NEW YORK (AP) — Gap Inc.'s fourth-quarter profit dropped 12.5 percent as the clothing retailer discounted heavily over the holiday shopping season to entice customers.
The clothing chain, which operates Gap, Old Navy, Banana Republic and Athleta, also issued a profit outlook for this year that's below analysts' expectation.
The results issued Thursday come after Gap, like many retailers, finished a brutal holiday season marked by heavy discounting to help attract shoppers who've been cautious in a sluggish economy. Gap did its part by offering constant sales. Still, it's faring better than other rivals like Abercrombie & Fitch, whose fourth-quarter profit dropped 58 percent.
The results underscore the challenges that Gap faces in keeping the momentum going since enjoying a turnaround starting in early 2012. Gap has been stepping up its marketing and offering trendier merchandise.
The San Francisco-based company is also responding to a shift among consumers to shop and research on mobile devices. For example, Gap is expanding a service that allows shoppers to reserve items online and then pick up the merchandise at the store within 24 hours.
Still, Glenn Murphy, Gap Inc.'s CEO, told investors on a conference call Thursday that Gap, like other retailers, needs to combat the promotional environment by offering shoppers something new.
"We got to continue as a business to be innovative and creative and bring reasons for people to engage in our brands, either online or in our stores, that are not rooted in promotions and discounts with a frequency in which they're rooted in today," said Murphy.
The retailer earned $307 million, or 68 cents per share, in the three-month period ended Feb. 1. That compares with $351 million, or 73 cents per share, in the year-ago period, which included an extra week.
Revenue fell 3 percent, to $4.58 billion from $4.73 billion.
Analysts were expecting earnings of 65 cents per share on revenue of $4.58 billion for the quarter, according to FactSet.
Revenue at stores opened at least a year — a key gauge of a retailer's health — rose 1 percent.
Gap expects earnings per share in the range of $2.90 to $2.95 for the year that runs through January 2015. Analysts had expected $3.02 per share, on average.
A week ago, Gap said that it would raise the wages of 65,000 of its hourly workers nationwide to $9 an hour this year and $10 an hour in 2015. Gap had declined to comment on how much the pay hike will cost the company, but said there are no plans for cuts in jobs or store hours or increases in prices to cover the costs.
Gap also said Thursday that it would raise its quarterly dividend 10 percent, to 22 cents.
In after-hours trading, Gap shares traded at $43.36, down 32 cents, after slipping 23 cents to $43.68 in regular trading.