August 20, 2015 / 8:14 PM / 2 years ago

Gap profit falls again due to strong dollar, supply delays

(Reuters) - Apparel retailer Gap Inc (GPS.N) reported a fall in quarterly profit for the second consecutive quarter, hurt by a stronger dollar, shipment delays and weak sales at its flagship brand.

The sign for a Gap store is seen on 5th avenue in midtown Manhattan in New York June 16, 2015. REUTERS/Brendan McDermid

A series of fashion misses, particularly in women’s merchandise, have turned shoppers away from the Gap brand toward competitors such as American Eagle Outfitters Inc (AEO.N), Urban Outfitters Inc (URBN.O), H&M, Forever 21 and Inditex’s (ITX.MC) Zara.

The company said net income fell by more than a third to $219 million, or 52 cents per share in the second quarter ended Aug. 1, from $332 million, or 75 cents per share, a year earlier.

Excluding restructuring and lease buyout costs, the company earned 64 cents per share.

While Gap does not expect sales to revive at its flagship brand before the holiday season as it had already ordered the merchandise until then, it is closing underperforming stores and trying to bring clothes to stores quicker.

Analysts have said the Gap brand needs to focus on clothing that is more feminine instead of relying on basics such as skirts, dresses, jeans, t-shirts and shorts.

A stronger dollar hit quarterly sales by $100 million and hurt profit by 5 percentage points in the second quarter, Gap said on Thursday.

The company’s sales and margins were also hurt due to late shipments of seasonal merchandise caused by disruptions at the West Coast ports.

Gap’s Old Navy line, however, has been a bright spot for the company - attracting customers with its affordable-yet-trendy merchandise.

Tight inventory controls and short lead times have also helped the company offer fewer discounts at Old Navy, helping margins.

Comparable sales at Old Navy increased 3 percent in the second quarter, and sales rose to $1.67 billion.

However, company-wide comparable sales fell 2 percent, hurt by a 6 percent drop at Gap brand and a 4 percent decline at the Banana Republic division.

Revenue fell 2 percent to $3.90 billion.

Reporting by Ramkumar Iyer in Bengaluru; Editing by Don Sebastian

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