By  on August 21, 2014

Gap Inc. weathered the promotional climate well in the second quarter, logging gains in profits and sales even as its gross margin declined.

The company also said that it had signed a franchise agreement with Arvind Lifestyle Brand Ltd., a subsidiary of Arvind Ltd., to open stores in India. The first stores will open in the nation’s largest cities, Mumbai and Delhi, by summer 2015 and about 40 Gap stores are planned under the arrangement.

In the three months ended Aug. 2, Gap, the largest U.S.-based apparel specialty chain, recorded net income of $332 million, or 75 cents a diluted share, 9.6 percent higher than the $303 million, or 64 cents, recorded in the comparable 2013 period. Excluding a gain of 5 cents a share for the sale of a building owned but no longer occupied by the firm, adjusted EPS was 70 cents, 1 cent higher than analysts, on average, expected.

Sales in the quarter were up 2.9 percent to $3.98 billion from $3.87 billion a year ago with comparable sales, including those of e-commerce operations, flat versus a 5 percent advance in last year’s quarter.

Gross profit was flat and gross margin retreated to 39.4 percent of sales from 40.5 percent in the year-ago period.

“Building on last year’s strong performance, we are pleased to have grown our sales 3 percent and delivered solid improvement in earnings per share,” said Glenn Murphy, chairman and chief executive officer of the San Francisco-based firm. “We remain focused on our strategic initiatives as we turn our focus toward delivering a strong second half.”

Online sales expanded 11 percent to $515 million, the company said, with the growth rate down from 27 percent in the second quarter of last year.

Gap raised its guidance for full-year profit to a range of $2.95 to $3 a share to reflect  the gain on the asset sale.

Year-to-date net income fell 6.9 percent to $592 million, or $1.32 a diluted share, from $636 million, or $1.35, in the first half of 2013. Revenues are up 2.1 percent to $7.76 billion from $7.6 billion.


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