Gap Profits Climb, Meet Views

SAN FRANCISCO -- Gap (GPS Quote) posted a 21% rise in fourth-quarter earnings, meeting analysts' expectation, despite a drop in sales in a difficult holiday quarter.

The apparel chain also set plans for a $1 billion buyback and lifted its dividend.

San Francisco-based Gap reported earnings of $265 million, or 35 cents a share, up from $219 million, or 27 cents, a year ago. That matched the high end of its own estimates from earlier this month.

Sales for the quarter ended Feb. 2 fell to $4.68 billion from $4.92 billion a year earlier, but still met analysts' expectations. The top line was partly hit by one fewer week in the recent quarter.

Same-store sales, or sales at store open at least a year, dropped 3%. Still, the decline -- which came amid a tough holiday season for all retailers -- was an improvement over the year before, when they fell 7%.

Same-store sales fell 5% at both the Old Navy and the Gap chains, while Banana Republic's same-store sales rose 2%.

"In 2007, the company made the business decisions and changes necessary to deliver improved earnings for our shareholders," said Gap CEO Glenn Murphy. "While we're aware of the challenging economic environment, our leadership team is committed to delivering the right product to our customers while we bring a sharp operational discipline to our business priorities. We'll work tirelessly to reconnect with customers while we continue to improve our earnings results."

Murphy, who took the helm of the company in July, has been struggling to reverse a two-year-long sales slide at the company's biggest chains, Gap and Old Navy. Last week, Dawn Robertson stepped down as president of Old Navy amid the continued struggles. Tom Wyatt, president of Gap's outlet division, will serve as interim president until a permanent replacement is found.

Gap also has been working to improve margins by putting fewer items on clearance. That helped lift profits amid the sales declines. For the year, gross margin improved 60 basis points to 36.1%.

Separately Thursday, Gap said its board authorized an additional $1 billion in share repurchases. The company has entered into agreements with members of Gap's founding family, the Fishers, who own about 34% of the retailer's outstanding shares.

Gap expects that about $158 million, or about 16% of the $1 billion share repurchase program, will be purchased from the Fishers. Gap has about 751 million shares outstanding.

The company also said that it intends to increase the annual dividend to 34 cents a share this year from 32 cents last year.

Shares of Gap climbed $1, or 5.1%, to $20.45 in after-hours trading.