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Earnings Fall at Gap

An early debt retirement charge takes a bit out of results.

Second-quarter earnings fell at Gap (GPS) - Get Gap, Inc. (GPS) Report as the company took a previously announced charge related to the early retirement of $303 million of debt.

The apparel retailer said after the bell Thursday that earnings for the quarter ended July 31 fell to $194 million, or 21 cents a share, from $209 million, or 22 cents a share, a year earlier.

A Thomson First Call consensus had been expecting Gap to post earnings of 21 cents a share.

Excluding the debt charge, the company earned $234 million, or 25 cents a share.

Sales rose 1% to $3.72 billion from $3.69 billion, as same-store sales were flat. Analysts had been expecting sales of $3.75 billion in the latest quarter.

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"We delivered solid second-quarter margin gains and double-digit earnings growth before expenses related to our debt repurchase, despite summer clearance against weaker traffic trends driving disappointing results in June and July," said Gap President and CEO Paul Pressler. "Our priorities remain focused on driving growth within each brand, actively exploring new growth opportunities, reducing our debt and returning to investment grade standing."

Looking ahead, the company still expects full-year operating margins, excluding the retirement of debt, to reach the low end of the midteens range, which the company defines as 13.5% to 16.4%.

Gap also continues to focus on

inventory management and now expects inventory per square foot at the end of the third quarter to be flat on a percentage basis, compared with a 7% decrease in the prior year. Inventory per square foot at the end of the fourth quarter is expected to be up in the low-single digits, compared with a 16% decline in the prior year.

Gap shares closed Thursday down 71 cents, or 3.4%, to $20.15.