Gap Profit Rises on Cost Cutting

Los Angeles Gap Inc. closed out its third consecutive year of declining sales with a 21% increase in its fourth-quarter profit, reflecting the gains from cost cutting triggered by the worst slump in the clothing retailer's history.

Gap earned $265 million during the three months ended Feb. 2, compared with net income of $219 million in the same period a year earlier.

Revenue totaled $4.68 billion compared to $4.92 billion in the previous year. Same-store sales fell 3%. It marked the 14th consecutive quarterly decline in Gap's comparable-store sales, the company's deepest funk since co-founders Donald and Doris Fisher opened Gap's first store in 1969.

After releasing the results Thursday, Gap's management said the San Francisco-based company will try to weather "volatile" economic conditions by becoming even more frugal in 2008.

The more austere approach will include opening fewer stores and shrinking the size of many existing outlets. Gap also may trim its advertising budget, just as it did during the second half of 2007, while its fashion experts try to design clothes that will lure consumers back to its stores.

"While we are pleased with our progress in 2007, we recognize there is much work to be done," Sabrina Simmons, Gap's CFO told analysts during a conference call.

Management plans to save money this year by opening just 100 stores worldwide, down from 214 last year. Sixty-five stores are scheduled to open in North America, and management indicated the number would have been even lower if not for commitments made more than a year ago. Gap has budgeted $500 million for capital expenditures this year, a 27% decrease from $682 million last year.