Why Gap's sales miss spooked investors

Gap shares fell 12 percent in early trading Friday, after the apparel retailer announced yet another monthly same-store sales decline in March.

While sliding sales are nothing new at the parent of Old Navy and Banana Republic — which has reported 12 consecutive monthly decreases in same-store metrics — March's 6 percent decline spooked investors who had long been promised by management that spring was when they could expect to see improvement at its flagship Gap brand.

David Paul Morris | Bloomberg | Getty Images

Instead, the label reported a 3 percent comparable decline, with management blaming a combination of the Easter shift into March and sluggish traffic. What's more, the company said that it is entering April with more inventory than planned, which is likely to dent its first-quarter gross margins.

Gap CEO Art Peck has long been touting spring as the time when Gap's recovery would take hold, thanks to better-fitting product that is true to its all-American image. Following the company's third-quarter earnings release in November, the executive told investors, "I'm very confident having seen the product, having been with the teams that were addressing these issues, and that as we get into spring of next year, we're going to see a material improvement across both Banana and Gap and the product that we're putting in front of our customers."

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All of Gap's major brands saw same-store sales decline during March, with Banana Republic contracting 14 percent, and Old Navy 6 percent.

"Despite easy compares, Gap and Banana Republic demonstrated sequential deceleration from February, as we believe soft traffic may remain a key headwind," Mizuho Securities analyst Betty Chen said.

Still, some analysts are more optimistic about the new merchandise they've seen on Gap's shelves. Guggenheim Securities analyst Howard Tubin, who acknowledged the company's negative comparable sales, said the "assortments across divisions are beginning to look better."

For its part, Gap also contends that it continues to see "signs of improved customer response to the new product."

Gap shares were trading below $25.