Company-wide sales remained flat at $3.9 billion. Online sales rose significantly to $247 million, compared with $182 million in the same quarter of 2006.

Old Navy in particular is re-working its mix, a process that Murphy called "an evolutionary change in the brand." This quarter the company recruited designer Todd Oldham as design creative director for Old Navy. He will develop a line to be sold in those units under his own name.

Of the Old Navy merchandise assortment, Murphy said, "these changes take time. We were challenged in women's, but not men's, babies and kids." New women's lines are ready for fourth quarter.

"We feel we're well-positioned for holiday," he said. But he also noted that alongside efforts to revitalize the Gap and Old Navy brands lies "a tough macro-economic environment for the holidays."

The retailer aims to jump start the season with 90% of Old Navy stores opening at 5 am on Black Friday, versus 7 am a year ago. In addition, 170 of the company's stores will open when the Thanksgiving Day clock strikes midnight, versus 70 units that did so in 2006.

Although still in turnaround mode and despite a macro environment "that calls for caution," according to Murphy, the company updated its full 2007 guidance to between $0.92 and $0.98 a share, compared with the previous range of $0.83 and $0.88 a share. This is based primarily on the results of its third-quarter cost-cutting performance.

Gap Inc. opened 187 new stores this year and closed 127. It will end 2007 with a total of 3,191 units, which is a 2%-increase in sf compared with the end of the previous year. It is also getting new real estate strategies in place, including assessments of remodels, ranging from none to "cheap and cheerful" and "complete gut."