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Gap Predicts a Weak Quarter as Cool Summer Takes Its Toll

Katherine Hobson

Gap (GPS Quote) reported disappointing July sales Wednesday and said that second-quarter earnings won't meet analysts' expectations.

Summertime Blues Back and forth at Gap

The San Francisco-based retailer said sales at stores open for at least a year dropped 1% last month, falling short of analysts' estimates, which called for 1% to 4% growth. Sales were dragged lower by Gap's once-invincible Old Navy unit, which Gap said recorded a percentage comparable-store sales decline in the high teens.

In a prerecorded call, Gap CFO Heidi Kunz blamed the problem on delayed delivery of fall merchandise to stores. Sales at Banana Republic were flat amid discounting, while U.S. comp-sales growth at the main Gap brand, a weak spot for the company in the past, was in the low double digits.

Gap also said weak July results would cause second-quarter earnings to "come in 2 to 3 cents below the current consensus estimate" of 23 cents a share. (In a previous story, TheStreet.com highlighted some analysts' predictions that Gap and other retailers might miss earnings estimates.) Gap is scheduled to release earnings on Aug. 10. Kunz said problems with Old Navy would also push third-quarter earnings to the low end of analysts' estimates. Analysts expect earnings of 43 cents per share for the quarter, according to First Call/Thomson Financial.)

Gap and other retailers have been suffering over the last few months due to a combination of factors: cooler weather that discouraged summer clothes shopping, slower consumer spending and a lack of compelling fashions. As a result, many retailers spent July clearing their stores of unsold merchandise, and that discounting hurt margins. Most other retailers will report monthly sales on Thursday.

Gap shares fell 4, or 11%, to 33 before the sales report was released after the close of trading. Its stock has fallen 39% from its 52-week high of 53 3/4.