Apparel giant Gap Inc has reported "disappointing" March sales, with lower merchandise margins than last year.

Net sales for March dropped 1 per cent to $1.48 billion compared to $1.49bn last year, while same-store sales fell 4 per cent, compared to an 8 per cent fall in March 2004.

Same-store sales fell 1 per cent compared to a 5 per cent rise last year, while Banana Republic North America reported a 1 per cent fall compared to growth of 25 per cent last year.

Old Navy North America registered a 9 per cent decrease compared to an 11 per cent rise last year, while the international division saw a 1 per cent rise compared to a 6 per cent fall last year.

Sabrina Simmons, Gap's senior vice president, treasury and investor relations, said that as the company cleared left over spring goods, April merchandise margins are likely to be pressured.

Gap's net sales for the year so far fell 1 per cent to $2.40bn compared to last year's sales of $2.42bn. Year-to-date same-store sales dropped 4 per cent compared with a 10 per cent rise last year.

The company has predicted earnings per share of $1.41- $1.45 for the 2005 financial year.

Gap said today that it was expanding its Banana Republic chain to Quebec, Canada, where it plans to open four stores this August.