Gap Q4 Profit Drops 8.3%, Will Shutter 100 Stores

San Francisco Gap Inc. on Thursday reported an 8.3% decline in fourth-quarter profit, and said it would close additional stores, especially at its namesake chain, as it tries to weather a recession.

The retailer said profit dropped to $243 million, from $265 million in the year-ago period. The results beat Wall Street's forecasts because of the company's focus on cost controls.

“Our ability to drive healthy margins and achieve significant cost savings helped us deliver earnings growth of 16% over the course of a very challenging year," chief executive Glenn Murphy said in a statement.

Murphy cited the $1.8 billion in cash the retailer had at the end of the fiscal year, which ended Jan. 31.

For the first quarter, Gap said it expects operating expenses to be reduced by a range of $10 million to $30 million. The chain said it expects inventory per square foot to be reduced in the current quarter by a percentage in the high single digits, which is not as sharp a rate as the year-earlier first quarter when inventory per square foot was cut 17%.

As previously reported, revenue fell 13% in the key holiday quarter to $4.1 billion, while same-store sales plunged 14%. The hardest hit was Old Navy, where same-store sales fell 17% in the quarter.

The company said it plans to close 100 stores in fiscal 2009 out of more than 3,100 locations. It expects to open about 50 new stores during the year, with about half outside the United States and the remainder focusing on outlet stores.

After slashing costs for 18 months, Murphy told investors Thursday that the chain will now focus on pulling more customers into its stores and use its low-price chain Old Navy to "compete on behalf of the company."

"We made tough decisions," said Murphy during a conference call with investors. "Now, we have to prove we can bring customers inside our stores and drive the top line of our business ... and make smart investments to position the company for the future."