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Gap vows to cut costs

Casualwear chain Gap is to focus on cost cutting after predicting a tough retail climate for the remainder of 2008.

The US company said profits rose 40% to US$249 million (£125.6m) for the first quarter of the year ended May 3, thanks to fewer markdowns and tighter cost controls.

However, net sales were US$3.38 billion (£1.7bn), down from $3.55bn (£1.8bn) in the first quarter of the previous year. Same-store sales fell 11%.

Vice president of investor relations Evan Price said the group had experienced one of the toughest retailing climates in recent memory.
He said: “We see no signs of improvement in the psyche of the American consumer.”

He added that Gap would seek to obtain healthier margins through solid inventory management, reducing and containing costs and a more disciplined approach to capital spending.

The company expects no net addition to retail space in 2008.

Chairman and chief executive Glenn Murphy said: “We are pleased with our first quarter results as we delivered solid earnings growth in a difficult environment. We are focused on bringing compelling products and shopping experiences to our customers while managing costs tightly.”

The group will also expand its presence in Russia after signing a franchise deal with Fiba Holding. The first Gap stores are expected to open later this year, with Banana Republic stores following the year after. Fiba currently operates franchise stores for Gap and Banana Republic in Turkey.

Gap has 3,100 shops in the US, UK, the Republic of Ireland, Canada, France, and Japan, plus 60 franchise shops and 20 Banana Republic stores in Asia, the Middle East and Europe.

Gap’s sales for the first quarter:
Gap: down 7% to US$976m (£492.5m)
Banana Republic: down 4% to US$538m (£271.4m)
Old Navy: down 18% to US$1.2bn (£600m)
International sales: down 5% to US$398m (£200.8m)
Online sales: up 21% to US$236bn (£119m)
Gross margin: up 150bps to 39.7%

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