US flop puts another hole in Gap earnings

Published on Friday 25 May 2007 12:00

FASHION chain Gap has suffered a seventh successive quarter of falling profitability as it struggles to turn its business around.

The group, which has stores on Princes Street and at Fort Kinnaird, saw its net profit for the three-month period slide to 89.6 million, from 122m over the same period the year before.

And while overall sales were up three per cent to 1.8 billion, like-for-like sales dipped by four per cent, marking the 11th consecutive quarter Gap had endured a drop in like-for-like sales.

Gap has branched out from a single store in San Francisco in 1969 to a global fashion retailer employing around 150,000 staff at 3100 stores worldwide. It has also splintered a single brand into offshoots such as GapKids, babyGap, and GapMaternity, and owns other brand outlets including Old Navy and Banana Republic.

Gap said the latest results included a 22.7m hit from its flopped Forth & Towne business in the US, an experimental chain catering to women over 35. All remaining stores will close by June, Gap said.

The clothing retailer said in February it would not pursue a roll-out of the concept, and instead would focus on turning round its core Gap and Old Navy brands.

"We are actively working to fix our core business, retain and recruit talent, and streamline operations so that our organisation can be more nimble and efficient," said interim president and chief executive Bob Fisher, who took up his temporary role in January.

"We took important steps in the first quarter by strengthening leadership teams and refining strategies at Gap and Old Navy. While we are making progress, there is more work to be done."

Gap is currently hunting for a new chief executive after former Walt Disney executive Paul Pressler stepped down in January by mutual agreement.

Mr Fisher is also "aggressively recruiting" new talent, an initiative that led to the hiring of prominent fashion designer Patrick Robinson, artistic director of Paco Rabanne since 2005, to oversee men's and women's clothing. He is also looking to recruit a new design chief as well as a market trends guru for its other brands.

"I feel good about the path we are on," Mr Fisher insisted. However, he has called 2007 a transition year and promised no quick fixes for turning around the company. He has advised investors that the company's profit this year may fall by as much as 18 per cent this year after plunging 30 per cent last year.

As part of its turnaround attempts, Gap is looking to target the late-20s age group. Mr Fisher said: "The focus on the late-20s customer is going to allow us much more focused product assortment, much stronger marketing messages."

Retail analyst Jennifer Black said the move should help Gap "stand for something, versus just being a sea of mediocrity".