Gap 4th-quarter net income drops 35 percent

LOS ANGELES (Reuters) - Struggling apparel giant Gap Inc. (GPS.N) said on Thursday that fourth-quarter net profit fell 35 percent on weak sales at its two main casual clothing chains and dependence on holiday season discounts, but still topped Wall Street targets.

The global retailer, which is searching for a new chief executive after the January departure of Paul Pressler, said net income dropped to $219 million, or 27 cents per share, from $337 million, or 39 cents per share, a year earlier.

Analysts, on average, expected earnings of 24 cents, according to Reuters Estimates.

Total sales at Gap, which sold America on the casual office wear trend of khakis and T-shirts, were $4.93 billion, up nearly 2 percent from $4.82 billion a year ago. The company, which operates more than 3,000 stores around the world, reported revenue last month.

The iconic brand has struggled to find an audience for fashions at its Gap stores, with critics citing lackluster merchandise or too-trendy styles that have failed to appeal to its target customers in their late 20s or 30s.

Quarterly North American sales at the Gap chain fell 6 percent, while sales at Old Navy, the company's family-oriented chain, were flat. Sales rose 14 percent at Banana Republic.

Looking ahead, Gap expects fiscal 2007 net earnings to range between 76 cents and 86 cents, including a charge of 4 cents related to the recent closure of its Forth & Towne stores, a move announced on Monday.

Excluding the charge, Gap expects earnings of between 80 cents and 90 cents, compared with the Wall Street consensus view of $1.00.

Gap trades at 19 times 2008 earnings, above retailer Limited Brands Inc.(LTD.N) at 14.6 and the Dow Jones Retail Index .DJUSRT at over 15 times next year's earnings.

Shares rose 1 percent in extended trade to $19.27 after closing at $19.03, down 16 cents, on the New York Stock Exchange.