Gap Profit Up on Cost-Cutting Moves

San Francisco, Gap Inc. said Wednesday its third-quarter profit rose 26%, largely due to lower marketing costs.

But the company's cost-cutting campaign couldn't compensate for a slowdown in sales at its Gap and Old Navy chains. Companywide revenue was flat, and same-store sales fell 5%.

The company said net income for the quarter ended Nov. 3 rose to $238 million from $189 million, or 23 cents per share, in the year-ago period. Sales were flat at $3.85 billion.

"We feel this is going to be a tough economic environment this upcoming holiday season," chairman and CEO Glenn Murphy said in a conference call.

Gap, which also operates Banana Republic stores, said it cut marketing expenses by about $75 million in the quarter, as planned.

On the sales side, one of the few bright spots came from online sales, which surged 36% to $247 million, compared with $182 million for the third quarter of last year. Gap operates online shoe store Piperlime, gap.com and other e-commerce sites.

Gap is reorganizing its North American real-estate holdings, selling underperforming, older stores in aging markets and buying property in hot growth suburb and urban retail centers.

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