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nearly closed the gap in its profit as Old Navy sales started to recover, but the specialty-retail chain still has plenty of work to do on its namesake and Banana Republic stores.

During the second quarter, the company earned $228 million, or 33 cents a share, compared with $229 million, or 32 cents a share, in the year-ago period. Analysts expected earnings of 32 cents.

But sales were still down 7%, falling to $3.25 billion, while total same-store sales dropped 8%. By division, comparable sales stores tumbled 10% at Gap stores and 15% at Banana Republic. Old Navy performed the best, relatively, with sales sliding just 4%.

So far the company has been unable to overcome four years of slumping sales. But Gap has focused on re-jiggering its Old Navy business to target frugal moms, and it looks as though those efforts have begun to pay off.

Last week the company said that it's

re-launching its 1969 denim line at Gap stores

as part of its effort to improve fits and merchandise selection at the higher-priced chain.

While the company refrained from providing forward-looking guidance, if the moves at the Gap match the success the company has had at Old Navy, it could be poised for a better second half.

- Reported by Jeanine Poggi in New York.

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