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Gap falls as Sept. key sales metric disappoints

NEW YORK (AP) -- Gap's stock declined Friday after the retailer reported that a key sales figure fell in September, missing analysts' expectations.

THE SPARK: After the market closed Thursday, the San Francisco-based retailer, whose brands include Old Navy, Banana Republic and its namesake, reported that sales at stores open at least a year dropped 3 percent last month. That compares with a 6 percent increase in the year-ago period.

The performance was below the 1.6 percent gain that Thomson Reuters analysts forecast.

The measure is a key indicator of a retailer's health because it excludes results from stores recently opened or closed, thus measuring growth at ongoing locations.

THE ANALYSIS: Ike Boruchow of Sterne, Agee & Leach said in a note to clients that Gap Inc.'s September performance was its worst in nearly two years as traffic slowed sharply, particularly during the last week of the month. The analyst reduced Gap's price target to $36 from $38 and kept an "Underperform" rating on the stock.

Janney Capital Markets' Adrienne Tennant said that she anticipated that Gap's results would come in below market expectations, due to soft mall traffic and aggressive promotions across the Gap, Banana Republic and Old Navy brands. The analyst believes the company will face merchandise margin pressure for the rest of the year because the retail sector appears to be ramping up promotions as sales are slowing. Near term, Tennant said that she is cautious, because the number of shoppers at malls is down and competition is tough.

She cut Gap's price target to $43 from $51 and kept a "Buy" rating.

Gap does not comment on analyst reports.

SHARE ACTION: Down $2.67, or 6.8 percent, to $36.81 in morning trading. The stock has traded in a 52-week range of $29.84 to $46.56. Year to date, the shares remain up about 19 percent.