Gap Inc. earnings suffer on higher cost of goods

SAN FRANCISCO — The rising cost of goods and a challenging economic environment took its toll on Gap Inc.'s first-quarter sales and earnings.Gap Inc. reported that net income for the firstquarter decreased 23% to $233 million compared with $302 million forthe first quarter last year. First quarter diluted earnings per share was 40 cents.

The company reported that net sales decreased 1% to $3.30 billion.Comparable sales, which includes associatedcomparable online sales, decreased 3%. The 3% comparable-store sales decline included a 3% decrease at Gap North America, a 1% decrease atBanana Republic North America, and a 2% decrease atOld Navy North America.

Because of the rising costs of goods Gap Inc. has revised its full year guidance. The company said it nowexpects product costs per unit to be up about20% in the back half of the year, which will more than outweigh retail price increases. The company has revised guidance for fiscal year 2011 diluted earnings per share to be in the range of$1.40 to $1.50.

“While we acknowledge that costing pressure is impacting our business, we’re working hard to navigatethis short-term macro challenge to our profitability in the current fiscal year,” said Glenn Murphy, chairmanand CEO of Gap Inc. “That said, our strategy remains the same – to deliver consistent,steady growth in North America while investing in our long-term global initiatives, especially in online andinternational.”