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Gap warns big first-quarter sales, earnings miss ahead

Gap's sales bleed continued in the first quarter.

The specialty chain warned Monday first-quarter revenue and profits would fall short of Wall Street's expectations, and issued a forecast for the period that reflected the slower traffic it saw in its stores, which led to more discounting.

After the market closed, Gap said it achieved $3.44 billion in net sales during the first quarter. That compares with consensus estimates from Thomas Reuters calling for $3.54 billion, and the $3.66 billion in sales it posted during the prior-year period.

An exterior view of fashion retailer Gap's Oxford Street store on February 11, 2016 in London.
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An exterior view of fashion retailer Gap's Oxford Street store on February 11, 2016 in London.

Meanwhile, the parent of the Gap, Banana Republic and Old Navy chains said it expects diluted earnings per share during the quarter of 31 cents to 32 cents, well below analysts' expectations of 44 cents a share.

In a press release, the company said it is "identifying opportunities to streamline its operating model to be more efficient and flexible, while more fully exploiting its scale advantage." The retailer is also evaluating the overseas footprints of its Old Navy and Banana Republic chains, by looking for ways to "sharpen its focus on geographies with the greatest potential."

"We are committed to better positioning the business to recapture market share in North America and to capitalizing on strategic international regions where there is a strong runway for growth," CEO Art Peck said.

The company will share additional details when it announces first-quarter earnings May 19.

Gap's business update came as it reported another disappointing month of comparable sales, which fell 7 percent in April. That included a 4 percent drop at its Gap brand, a 7 percent decline at Banana Republic, and a 10 percent decrease at its previously sturdy Old Navy brand.

For the quarter, Gap's comparable sales dropped a slightly more modest 5 percent. The Gap brand posted a comparable sales decline of 3 percent; Banana Republic a drop of 11 percent; and Old Navy a 6 percent dip.

The Gap and Banana Republic brands, in particular, have struggled due to their out-of-style and ill-fitting merchandise. However, after a series of steep sales declines, Peck had promised that spring would be a turning point for the Gap brand, as it sorted through those issues.

Gap shares have fallen roughly 45 percent, to near $22, over the past year.