Gap Inc's namesake brand reported a bigger-than-expected drop in quarterly same-store sales on Thursday, sending shares down nearly 7 percent in after-hours trade even as the apparel retailer beat Wall Street profit expectations and posted strong revenue.
The results signaled the San Francisco company still must work to revive its Gap brand, which has struggled to keep pace with fast-fashion rivals such as H&M and Forever 21 and tackle the dominance of Amazon.com Inc.
Reaffirming its forecast on Thursday, Gap Inc battled rising inventory during the quarter, especially that of Gap brand, as older styles and some summer basics remain on the shelves.
The company earlier offered huge discounts on Gap-label apparel mainly to clear inventories but which ended up hurting sales and margins. Gap executives said on Thursday the focus has turned toward improving margins. 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. Gap Inc's net sales rose 7.5 percent to $4.09 billion in the second quarter ended August 4, beating analysts' average estimate of $4.01 billion.