Gap Profits Narrowly Beat Despite Thinner Margins

Gap Inc. joined a number of other specialty retailers in reporting narrower margins for its second quarter, while lower expenses helped buoy the company's bottom line.

The San Francisco retailer--which operates its namesake stores as well as the Old Navy and Banana Republic chains--also unveiled plans to enter India through franchise-operated Gap-brand stores next year. The company added it plans to increase its store base in the greater China region as well.

While the retail industry has been plagued by drops in store traffic, as well as lagging consumer interest, Gap has remained a relative bright spot as the company has been able to tap into current fashions and trends.

Still, concerns about the health of the consumer have been building as typically strong companies like Michael Kors Holdings Ltd. and Kate Spade & Co. have pointed to a need to ramp up discounts to clear merchandise.

Gap, for its part, reported its gross margin narrowed to 39.4% from 40.5% a year earlier. Meanwhile, operating expenses dropped 4.2% to $1 billion.

The company also updated its profit outlook for the year to include the benefit of a sale of a building owned, but no longer occupied, by the company. Gap now expects earnings of $2.95 to $3 a share, up five cents on each end.

Overall, the company reported a profit for the quarter ended Aug. 2 of $332 million, or 75 cents a share, up from $303 million, or 64 cents a share, a year earlier. The latest quarter's results included a per-share benefit of about five cents tied to the building sale. Excluding that benefit, per-share earnings were 70 cents for the most recent quarter.

Earlier this month, the company had forecast adjusted earnings of 68 cents to 69 cents a share and reported sales growth of 3% to $3.98 billion. Sales at existing stores, meanwhile, were flat, versus growth of 5% a year earlier.

By brand, the company had reported sales at its namesake brand fell 5%, while sales at Banana Republic were flat and sales at Old Navy rose 4%.