Gap 2nd-Quarter Earnings Decline 37%

Gap Inc., the largest U.S. specialty apparel retailer, reported a decline in second-quarter earnings Thursday and said August sales were tracking below its projections.

The San Francisco-based company, which includes the Gap, Banana Republic and Old Navy retail chains, reported profit of $57 million, or 6 cents a share, in the quarter ended Aug. 3, down 37% from $90 million, or 10 cents, in the same period a year ago.

The results were a penny above the consensus estimate of analysts polled by Thomson First Call. Gap last week said it expected to report earnings of 4 cents to 5 cents.

Sales edged up 1% to $3.27 billion, Gap said. In a more telling illustration of the retailer’s problems, sales at stores open for at least a year declined 7%, with decreases in all divisions.

Gap kept inventories extremely low as it prepared to unveil a merchandising strategy focused on basic apparel. The company has chalked up 28 straight monthly same-store sales declines.

Although expressing confidence about its autumn clothing selection, Gap management Thursday dashed hopes for better times by revealing that its sales during the first two weeks of the third quarter are running “somewhat short of projections.”

To drum up more customer traffic, the company said all its major store chains will cut prices and offer other sales promotions during the rest of August.

Gap also is pinning its hopes on a national TV advertising campaign that was scheduled to debut Thursday and continue through mid-October.

If customers come to the stores, Chief Executive Millard “Mickey” Drexler predicted they will find reasons to return.

“We feel good about our stores, and our customers tell us they like what they see,” he said.

Gap made its announcement after the stock market closed Thursday. After rising 54 cents to $13 on the New York Stock Exchange, Gap’s shares fell 25 cents in after-hours trading.