Gap warns on profits after UK shoppers shun preppy US style

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The Independent Online

A slump in sales across all parts of the Gap clothing empire has forced the US group to issue a profits warning.

The deterioration in trading overseas will be an embarrassment for Steven Sunnucks, the former chief executive of New Look who joined Gap to run its European arm in June.

Paul Pressler, Gap's chief executive, lambasted the performance as "unacceptable" after earnings dived 20 per cent in the third quarter. Gap cut its earnings guidance for the full year by 14 per cent.

After a brief renaissance, Gap has fallen out of favour in the UK, which accounts for the bulk of its overseas store portfolio. Across its international division like-for-like sales fell 10 per cent during the third quarter.

With the exception of a few hits, such as Gap's "skinny" jeans and its bargain cashmere sweaters, UK shoppers have shunned the group's conservative US styles. To address the problem, Gap has relocated its buying team from the US to the UK. It has also begun to design collections specifically for the European and Japanese markets, rather than flood the stores with the types of styles its core Middle American customers favour.

Mr Pressler, who was parachuted in to replace Gap's founder Mickey Drexler in an attempt to reverse years of poor trading, said the position was "fixable". But analysts questioned how much longer he would be given to achieve the much-vaunted turnaround given that underlying sales at the group have fallen during 15 of the 17 months he has been at the helm.

Even Mr Pressler admitted he was "not optimistic" about the fourth quarter, telling analysts it will "take time to win back some of the customers we have disappointed".

Gap said its profits margins slumped by 4 percentage points during the third quarter after it was forced into emergency sales to shift autumn stock. The group cut its operating margin and free cash flow guidance for 2005. Net sales during the third quarter were $3.9bn (£2.3bn) down from $4bn a year ago, while underlying group sales across its Gap, Old Navy and Banana Republic brands fell 7 per cent.

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