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Weaker shopper demand could hurt Gap, analyst says

NEW YORK (AP) -- Weakening demand for clothing could take a toll on Gap Inc. the rest of the year, an analyst said Monday in downgrading the retailer's stock to 'Neutral.'

Goldman Sachs analyst Lindsay Drucker Mann said Monday that Gap has been gaining ground in sales over the past few years, and has been plowing extra cash back into the company to offset cotton costs and reinvest in its business.

But a weakening retail demand outlook means Gap might have to weather thinner profit margins, Drucker Mann said. It could still make its earnings predictions but it unlikely to beat them, she said.

The San Francisco-based retailer, whose brands include Old Navy, Banana Republic and its namesake, said last month that sales at stores open at least a year, a key retail metric, dropped 3 percent in September, missing analyst expectations.

In addition, she said other long-term business drivers, including international expansion, upgrading the supply chain and gaining in domestic market share in online sales, are not dependable enough to assign much value to.

She downgraded her rating on Gap to "Neutral" from "Buy."

Gap did not immediately respond to a request for comment. Shares slipped 10 cents to $36.68 during morning trading.