Cost-cutting boosts Gap's 2nd-quarter profit

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 percent.

Its shares rose 69 cents, or 3.6 percent, to $19.70 during aftermarket electronic trading. They had closed at $19.01.

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

Analysts polled by Thomson Reuters predicted a profit of 30 cents per share and the company had forecast earnings of 30 cents or 31 cents per share.

Revenue fell 5 percent to $3.5 billion from $3.69 billion last year, while analysts expected revenue of $3.52 billion.

Sales in stores open at least one year, a key retail metric known as same-store sales, fell 10 percent. In North America, same-store sales fell 6 percent at both Gap and Banana Republic and fell 16 percent at Old Navy, which continues to be a weak spot for the company. International same-store sales also fell 6 percent.

"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."

He said the company is working on improving the products it offers and the experience customers have in the stores, as well as shoppers' perception of its brands, to help drive traffic.

Inventory per square foot fell 17 percent year-over-year.

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

The company said it will 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 has 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 percent to 15 percent over the next three to five years.

Earlier on Thursday, Gap named Tom Wyatt, a 30-year retail veteran, 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 struggling for 16 months to turn the division around.

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