GPS Gap Inc

By Maria Armental 

Gap Inc. on Thursday said it expects profit to fall in the current business year and that it would reduce capital spending and buy back fewer shares as it looks to pay down debt.

The retailer said its board had approved an additional $1 billion to buy back shares--but said the buyback would fall short of its historic average as it directs some of its cash toward debt payments.

Gap, which ended the year with about $1.31 billion in long-term debt, spent $1.4 billion on stock buybacks and dividend payouts in its latest business year.

Shares of the company declined 3.9% to $26.60 in after-hours trading. The stock has recovered sharply in the past month, adding 20%--but it is still down 32% in the past 12 months.

The retailer projects adjusted profit of $2.20 to $2.25 for the current year, which would be a decline from $2.43 a share in fiscal 2015. Analysts surveyed by Thomson Reuters projected $2.42 a share.

Gap said it set aside about $650 million for capital projects, down from the $726 million it spent in 2015.

Gap has been trying to revamp its namesake brand. The company last year brought on new leadership--including former Banana Republic veteran Wendi Goldman, who had led Victoria's Secret's Pink line--and said it would layoff workers and close stores as part of a broader cost-cutting move.

In the latest period, sales at its Gap stores fell 4%, or 6% on a comparable basis.

Comparable sales, which Gap defines as stores open for at least a year along with online sales, are a key metric for retailers, stripping out the impact of recently opened or closed stores.

Banana Republic reported with a 10% comparable-sales decline from the year earlier, while Old Navy continued to post strong sales, up 5% in the latest period.

Over all, for the 13 weeks ended Jan. 30, Gap reported a profit of $214 million, or 53 cents a share, down from $319 million, or 75 cents a share, a year earlier. Excluding charges related to the Gap brand overhaul, profit was 57 cents a share.

Net sales fell 7% to $4.39 billion with online sales accounting for $803 million. On a comparable sales basis, sales fell 7%. In the year-ago period, the company reported a 2% increase in comparable sales.

The stronger dollar, the company said, lowered sales by about $100 million.

Analysts surveyed by Thomson Reuters had projected 57 cents a share on $4.46 billion in sales.

Gross margin narrowed to 32.8% from 35.2% a year earlier.

Write to Maria Armental at maria.armental@wsj.com

(END) Dow Jones Newswires

February 25, 2016 16:45 ET (21:45 GMT)

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