Gap clothing brand suffered a 5 percent decline in sales at stores open at least a year - known as same-store sales. This was worse than the 2.5 percent forecast by Wall Street.

As for Gap's drop in April sales, Sabrina Simmons, senior vice president of treasury and investor relations at Gap, said that the clearance of spring merchandise had put pressure on the company's margins.

Legg Mason retail analyst Richard Jaffe said that while Gap's management has been doing a good job of managing business, it has had trouble producing merchandise that customers want to purchase.

"Gap is among the best-managed retailers in the country, but (its) critical reason for existence is merchandise that people want, and they haven't been able to outperform in that category," Jaffe said.

Within Gap's three divisions, same-store sales at Banana Republic fell by 6 percent, compared with a 12 percent increase a year ago; Old Navy's numbers remained flat at 3 percent; and Gap fell by 9 percent compared with a 2 percent increase the year before.

In other words, when you have H&M, Mango and Zara next door, with more competitive prices and better designs, you have to work harder to keep people coming back to you.

Source: San Francisco Gates. 

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