Gap to lay off 700 as profits dive

Gap is to cut 500 to 700 jobs at its headquarters as its profits dropped 51% to $115m in its first quarter.

The decision reverses an earlier plan to add 3-4% more staff to its 10,000 administrative staff this year.

The job cuts will knock $10-$20m off next quarter's pre-tax figures.

The job cuts show how poorly the one-time market leader is now performing.

Gap's total sales increased by 12% through the first five months of the year, but the gains reflected the addition of nearly 700 new stores over the past year.

The company operates 3,881 Gap, Banana Republic and Old Navy stores, a 22% increase from the same time last year.

But as the group expanded its empire like-for-like sales have fallen 8% over the first five months of the year and have declined in each of the last 13 months.

This year's lacklustre start comes on the heels of a 22% decline in the Gap's profit last year when the company earned $877m on sales of $13.7bn.

To shake things up, Gap chief executive Millard Drexler has been hiring new executives, including the appointment of former supermarket chain executive John M. Lillie as the company's vice chairman and the hiring of former cellular phone executive Terry Kramer as Banana Republic's chief operating officer.

Despite the slowdown, Drexler has vowed to boost Gap's earnings by 15% a year.