Beleaguered US fashion group Gap has suffered a like-for-like sales dive in its first quarter, with chief executive Glenn Murphy describing the retail climate as “one of the toughest” in recent memory, despite profits soaring 40 per cent over the period.

Murphy told US analysts he did not see any sign of improvement in the “psyche” of US consumers as Gap reported for the three months to May 3. Sales for the period dipped 4.6 per cent, their 10th fall in just over three years, down to US$3.38 billion from US$3.55 billion (£1.71 billion from£1.80 billion) last year.

However, the retailer’s profits rocketed to US$249 million (£126.1 million), reflecting Murphy’s decision to cut back on Gap’s stock and marketing spend and close unprofitable stores.

Murphy said: “Looking ahead, we are focused on bringing compelling product and shopping experiences to our customers while managing costs tightly. We believe this approach is even more prudent given the current economic conditions.”

The San Francisco-based company’s Old Navy division is proving a particular challenge, with like-for-likes plummeting 18 per cent for the quarter.

MHE chairman Edward Whitefield said that Old Navy’s performance is particularly troubling. “Old Navy is in the value sector, which should be getting more sales,” he said. “In the US the value sector has been holding better than most, but Old Navy seems to be haemorrhaging.”

Whitefield was more positive about Gap’s international potential. Last week, the retailer revealed it would be taking its Gap and Banana Republic brands into Russia, with franchise partner Fiba Holding set to open its first Gap store in the country by Christmas this year. The first Russian Banana Republic will follow by the end of 2009.

“Russia is good news as mature markets will be devoid of positive growth for some time,” said Whitefield. “If you’re under pressure at home you must deploy resources to new markets and American brands in developing economies such as China and Russia are still seen as very cool.”

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