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Gap issues lackluster 2Q profit outlook as it struggles to overhaul its business

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NEW YORK — Gap Inc. is still struggling.

The San Francisco-based retailer issued a second-quarter earnings forecast that's below Wall Street analysts' estimates, as it struggles to overhaul merchandise at its namesake brand that hasn't appealed to shoppers.

The results were also dragged down by West Coast delays and foreign currency fluctuations.

The earnings outlook, announced late Monday, comes as the retailer, which also operates Old Navy and Banana Republic, saw a sales shortfall in the quarter. It also posted a 3 percent drop for a key revenue measure for July. Analysts expected a 2.3 percent decline, according to Thomson Reuters.

The latest sales results and lackluster profit outlook from Gap underscores the big challenges that its CEO faces in turning around the business. Peck, who took the top job in February, had been its digital leader overseeing new innovations that cater to mobile-savvy shoppers. He's been shaking up management at the brands and in June the company announced it was scaling back its Gap store foot print in North America. It plans to close 175 Gap stores in North America over the next few years, leaving about 800 open. The company is also trying to overhaul its fashions to make them more appealing to shoppers.

The company said it expects adjusted second-quarter earnings to be in the range of 63 cents to 64 cents. Analysts expected 66 cents per share, according to FactSet.

Gap Inc. also said that it posted total sales of $3.9 billion for the quarter, down 2 percent from the $3.98 billion in sales in the year-ago period. That was below the $3.9 billion in sales that FactSet had expected.

The company posted declines in revenue at stores opened at least a year at Gap and Banana Republic in July, but saw a solid gain at Old Navy for July. The metric at Gap dropped 7 percent, while at Banana Republic it fell 10 percent. But Old Navy remains a bright spot for the company. At Old Navy, revenue at stores opened a least a year rose 3 percent.

The company is slated to report final second-quarter results late next week.

"Gap brand continues to struggle, and we do not expect a turnaround until spring 2016 at the earliest when the new merchandise team can begin to have an impact," wrote BMO Capital Markets retail analyst John Morris in a report to clients published late Monday.

Shares were unchanged in after-hour trading, after rising 37 cents to $35.26 in regular trading on Monday. The stock is down 16 percent in the year to date.

PHOTO: FILE - This photo taken on May 14, 2014, shows signage outside a Gap store in the Shadyside section of Pittsburgh. Gap Inc. on Monday, Aug. 10, 2015 issued a second-quarter earnings forecast that’s below Wall Street analysts’ estimates, as results were dragged down by West Coast delays, foreign currency fluctuations and moves to close a string of Gap stores. (AP Photo/Gene J. Puskar, File)
FILE - This photo taken on May 14, 2014, shows signage outside a Gap store in the Shadyside section of Pittsburgh. Gap Inc. on Monday, Aug. 10, 2015 issued a second-quarter earnings forecast that’s below Wall Street analysts’ estimates, as results were dragged down by West Coast delays, foreign currency fluctuations and moves to close a string of Gap stores. (AP Photo/Gene J. Puskar, File)

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