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Old Navy Sinks Gap

Weakness at the chain prompts the struggling company to again cut guidance.

Updated from 5:24 p.m. EST


(GPS) - Get Gap, Inc. Report

, hurt by disappointing results from its Old Navy brand, reported a drop in third-quarter earnings and again slashed its full-year guidance.

The San Francisco-based specialty retailer posted earnings of $189 million, or 23 cents a share, down from $212 million, or 24 cents a share, a year ago.

Third-quarter sales were flat at $3.86 billion, while same-store sales tumbled 5%.

Analysts polled by Thomson First Call predicted earnings of 22 cents a share and sales of $3.9 billion.

Gap has been struggling over the past year with sales declines at each of its brands and has long promised a turnaround that has yet to bear fruit. The company has seen improvements, however, at its more upscale Banana Republic chain, where same-store sales climbed 3% in the quarter.

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But at both Gap stores and Old Navy, same-store sales dropped 7%.

"Our third-quarter results reflect that each brand is at a different stage in its turnaround," Paul Pressler, president and CEO, said in a statement. "We are pleased with the solid performance at Banana Republic and continued progress each month of the quarter at Gap brand; however, Old Navy's results were disappointing. Heading into the holiday season, our teams are focused on driving strong execution."

The company cut its fiscal-year earnings projection to $1.01 to $1.06 a share from an earlier forecast of $1.08 to $1.12 a share. The company had previously lowered its guidance in August.

Wall Street expects full-year earnings of $1.06 a share.

Gap attributed the lowered forecast to a slowdown at Old Navy in October, which has continued into November, and a slower turnaround pace at the Gap brand.

Last month, Gap installed a new head to the Old Navy brand. Dawn Robertson, former managing director of Australian department store Myer, was named president to replace Jenny Ming.

Ming, who helped launch Old Navy in 1994, announced her planned departure earlier this year.

Shares of Gap were down 35 cents, or 1.8%, to $19.45 in after-hours trading.