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Gap's namesake brand posts disappointing sales; shares fall

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Gap's namesake brand posts disappointing sales; shares fall
FILE PHOTO: A Gap Inc. retail store is shown in La Jolla, California, U.S., May 17, 2017. REUTERS/Mike Blake/File Photo   -   Copyright  Mike Blake(Reuters)
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(Reuters) – Apparel retailer Gap Inc’s <GPS.N> namesake brand reported a bigger-than-expected drop in quarterly same-store sales, overshadowing strength in revenue and profit beat and pushing the company’s shares down nearly 7 percent in after-market trading on Thursday.

Sales at Gap brand stores open for more than a year fell 5 percent in the fiscal second quarter, more than the 2.55 percent decline forecast by analysts, according to Thomson Reuters I/B/E/S.

The results signaled that the company still has some way to go to revive its Gap brand, which has struggled to keep pace with fast-fashion rivals such as H&M <HMb.ST> and Forever 21 and tackle the dominance of <AMZN.O>.

Gap brand’s assortment continues to look boring, with little effort being made to create newness, Neil Saunders, managing director of GlobalData Retail, said.

“It discourages people from visiting and purchasing. … It means Gap struggles to charge full price and has to resort to continuous discounting to try and stimulate sales. Neither of these things is healthy,” Saunders said.

Gap Chief Executive Officer Arthur Peck said an improved supply chain remains a focus.

“There’s no question that this is an important factor of powering Old Navy’s consistency, Athleta’s growth and Banana’s continued turnaround,” Peck said on a conference call, referring to Gap’s various other brands.

The Old Navy brand, which offers lower-priced apparel, again performed well. Same-store sales rose 5 percent, topping analysts’ estimate of 4.5 percent growth.

Gap Inc’s net sales rose 7.5 percent to $4.09 billion in the second quarter ended Aug. 4, beating analysts’ average estimate of $4.01 billion.

Excluding certain items, the company earned 76 cents per share, beating the average estimate of 72 cents.

The company also reaffirmed its forecast on Thursday.

(Reporting by Nivedita Balu in Bengaluru and Melissa Fares in New York; editing by Sriraj Kalluvila and Leslie Adler)

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