Will October Be Any Better for The Gap?

NEW YORK ( TheStreet) - You know things are bad in retail when Gap ( GPS), the bright star in recent months in the apparel industry, reported disappointing September sales.

Gap said late Thursday after the market closed September 2013 net sales of $1.46 billion were flat compared with last year.

Gap's comparable sales for last month fell 3% compared with a 6% increase for the same period in 2012, well below analysts' expectations of a 1.6% gain, according to Thomson Reuters.

By brand, the numbers were equally disheartening. All three brands saw comparable sales fall last month, with the sharpest decline at Banana Republic. The brand saw a 5% decrease compared with 4% month over month growth in 2012. Gap's flagship brand fell 3% compared with positive3% growth last year. Old Navy fell 2% compared with 10% growth last year.

Shares slumped 7.2% to $36.65 in early Friday trading, the lowest the stock's been since April, following the news.

"While September proved to be somewhat challenging, we remain steadfast in our commitment to deliver on our full-year goals," Chairman and CEO Glenn Murphy said in a statement.

The company attributed lower sales to decelerating mall traffic, especially in the last week of September as "economic uncertainties" increased over the government shutdown, according to a pre-recorded phone call.

At its flagship brand, Gap pushed its fall sale forward into October compared to September of last year, which further hurt this year's comps, but will be a benefit to this month's sales.

"Comps in September were below our estimate and consensus as all divisions comped negatively during the month. We believe this is attributable to the current economic uncertainty, the absence of a strong fashion trend (last year it was all about brights), and the consumer's shift to buying durables that has led to decreased traffic and lower spending on apparel. However, we believe the assortments at both Gap and Old Navy are trend-right for fall," Stifel analyst Richard Jaffe wrote in a research note. He has a "buy" rating on the stock.

"We believe estimates will be revised downward based on the weak September comp to an estimate more in-line with ours, which will likely result in share pressure near term," Jaffe wrote. "We would be buyers of GPS shares in weakness given our long-term, favorable outlook for the company."

Still, it seems the consumer's shift to buying other larger items has hit even one of the strongest retailers and likely won't bode well for the upcoming holiday season.

Gap is feeling the same pressure that many other chain stores are feeling. September same-store sales rose just 0.4%, excluding the drug stores, below expectations of a 3.1% rise and last year's 5.5% monthly gain, according to Thomson Reuters.

"The 0.4% result is the weakest showing since the recession, when the index registered a -2.4% same-store sales result in August 2009," a note by Thomson Reuters said.

Teen retailers have had a particularly hard time attracting customers of late. September sales continued that trend. American Apparel's ( APP) same store sales fell 6%. Comp sales at The Buckle ( BKL) and Zumiez ( ZUMZ) also declined last month, down 4.5% and 0.6%, respectively.

-- Written by Laurie Kulikowski in New York.

To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com.

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