Gap 2Q Profit Falls, Lowers Year View.

NEW YORK (AP) -- The prospects for an imminent turnaround at Gap Inc. diminished Thursday after the retailer reported more than a 50 percent drop in second-quarter profit and cut its earnings forecast for the year.

Gap, which operates Old Navy, Gap and Banana Republic, said it is reducing its annual earnings outlook based on the ''disappointing'' quarterly results and sales for the month-to-date. The news, announced after the regular markets closed, disappointed investors, who were hoping to see signs of a turnaround from changes in fashions and a major marketing campaign.

Shares fell 8 cents to close at $17.30 on the NYSE, and slid 65 cents, or nearly 4 percent, to $16.65 in aftermarket trading on the INET electronic exchange.

For the quarter ended July 29, net income dropped to $128 million, or 15 cents per share, from $272 million, or 30 cents per share, for the same period last year.

Sales were unchanged at $3.72 billion, and sales at stores open at least one year fell 5 percent, compared with a prior-year decrease of 3 percent. Gap cited sluggish sales and ''aggressive'' discounting.

The results were a penny ahead of Wall Street estimates, and beat analysts' consensus estimate for revenue of $3.69 billion, according to a survey by Thomson Financial.

Same-store sales, at Gap stores fell 6 percent in the second quarter, while at Old Navy, same-store sales slumped 5 percent. At Banana Republic, same-store sales slipped 1 percent.

''The second quarter was more challenging than we expected,'' said Gap Inc. President and Chief Executive Paul Pressler, in an address to investors during a conference call Thursday.''While we are encouraged by improved performance at Banana Republic, business was tough at Gap, and Old Navy as we cleared through summer product.'' He noted that August results to date are below the company's forecast set at the beginning of the month.

''Each brand is at a different stage in its turnaround. But across all businesses, I believe we are making progress,'' he added. ''Our product assortments are better, our stores have improved, and we are aggressively marketing with compelling messages. I remain confident in the strategies under way.''

But some analysts are not as optimistic.

''They don't have enough good merchants. I am seeing better things but it is not anywhere near where it needs to be given the competition they face today,'' said Patricia Edwards, a portfolio manager and retail analyst at Wentworth, Hauser & Violich in Seattle.

Gap had forecast fiscal year earnings per share of $1.23 to $1.27, believing that efforts to improve performance would begin to gain traction during the second quarter and build momentum with the fall product flows. But based on discouraging sales, Gap lowered estimates for full-year profit to between $1.08 and $1.12, compared with Wall Street's $1.11 consensus view. Gap officials told investors that the guidance presumes a modest improvement in the second half of the year.

This is the second time in six years that Gap Inc. has hit a prolonged sales funk. A nearly 2 1/2 slump that ended in 2002 led to the departure of Gap's longtime leader Millard ''Mickey'' Drexler and resulted in the hiring of Pressler, formerly a top executive at Walt Disney Co. Helped by merchandising changes orchestrated by Drexler, Gap's business initially improved under Pressler's reign, before falling back into the current malaise.

During the conference call Thursday, executives told investors that it will take time to bring back the customer. But analysts are wondering how long it will take as other rivals continue to gain an edge. Earlier this week, teen retailers Abercrombie & Fitch Co. and American Eagle Outfitters reported robust double-digit profit increases for the second-quarter.

Dana Telsey, CEO of Telsey Advisory Group, an independent research firm focusing on retail, noted, ''you have to expect it will take time for Gap to regain its footsteps.'' Still, she said that while Gap's audience is a bit wider than the teen leaders, those purveyors of denim and other basics are all fighting for the same consumer dollar.