Your browser is no longer supported. For the best experience of this website, please upgrade to a newer version or another browser.

Your browser appears to have cookies disabled. For the best experience of this website, please enable cookies in your browser

We'll assume we have your consent to use cookies, for example so you won't need to log in each time you visit our site.
Learn more

Gap warns of rising costs after profits drop

Profits at US casualwear giant Gap dropped by 23% in its first quarter as the company warned it expected its performance to be heavily impacted by rising costs.

The clothing giant, which owns Gap, Banana Republic and Old Navy, said that net sales for the three months to April dropped by 1% to $3.30bn (£2.03bn), which included the impact of the earthquake and related events in Japan in March. Like-for-like sales were also down by 3%, compared with a 5% increase in the first quarter of the previous year. Total sales in Europe however saw a 7% rise to $187m (£115m).

Net income dropped by 23% to $233m (£143m) compared with $302m (£186m) for the first quarter last year. Total online net sales increased 18% to $348m (£214m).

Gap has previously said it expected that its business performance during the 2011 financial year would be “heavily impacted” by pressure from sourcing cost rises however costs were higher than the company had anticipated. The company expects product costs per unit to be up around 20% in the last half of the year which will outweigh retail price increases.

Glen Murphy, chairman and chief executive officer of Gap, said: “While we acknowledge that costing pressure is impacting our business, we’re working hard to navigate this short-term macro challenge to our profitability in the current fiscal year. That said, our strategy remains the same – to deliver consistent, steady growth in North America while investing in our long-term global initiatives, especially in online and international.”

Murphy added that he was “disappointed” with the first quarter sales but said, “we’re focused on making the necessary adjustments across the business to deliver the kind of sales we should expect from our brands.”

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Links may be included in your comments but HTML is not permitted.