Gap's profit forecast for holiday-shopping quarter falls short

Staff Writer
Columbus CEO

(c) 2013, Bloomberg News.

NEW YORK — Gap Inc., the biggest U.S. specialty-apparel retailer, maintained an annual profit forecast range signaling that the crucial holiday-shopping quarter may fall short of analysts' estimates.

The company reaffirmed its full-year earnings estimates of $2.57 to $2.65. That range, excluding results from the first three quarters, implies fourth quarter profit of 50 cents to 58 cents a share, trailing analysts' estimates of 69 cents a share.

Chief Executive Officer Glenn Murphy is working to boost holiday sales with lower-priced and on-trend products as apparel retailers increase discounts. Consumers are also shifting their spending to durable goods such as cars and appliances. Sales for the third quarter rose 2.9 percent to $3.98 billion, meeting analysts' average estimate.

"Expectations were so far ahead of what's possible to execute against," said Stephanie Wissink, a Minneapolis-based analyst at Piper Jaffray Cos., in a phone interview after the results. "They're being conservative, because they should be, but it's also a mindset of reasonability. The cycle of beating and raising projections is starting to wane." She has a hold rating on the shares.

Net income for the quarter ended Nov. 2 rose 9.4 percent to $337 million, or 72 cents per share.

Gap fell 2.1 percent to $41 at 4:45 p.m. in New York after rising as high as $41.97. The shares had gained 35 percent this year through the close of regular trading.

Gap said same-store sales rose 1 percent in the third quarter, compared with a 6 percent gain a year earlier.

Sales at Banana Republic brand stores open at least a year fell 1 percent in the third quarter while the Gap brand gained 1 percent and Old Navy sales were flat.