The company's comparable store sales decreased 8 per cent; with Gap North America down 9 per cent, Banana Republic up 2 per cent, Old Navy North America decreasing 10 per cent and International sliding 8 per cent.
Gap corporate finance senior vice-president Sabrina Simmons said: 'Although Banana Republic continued to make good progress in its turnaround, we continued to experience negative trends at Gap and Old Navy.
'Given the weak traffic trends, we needed to take significant action on promotions and markdowns at these two brands, which drove Gap's overall merchandise margins significantly below last year. We expect continued margin pressure into January as we work to clear remaining holiday product at Gap and Old Navy.'
The company said that it expects the percentage increase in inventory per sq ft to be in low single-digits by the end of the fourth quarter of the current financial year.
Year-to-date net sales decreased 2 per cent to US$14.75 billion (£7.6 billion) for the 48 weeks ending December 30 and the company's year-to-date comparable store sales slid 7 per cent compared to 2005.
Gap president and chief executive officer Paul Pressler said: 'We are clearly disappointed with Gap and Old Navy's holiday sales and overall performance for the year.
'Given that we did not gain the traction we had expected, the management team - with the active involvement of our board of directors - is reviewing Gap and Old Navy's brand strategies. We are committed to making the necessary changes.'
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