion, according to Zacks Investment Research.

As reported earlier this month, revenue at stores open at least a year fell 4 per cent. That includes an 8 per cent drop at Banana Republic, a 10 per cent drop at Gap and a 3 per cent increase at lower-priced Old Navy.

“Old Navy’s performance gives me confidence — the team has hit the right formula and they are consistently delivering a truly aspirational experience that’s resonating with customers,” said Peck in a statement.

Gap said that it continues to anticipate earnings per share to be $2.75 per share to $2.80 per share for the year. Analysts expect $2.78 per share, according to FactSet.

Shares slipped 11 cents to close at $38.56 before the earnings report. In after-hours trading, its shares slipped 12 cents to $38.44.

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