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Gap Beats Estimates

But the apparel chain still felt sales pressures in the second quarter at its stores, especially at its Old Navy division.
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SAN FRANCISCO -- Clothing chain


(GPS) - Get Gap, Inc. Report

edged past Wall Street estimates for second quarter earnings but still felt pressure on sales at its stores, particularly at its low-priced Old Navy division.

The company posted a second-quarter profit of $229 million, or 32 cents a share, up from $152 million, or 19 cents a share a year ago. That topped analysts' earnings estimates for 30 cents a share.

Revenue in the second quarter dropped 5% to $3.5 billion from $3.69 billion a year ago, but fell in line with analysts' expectations.

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"External conditions aside, we continue to deliver improved earnings with healthy margins and I am pleased with our second-quarter results," said Gap Chief Executive Glenn Murphy. "While we continue to pursue our 2008 financial strategy, we are very focused on bringing more customers into our stores."

Gap reaffirmed its full-year earnings guidance in the range of $1.30 to $1.35 a share. Analysts expect full-year earnings of $1.34.

Same-store sales, or sales at stores open at least a year, decreased by 10% in the second quarter. The company's namesake division and its Banana Republic brand each saw a 6% decline in same-store sales. Old Navy's same-store sales plunged 16%, a steep drop-off from a year ago, when its same-store sales fell by 9%.

On Thursday, Gap named Tom Wyatt as president of Old Navy. He had been serving in that position on an interim basis.

Gap's gross margin in the second quarter was up 390 basis points to 38.2%. Inventory per square foot was down 17% for the period ending Aug. 2.

The struggling retailer has lowered the number of store openings planned for this year by 15, for a total of 100 openings. Gap still intends to close 115 stores, although its total net square store footage will be flat with last year.