Gap reveals 40% drop in quarter profits

Gap reported a 40% drop in fourth-quarter profit as the clothing retailer wrestled with higher costs and had to discount heavily to attract shoppers during the crucial holiday season.

The operator of Banana Republic, Gap, Old Navy and Athleta chains also announced its board approved a new $1bn share repurchase authorisation and approved a plan to increase the annual dividend per share by 11%, from 45 cents in fiscal year 2011 to 50 cents for the current year.

The company has struggled for years to reclaim its former fashion status.

Its Gap chain, in particular, has reported annual sales drops the last seven years at North American stores open at least a year.

That measurement excludes stores that open or close during the year and is considered a key measure of a retailer’s health.

A slowly recovering economy and rising costs have only compounded the US clothing seller’s woes.

The clothing chain said that it earned $218m, or 44 cents per share, in the three months ending January 28. That compares with $365m, or 60 cents per share, in the same period last year.

Analysts expected earnings of 42 cents per share on revenue of $4.28bn.

The retailer had sales of $4.28bn for the fourth quarter, down from $4.36bn in the year-ago period.

Revenue at stores open at least a year was down 4%. By division, Gap North America saw a 3% decline, while Banana Republic’s domestic sales were unchanged compared with the year-ago period.

Old Navy North America’s division suffered a 6% drop. The international division had an 8% decline.