SAN FRANCISCO Gap Inc (GPS.N) posted higher quarterly net profit on Thursday, topping Wall Street expectations, helped by lower inventory and cost cutting that boosted margins and offset a decline in sales.
The global apparel retailer, which operates the Gap, Old Navy and Banana Republic chains as well as online shoe seller Piperlime, also stood by its full-year earnings forecast.
Gap shares were unchanged after-hours. They had closed down nearly 6 percent at $9.51 in a broad stock market sell-off.
Net income in its third quarter ended November 1 rose to $246 million, or 35 cents per share, from $238 million, or 30 cents per share, a year earlier.
Sales fell nearly 8 percent to $3.56 billion from $3.85 billion, the San Francisco-based company said.
Analysts, on average, expected earnings of 34 cents on sales of $3.55 billion, according to Reuters Estimates. The company predicted earnings between 33 cents to 35 cents per share.
Gap has been trying to dig itself out of a multiyear sales slump by improving its products and finessing its image and target customer.
But like most U.S. retailers, Gap has been hurt as shoppers cut back on all but the most vital purchases such as food and gasoline.
International sales rose 9 percent in the quarter, but total revenue fell at North American Gap, Old Navy and Banana Republic stores. Gap's online division saw a 15 percent rise in sales.
Same-store sales, a key gauge of financial health measuring sales at stores open at least a year, fell 12 percent in the quarter.
Lower corporate overhead and store costs such as packaging, payroll and supplies helped reduce expenses, Gap said.
"As sales fall we make an effort to ensure that store related expenses ... stay in line as a percent of sales," said Chief Financial Officer Sabrina Simmons.
Operating margins improved to 11.1 percent of sales from 9.5 percent a year earlier, helped by a 13 percent reduction in inventory, and Gap said it still expects an operating margin of about 10 percent for fiscal 2008.
Looking ahead, Gap said it still backs its fiscal 2008 earnings view in a range between $1.30 to $1.35 per share.
Gap said inventory at the end of the holiday fourth quarter would be down in the high single digits on a percentage basis.
The stock is valued at 7.5 times fiscal 2009 earnings, in line with the Dow Jones U.S. Apparel Retail Index .DJUSRT, but at a premium to specialty retailer Limited Brands Inc LTD.N and department store Macy's Inc (M.N).
(Reporting by Alexandria Sage; editing by Jeffrey Benkoe, Leslie Gevirtz)