Gap's 3Q profits edge up 3.4 percent on cost cuts

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NEW YORK – Apparel chain Gap Inc. reported Thursday that its third-quarter profit rose 3.4 percent as cost-cutting efforts like inventory control offset a sales slump. The company also affirming its profit guidance for the full year.

The San Francisco-based company said after the markets closed Thursday that it earned $246 million, or 35 cents per share, in the three months ended Nov. 1. That compares with $238 million, or 30 cents per share, in the same period a year earlier.

Sales dropped 7.6 percent to $3.56 billion from $3.85 billion a year ago.

Analysts surveyed by Thomson Reuters had expected earnings of 34 cents per share on revenue of $3.57 billion.

Gap noted that its same-store sales, or sales at stores opened at least a year, dropped 12 percent in the quarter, compared with a 5 percent drop in the year-ago period. Same-store sales are considered a key indicator of a retailer's health.

"While we expect the challenging economic environment to continue, we'll focus on offering our customers an engaging store experience and products at the right value proposition to stand out this holiday season," Chairman and CEO Glenn Murphy said in a statement.

Gap continues to struggle with lackluster sales as a turnaround plan has stalled amid an overall dramatic drop-off in consumer spending since September, when the global financial meltdown intensified.

In particular, Gap's biggest problem has been Old Navy, which saw an 18 percent drop in same-store sales for the quarter. The fashions are currently being overhauled to cater to bargain-hunting moms. Under the previous head, Old Navy had targeted fashionistas with trendy items — a strategy that backfired.

To turn business around, Gap also plans to eliminate 10 percent to 15 percent of its real estate holdings by creating smaller stores and closing units over the next three to five years in hopes of increasing productivity.

The company said it still expects full-year earnings to be in the range of $1.30 to $1.35 per share for the year. Analysts estimated $1.33 per share.