Gap reports encouraging quarter as profit tops view

San Francisco Gap posted a slightly stronger-than-expected quarterly profit on Thursday as more full-priced sales, inventory controls and cost cuts helped offset declining revenue at all its divisions.

The company said it earned $228 million, or $0.33 per share on a diluted basis, compared with $229 million, or $0.32 per share on a diluted basis a year ago.

“We’re proud to deliver second-quarter earnings per share above last year, especially during a challenging environment,” said Glenn Murphy, chairman and CEO of Gap. “Building upon two years of work improving our economic model, we’re now putting further emphasis on changing the trajectory of our top-line performance. Our focus is to find the right balance between maintaining our cost discipline and making appropriate, targeted investments to gain back market share.”

Revenue fell 7% to $3.25 billion. Same-store sales fell 8% in the quarter. Gap stores saw a 10% decline in same-store sales, while Banana Republic had a 15% drop. At the value-priced Old Navy, same-store sales fell 4%.

Operating expenses in the second quarter of fiscal year 2009 were down about $50 million, compared with the second quarter last year. Since the beginning of fiscal year 2007, operating expenses are down about $650 million.

Year to date, capital expenditures were $131 million. Gap continues to expect capital spending of about $350 million for fiscal year 2009.

The company has opened 23 store locations and closed 27 store locations so far this year. It expect that it will open about 50 stores and close about 100 stores for fiscal year 2009, including repositions. Gap continues to expect that net square footage will decrease about 2% in fiscal year 2009 over last year.