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Belt-Tightening Lifts Gap Inc.'s Profits

SAN FRANCISCO-Despite overall flat sales and a 5%-dip in comps, third-quarter profits rose 26% during Gap's financial turnaround efforts.

By Marita Thomas | Updated on November 21, 2007

SAN FRANCISCO-Cost-cutting measures at Gap Inc. led to a 26%-rise in net earnings for this year’s third quarter, despite flat overall sales and a 5%-drop in same-store sales, compared with the same quarter a year ago, when comp-store sales suffered a similar decline. “Everybody here understands we’re in a financial turnaround,” said Glenn Murphy, who took over the posts of chairman and CEO this July.

During a conference call, he said, “We made progress in driving earnings growth by managing our inventory and reducing expenses.” Marketing expenses are a chief component of the belt-tightening underway.

The company has trimmed $80 million from marketing costs in the last half of this year compared with the same half of 2006. There will not be four weeks of TV ads for the flagship Gap brand during fourth quarter, for example.

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