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Gap struggles continued in July, hits Q2 earnings guidance

Gap Inc had little to cheer about this week not only reporting lower sales in July but also providing a disappointing Q2 earnings guidance, hurt by continuing weakness at its signature stores and the stronger US dollar.

The retail giant reported its July same-store sales performance – a full four days after the rest of the small band of fellow US chain stores – fell 3%, compared with a 2% increase last year.

Gap’s signature comp sales fell 7% in July compared with a 2% dip a year earlier. Comp sales at sister brands Banana Republic fell 10%, compared with 6% growth a year earlier, as the usually more reliable Old Navy saw its comps rise 3%, matching a year ago.

The retailer noted that tax-free holidays in several states shifted from July last year to August this year. Also, this year’s Labor Day holiday is one week later, compared with last year.

For the four weeks ended August 1, Gap reported total sales of $1.12bn, down from $1.17bn a year ago.

Meanwhile, Q2 sales fell 2% to $3.90bn, compared to the $3.97bn analysts expected. Comps in Q2 fell 6% for Gap Global versus a 5% dip last year; Banana Republic Global comps fell 4% versus flat last year; and Old Navy Global comps rose 3% versus a 4% lift last year.

Gap Inc now sees Q2 earnings, excluding certain one-time items, of 63-64 cents a share, short of analysts’ 66 cents a share view. On a reported basis, the retailer expects earnings of 51-52 cents.

Gap said it will release Q2 earnings results on August 20.

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