Gap profits higher than expected

Gap has kept tight control over its costs, helping to balance a fall in sales

American clothes retailer Gap has defied Wall Street forecasts and reported higher-than-expected third-quarter net profits.

Net income for the quarter ended 1 November was $246m (£163.7m),or 35 cents per share, up from $238m reported a year earlier and ahead of expected.

Sales fell 8% to $3.56bn but profits were helped by widespread cost cuts and a reduction in inventory.

Chief executive Glenn Murphy said the fourth quarter would be "challenging".

Wall Street had predicted earnings of 34 cents per share on $3.55bn of sales.

"Amazing job"

Americans are cutting down on non-essential spending as high fuel, food and mortgage costs eat into their disposable income.

Gap, which also operates Old Navy and Banana Republic, has tried to improve its products in order to boost revenues and entice customers. The company has cut packaging, payroll and supply costs in an effort to beat the economic slump and entice cash-strapped shoppers.

"As sales fall we make an effort to ensure that store-related expenses...stay in line," said Gap chief financial officer, Sabin Simmons.

"[Gap] has done an amazing job of navigating the environment and preserving capital, focusing on growing those gross margins [and] keeping the balance of healthy business as they right-size the brands," said Susquehanna Financial analyst, Thomas Filandro.

Challenging times

Gap has restated that it expects its fiscal 2008 earnings forecast to be $1.30 to $1.35 per share.

Despite the good results, chief executive Glenn Murphy was cautious about the future and said the fourth quarter would be "challenging".

The results are particularly impressive against the background of dismal results form other US retailers.

On Friday, New York and Co Inc, a women's clothing store, reported a quarterly loss and a drop in sales, while teen-oriented apparel company Wet Seal said it anticipated a lacklustre fourth quarter.