Gap Was First Into Recession; Is It First Out?

Gap posts a 14% decline in first-quarter profit, but its Old Navy chain starts to rebound.
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could be in a better position then its competitors given the specialty retailer's decision to rework its entire business and pare down inventory two years ago, before the recession began.

Though it posted a 14% decline in first-quarter earnings Thursday, the company beat expectations by a penny and saw notable improvement in its faltering Old Navy chain.

During the quarter, Gap earned $215 million, or 31 cents a share, compared with $249 million, or 34 cents, in the year-ago period.

Sales dropped 7.5% to $3.13 billion from $3.38 billion, while total same-store sales fell 8%.

At Old Navy, which has been retooled to cater in part to frugal moms and has received a fashion and advertising makeover, saw same-store sales fall 3% in the quarter compared with 18% a year earlier.

Gap's North America business suffered a 12% same-store sales decline, while Banana Republic posted a 13% decrease.

The specialty retailer reduced its operating expenses by $73 million during the quarter and expects second quarter operating expenses to be down about $30 million to $50 million.

"We're pleased with the way we navigated the challenging economic environment, and are particularly encouraged by Old Navy's recent performance," said Glenn Murphy, Gap's chairman and CEO, in a statement. "We remain focused on increasing traffic and gaining back market share across all of our brands by offering customers the right products and shopping experiences."

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