UPDATE 1-Gap raises forecast; to open 40 stores in India

Thu Aug 21, 2014 5:56pm EDT

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Aug 21 (Reuters) - Apparel retailer Gap Inc raised its full-year profit forecast, encouraged by strong sales of its lower-priced Old Navy clothes, and said it would open 40 stores in India as part of its strategy to expand in emerging markets.

Gap has been looking to reduce its dependence on the North American market, which generates more than three-quarters of its sales.

Sales of its other key brands - Gap and Banana Republic - have cooled in the region as shoppers cut down on discretionary spending.

Sales in Asia accounted for only 9 percent of Gap's total revenue of $16.1 billion in the year ended February 2014, but are growing fast. The company said in April it expected sales in China to triple in the next three years to $1 billion.

"India is an emerging, vibrant market and an important next step in our global expansion strategy," said Steve Sunnucks, Global President of Gap.

Gap said it is partnering with Arvind Lifestyle Brand Ltd, a unit of textile manufacturer Arvind Ltd, for opening the stores in India. The first stores will open in Mumbai and Delhi.

The company, which currently has 231 Gap stores in Asia, is also aiming to open 110 Gap stores in mainland China, Hong Kong and Taiwan this year.

Gap raised its full-year profit forecast to $2.95-$3.00 per share for the year ending February 2015. It had previously forecast $2.90-$2.95 per share.

Analysts on average expected the company to earn $2.95 per share for the year, according to Thomson Reuters I/B/E/S.

Comparable sales at Old Navy stores rose 4 percent in the second quarter ended Aug. 2. Sales of Gap and Banana Republic clothing were disappointing. Comparable store sales fell 5 percent at Gap and were flat at Banana Republic.

Many large U.S. retailers have reported disappointing quarterly sales at their established stores, pointing to a cutback in spending on discretionary items.

Aeropostale Inc on Thursday reported a 13 percent fall in second-quarter comparable sales, while American Apparel Inc said on Monday quarterly same-store sales declined 6 percent.

Gap's net profit rose to $332 million, or 75 cents per share, in the second quarter, from $303 million, or 64 cents per share a year ago.

Excluding items, the company earned 70 cents per share.

Revenue rose 3 percent to $3.98 billion. Comparable sales were flat versus a 5 percent increase a year earlier.

Analysts on average expected a profit of 69 cents per share on revenue of $3.96 billion.

Gap's shares were up 1 percent in extended trading after closing at $43.18 on the New York Stock Exchange on Thursday. (Reporting by Ramkumar Iyer in Bangalore; Editing by Saumyadeb Chakrabarty)

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