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SAN FRANCISCO-Gap Inc.’s earnings beat last year’s second quarter, but sales remained flat and comparable store sales slipped during the second quarter, the company reported Thursday. Management says it’s unhappy with results but thinks it has the right strategies in place to improve.

Along with its earnings announcement, Gap said it has modified its store expansion plans somewhat for the year and pointed to its new Forth & Towne concept slated to open next week as one of its growth initiatives. The company also is due to open four stores in Japan as part of its international expansion.

For the quarter ended July 30, the retailing chain earned $272 million, or 30 cents per share on a diluted basis, compared with $195 million, or 21 cents a share, for the same period last year. Second quarter sales totaled $3.7 billion, the same as last year’s second quarter, while comparable store sales decreased 3% compared with a flat comp last year.

Speaking to financial analysts on the company’s quarterly conference call Thursday, Gap CEO and president Paul Pressler called the quarterly results “respectable” but said, “None of us is satisfied with our current performance.” Nonetheless, Pressler said Gap is “making progress on the growth strategies that we began more than a year ago,” including brand extensions, international expansion, and the launch of its fourth brand, Forth & Towne.

Gap will open its first Forth & Towne store at Palisades Center in Nyack, NY on Wednesday, followed by four Forth & Townes on Aug. 31 in the Chicago area, Pressler said. The new concept, reported previously on GSR, will focus on clothing for women ages 35 and older.

Next month Gap will launch Banana Republic in Japan in “four of the most prominent shopping areas in Tokyo and Yokahama,” Pressler said. Like the Forth & Towne brand, the expansion in Japan is part of the overall growth strategy and the other measures that Gap management has developed to improve results, Pressler said.

Byron Pollitt, Gap’s CFO, reported during the conference call that the company had opened 81 new stores and closed 46 through July 30, for a net square footage increase of 2% for the second quarter in comparison with last year’s second quarter. The company now expects to open about 190 locations, with the openings weighted toward Old Navy, a figure that is up from its previous estimate of 170 new openings for fiscal 2005. Gap now expects to close about 140 stores this year, up from a previous estimate of 135.

Pressler said that despite the measures implemented by Gap thus far, “Each brand’s August results to date are trending significantly below our expectations, driven primarily by decreases in traffic.” He outlined a number of merchandising initiatives, changes in product assortments and other measures designed to reverse the trend.”Across all of our brands, the teams are focused on creating stronger product assortments and improving the store experience for our customers,” the Gap CEO said.

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