UPDATE 1-Gap to enter South America through franchise deal

Wed Nov 17, 2010 12:50pm EST

* Store in Chile to open September 2011

* Company reiterates franchise store growth goal

SAN FRANCISCO Nov 17 (Reuters) - Gap Inc (GPS.N) said on Wednesday it would bring its eponymous casual clothing chain to Chile through a franchise deal with Komex, its first foray into the South American market.

The company, whose brands include Gap, Banana Republic and Old Navy, had 165 franchise stores open in 23 countries as of the end of its third quarter.

The new store in Santiago is expected to open next September.

Over the past year, Gap has expanded its reach, recently opening its first company-operated stores in China and opening a franchise store in Australia this spring. Later this month, it will open its first store in Italy [ID:nN1497352].

Opening franchise stores allows Gap to expand more cheaply than it would if it owned and operated the stores.

Gap's growth has been slowing at home, and it is trying to improve its merchandise to attract new customers while cutting costs and making operations more efficient.

Gap also has been exploring the idea of expanding its lower cost Old Navy chain through franchise deals.

Gap said again that it plans to raise its number of franchise stores to 400 by 2015, and that by fiscal 2013, international and online sales will make up more than a quarter of the company's total sales.

The company releases third-quarter results on Thursday. Analysts expect a slight decline in revenue to $3.6 billion and net earnings of 48 cents per share.

Gap's shares were up 4 cents at $20.71 on the New York Stock Exchange. (Reporting by Alexandria Sage. Editing by Robert MacMillan)

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