NEW YORK (CNN/Money) - Investors checked out of retailer Gap Inc. Thursday after it delivered a disappointing sales report card for July with failing grades in its three core divisions: Gap, Banana Republic and Old Navy.

San Francisco-based Gap Inc., the No.1 specialty apparel retailer, said July sales at its stores open at least a year -- a key retail measure known as same-store sales -- fell 5 percent, its second consecutive month of declines this year after a 2 percent decline in June.

Shares of Gap (GPS: Research, Estimates) were lower in afternoon trading on the New York Stock Exchange. If history is a guide, the retailer's stock is closely tied to its sales performance and has seen ugly sell-offs every time the company missed comparable sales estimates.

Despite its clearance period, Gap said it saw weaker-than-expected traffic to its stores last month. At the same time, the markdowns also put a squeeze on its gross margins.

Additionally, the company said it now expects to post a second-quarter profit of between 19 cents to 21 cents a share, which reflects expenses of about $64 million, or 4 cents a share, related to premiums paid on early retirement of about $300 million of debt.

Analysts expect a profit of 27 cents a share, according to First Call.

After its impressive 20-consecutive monthly run of positive sales growth, Gap's recent misses have sparked some concern among industry watchers who say the retailer is under pressure to prove that it could stay the course.

But comparable sales at its namesake division fell 3 percent in July and were down 2 percent at the value-priced Old Navy chain.

Perhaps even more troubling to observers is that the high-end Banana Republic division, whose sales have helped to offset the weaker-performing Gap unit and boosted overall margins, also appeared to suffer a bout of the summer blues.

Banana Republic's same-store sales fell 10 percent last month.

"We are concerned that a continuation of sales weakness at the Banana Republic division of Gap, Inc. could result in a weaker outlook for profits since Banana Republic has been a solid and reliable source of pre-tax profits thanks to their high price point, big margins, and strong sales," said Richard Hasting, retail sector analyst with Bernard Sands.

"But higher prices today could be turning into a point of resistance among some shoppers, and we will be watching Banana Republic's monthly sales trend carefully for the next few months," he added.

Gap successfully won back customers and investors after it reverted to its "back-to-basics" fashion concept two years ago.

Industry watcher said the retailer had been a better job of differentiating its three core brands, while its new advertising initiatives -- including the much-anticipated August launch of its fall television campaign featuring actress Sarah Jessica Parker -- were generating excitement.

So if its been making all the right moves, why the hiccup now?

"It's simply a case of Gap missing the mark for the back-to-school season," said Howard Davidowitz, retail consultant and chairman of Davidowitz & Associates, a retail consultancy and investment banking firm.

"Gap fell out of bed with its merchandise mix this season. It missed the big trends that other retailers like American Eagle Outfitters and Urban Outfitters got right," he said.

The other factor that hurt Gap Inc. and other retailers last month is that electronics sales ate into apparel sales.

"Electronics is certainly carving a big chunk of money out of the pockets of shoppers," said Bernard Sands' Richard Hastings. "Back-to-school is increasingly about how cool is your phone, or how new and cool is your notebook -- that $1,350 notebook -- and students are judging each other by their gizmos at least as much as by their clothing."

Nevertheless, Davidowitz said Gap will be under greater scrutiny to show that it can get things back on track.

"Back-to-school is probably their second most-important sales season, and it didn't go well. I think the real spotlight is on CEO Paul Pressler to show that he can keep the momentum going."