Gap Profit Sinks

Sales stayed flat, totaling the same $3.7 billion asGap reported in the second quarter last year.Comparable store sales decreased 5%, compared with a3% decrease in the second quarter last year.

Gap officials called the results "disappointing" whilediscussing the quarterly results with financialanalysts during a conference call Thursday. PaulPressler, president of the company, called the secondquarter "challenging," saying that the company"cleared inventory to prepare for fall merchandise,and we invested in marketing and stores to improvesecond half performance."

Pressler said that each Gap brand "is at a differentstage in its turnaround," adding that the company isencouraged by improved performance at Banana Republicand its online division. Although the company ismaking progress at Gap and Old Navy, "We know it willtake several seasons of consistent product, marketing,and store improvements to win back our customers,"Pressler said.

The company has opened a net 32 new stores for thefirst two quarters this year, a figure that includes75 openings and 43 closings. It now plans to open anet of about 65 new stores this year, with that figurereflecting 190 openings and 125 closings. ByronPollitt, CFO, noted that the 190 openings are anincrease from the company's previous estimate of 175openings, and the number of closings has been reviseddownward by about 10 stores. The additional openings,Pollitt said, would be weighted toward Old Navy.

Although the company has been encouraged by progressat Banana Republic, and has seen "significant onlinegrowth at all three brands," Pollitt commented,"Business during the second quarter continued to bechallenging at Gap and Old Navy, where response tosummer product was disappointing." Both of thosebrands discounted merchandise aggressively to clearinventory in advance of the fall season, one of thereasons for the lower earnings in the second quarter.Another factor dragging down profit in the quarter was"higher operating expenses for the turnaround andlong-term growth" of the company, Pollitt said.