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Thursday, 10 January, 2002, 23:34 GMT
Gap sees signs of recovery
Gap billboard - Times Square
Gap has increased advertising to try and lift sales
The struggling clothing chain Gap has announced better than expected sales figures during December, and raised its earnings forecast for the fourth quarter.

Sales at stores which had been open for at least a year declined 11% last month, but the fall was smaller than some had forecast.

The news cheered investors on Wall Street and Gap's shares jumped 12.6% to close up $1.83 at $16.35.

Gap has seen sales falling steadily for nearly two years, with the decline blamed on lacklustre clothing designs and competition from discount retailers.

The two biggest US discount retailers - Wal-Mart and Kmart - also released December trading figures on Thursday showing contrasting fortunes.

Wal-Mart's sales growth topped analysts' forecasts, but Kmart said sales dipped slightly and admitted its full year earnings figures would be lower than expected.

Upgraded forecast

Gap has now seen sales decline for 21 straight months, but it will be hoping the latest sales figures are the beginning of a reversal in fortunes.

Wal-Mart store
Wal-Mart enjoyed better than expected sales growth
The 11% decline in sales at stores open for at least a year, compared to a 25% drop recorded the previous month.

Same-store sales at Gap stores were down 9%, while Old Navy outlets saw a 14% drop. Banana Republic recorded the smallest decline with only a 3% fall.

The better than expected figures led Gap to raise its earnings forecast for the fourth quarter.

It now says its loss, excluding charges, will be no worse than the previous quarter's deficit of six cents a share, whereas before it said the loss would be bigger.

Mixed fortunes for discounters

The world's largest retailer Wal-Mart enjoyed strong sales growth over the important Christmas period, with same-store sales up a better than expected 8% during December.

The company said it was not increasing its earnings forecast, as fierce competition was keeping pressure off profit margins.

It also said that while sales had risen, it was seeing customers buying lower-priced items.

But while Wal-Mart enjoyed good festive sales, its discount rival Kmart said it saw sales drop 1% in December at stores which have been open at least a year.

Kmart also announced that its earnings for the current fiscal year were likely to fall short of expectations, and said it was in talks with its lenders about raising extra money.

The news took analysts by surprise and Kmart's shares closed down 60 cents at $4.20.

"The surprise is that they are looking for supplemental financing in addition to discussing their existing financing," said Prudential Securities analyst Wayne Hood.

See also:

18 Dec 01 | Business
Grim holiday sales grip Gap
11 Oct 01 | Business
Gap sales slump
16 Nov 01 | Business
Gap plunges into loss
08 Nov 01 | Business
Gap loses out to discount trend
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