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Earnings Roundup

Gap net income climbs 51% despite sales slump

August 22, 2008|From Times Wire Services

Apparel retailer Gap Inc. said Thursday that tight control on inventory and costs helped offset a persistent sales slump, particularly at its Old Navy stores, as fiscal second-quarter profit rose 51%.

Its shares rose 69 cents, or 3.6%, to $19.70 during after-hours electronic trading. They had closed down a penny at $19.01 before the earnings news.

The San Francisco-based company said profit for the three months that ended Aug. 2 rose 51% to $229 million, or 32 cents a share, from $152 million, or 19 cents, a year earlier. The number of shares outstanding fell 12% to 719 million.

Analysts polled by Thomson Reuters predicted a profit of 30 cents a share.

Revenue fell 5% to $3.5 billion, while analysts expected revenue of $3.52 billion.

Sales in stores open at least one year fell 10%. In North America, same-store sales fell 6% at both Gap and Banana Republic and 16% at Old Navy. International same-store sales also fell 6%.

"We recognize the fact the trajectory of our traffic in our business is unacceptable," said Chief Executive Glenn Murphy during a conference call with analysts. "We are doing work behind the scenes and we are getting ourselves ready to play more offensively minded when it comes to getting traffic through the front doors."

Gap reaffirmed its full-year earnings outlook of $1.30 to $1.35 a share, while analysts expect a profit of $1.34 a share.

The company said it would open 15 fewer stores, mainly Banana Republic stores, than previously expected during the year, and now expects to open a total of 100 stores.

Murphy said the company had developed a strategy for its real estate, which includes about 3,100 stores and 41 million square feet. The company plans to reduce its square footage by 10% to 15% over the next three to five years.

Earlier Thursday, Gap appointed 30-year retail veteran Tom Wyatt as president of its Old Navy chain. Wyatt, 53, had served as acting president of Old Navy since February, when Dawn Robertson stepped down after 16 months.

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