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Gap Profit Rises 54% on Spring Line Sales

Times Staff Writer

Gap Inc. posted its seventh straight quarter of profit growth Thursday, which the company said was a strong sign that the once-struggling apparel retailer was back on track.

San Francisco-based Gap said higher sales of spring apparel and tighter control over costs helped drive fiscal first-quarter profit up 54% to $312 million, or 32 cents a share, from $202 million, or 22 cents, a year earlier. The results met analysts’ expectations.

Gap, which operates 3,016 Gap, Old Navy and Banana Republic stores, saw sales for the quarter ended May 1 increase 9% to $3.7 billion. Sales at stores open at least a year -- a key barometer of a retailer’s financial health -- rose 7%.

“I’m delighted with the progress we’re making in the business,” said Paul Pressler, Gap’s president and chief executive, adding that customers were responding to Gap’s improved product lines.

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Pressler, a former Walt Disney Co. executive, was hired by Gap to help turn around the company after a string of declining same-store sales, particularly at the Gap brand stores, in 2001 and 2002.

During the first quarter, Gap sales were flat at $1.2 billion; at Banana Republic, sales rose 22% to $503 million; and Old Navy sales increased 7% to $1.5 billion.

This week, Gap’s credit rating was raised by Moody’s Investors Service, with senior unsecured debt boosted to Ba2 from Ba3. Gap said that during the first quarter, it reduced debt by $170 million and incurred $30 million of expenses that were included in the quarter’s results.

The company is “getting much more effective control over inventory and expenses,” said retail analyst Bob Buchanan of A.G. Edwards & Sons.

Pressler, in a conference call with analysts, said the company was considering several ways to expand, including either acquiring a new brand or broadening the appeal of existing brands.

As an example, Pressler said the company in July would launch a new “plus size” line of women’s clothes at Old Navy. A distinct plus-size shop will be included in existing stores.

“This is an underserved sector and we think there is significant growth to this market,” said Jenny Ming, president of Old Navy, which celebrates its 10-year anniversary this year. “About one-third of U.S. women are considered plus size.... They want to shop at the same place as their friends and family.”

Gap closed 20 stores in the quarter, 14 of which were Gap stores in the United States. Pressler said the company would open 125 new stores this year.

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Gap’s stock rose 11 cents to $22.51 on the New York Stock Exchange. The company’s earnings results were announced after the market closed.


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