SAN FRANCISCO – Gap Inc., the top U.S. retail apparel chain, posted its first quarterly loss in at least 10 years Thursday, as sales dwindled and the retailer's fashion basics failed to excite customers.
The San Francisco-based retailer, which operates Old Navy, Gap and Banana Republic stores, said its net loss for the third quarter ended Nov. 3 was $179 million, or 21 cents a share, including a tax charge, compared with a profit of $186 million, or 21 cents a share, in the year-ago period.
Gap said along with the previously announced $131 million tax charge, the loss includes $40 million in higher tax expense, which was needed to bring the company's tax rate for the first and second quarters of 2001 to 49 percent. The loss also includes a $27 million after-tax charge for canceled product orders.
Excluding the tax charge, Gap posted a loss of $48 million, or 6 cents share, driven primarily by a decline in gross margins and weaker sales.
Sales for the quarter fell 2.2 percent to $3.3 billion from $3.4 billion, while sales at stores open at least one year — a key measure of retail growth — tumbled 17 percent.
Twenty-nine analysts polled by research firm Thomson Financial/First Call had expected the company to post a loss of 5 to 8 cents a share, with a mean loss estimate of 7 cents for the third quarter.
Gap President and Chief Executive Millard Drexler said in a statement that the company's goals are to restore same-store sales and earnings performance by "tightly managing our business and focusing on the fundamentals.
"Our priorities are controlling costs, strengthening margins, and getting the product right for our customers," Drexler said.
For the past couple of years, Gap has suffered from serious fashion misses, logistic snafus and key management departures.
Gap shares fell 3.5 percent, or 53 cents, to close at $14.55 on the New York Stock Exchange on Thursday. Over the past year, Gap shares have lost about 43 percent of their value, while the Standard & Poor's retail index has risen about 13 percent.
Gap said same-store sales at its Gap Domestic and Old Navy divisions dropped by percentage rates in the high-teens, while the Gap International and Banana Republic divisions saw a low-teen percentage drop in same-store sales for the quarter.
The total number of stores grew 17 percent in the quarter, with square footage growing 20 percent. This compared with a 23 percent growth in stores and a 32 percent jump in square footage during the third quarter of 2000, Gap said.
For fiscal 2002, Gap said it plans to open 240 to 280 new stores and continue to expand existing stores, representing a growth rate of about 5 percent.
Of the new-store growth count, Gap Domestic is expecting 90 to 100 new stores, up 1 to 3 percent from last year, while Gap International is expecting 55 to 65 new stores, up 4 to 6 percent from last year.
Banana Republic is expected to add between 20 and 30 stores, up 6 to 8 percent from last year, and Old Navy is expected to increase its store number by 75 to 85, up 6 to 8 percent from a year ago, Gap said.