Gap reports 45% profit rise, announces Italy debut

San Francisco Gap reported Friday that strength of its Old Navy division performance propelled the operator of Gap, Old Navy and Banana Republic to a 45% profit increase in the fourth quarter.

Profit for the quarter rose to $352 million, compared with a profit of $243 million in the year-ago period. Results edged analyst forecasts.

Revenue rose 4% to $4.24 billion in the fourth quarter, from $4.08 billion a year ago. Analysts expected revenue of $4.23 billion for the latest quarter.

Same-store sales dropped 2% overall, including a 1% drop at Gap stores and a 2% drop at Banana Republic. Old Navy was the big performer, with same-store sales surging 7%.

"You won't hear anybody in this business talk about a turnaround plan," said Glenn Murphy, chairman and CEO in a statement. "We can now evolve the business and start talking about how [it] is going to grow and move forward and compete and win."

Gap finished a third year in a row of double-digit earnings growth amid sagging sales by slashing inventory. By year's end, the retailer said it plans to remodel 200 Old Navy stores, open 65 stores including its first Gap stores in China and Italy, and expand Banana Republic in Europe. It also plans to offer e-commerce for customers in Canada, the United Kingdom and nine other countries in Europe. The company said it expects to close 110 stores in 2010.

In related news, Gap also announced Friday that its previously announced Italian growth will launch with the opening of Gap and Banana Republic flagship stores next door to each other in Milan’s leading shopping area on the Corso Vittorio Emanuele in late 2010 with additional openings in other Italian cities such as Rome to follow in 2011. The retailer is leveraging the international appeal of its London and Paris stores.

“As we continue to expand our global presence and deliver our customers great product, we are excited to enter another market that’s also one of the top five apparel markets in the world,” said Stephen Sunnucks, president Europe and International Franchise at Gap.

Each of the stores will be wholly owned and operated by Gap leveraging the company’s existing European teams and distribution infrastructure. The 25,500-sq.-ft. Gap flagship store in Milan will span three floors, and house collections from Gap, GapKids, babyGap, GapBody, and GapMaternity.