Gap Inc. chairman and chief executive officer Glenn Murphy is adamant about elevating the company’s product offerings, but is more bullish than ever about the retailer’s prospects.

This story first appeared in the February 25, 2011 issue of WWD. Subscribe Today.

His optimism comes as Gap Inc., overcoming some inconsistent product offerings and flat same-store sales, on Thursday reported that net earnings increased 4 percent to $365 million, or 60 cents a share on a diluted basis, for the fourth quarter ended Jan. 29.

That compared with $352 million, or 51 cents, in the year-ago period.

For the year, earnings per share grew 19 percent to $1.88 on a diluted basis compared with $1.58 in fiscal 2009. Net earnings grew to $1.2 billion from $1.1 billion.

Fourth-quarter sales totaled $4.36 billion compared with $4.24 billion in the year-ago quarter. Comparable-store sales were flat. However, the direct division in the fourth quarter saw sales increase 23 percent to $404 million.

Comp sales at Gap North America were down 2 percent, and up 1 percent at Banana Republic and Old Navy.

Total sales for the year reached $14.66 billion, an increase of 3 percent. Comp-store sales increased 1 percent. However, the direct division rose 16 percent to $1.3 billion.

Internet and international sales are driving increases, whereas domestically, the retailer continues to face weak traffic.

In one of his more upbeat conference calls since taking the reins of Gap three-and-a-half years ago, Murphy told investors that in 2010, “There were some really good accomplishments.” He cited the remodeling of 200 Old Navy stores on top of the 300 previously remodeled, a reduction of almost 1 million square feet of retail space and four store openings in China, with 10 to 15 more seen there this year.

Murphy also noted that the online business went global, shipping to 90 countries from just one six months ago, and that the Athleta division opened its first two stores and will be opening eight to 10 more in the U.S. this year.

“There was some comp performance which has been absent for a long time,” Murphy said.

Overseas franchisees are excited about the Banana Republic and Gap brands, which operate in 23 countries now, according to the ceo. Seventy-five franchises will open overseas this year, marking Gap Inc.’s biggest year in franchising after five years in the business. Also, 50 company-owned stores will open overseas, including the China units.

On the domestic front, “We had home runs,” Murphy said. “Customers absolutely came into the stores or online, but consistently we are not there yet. We have to make sure we make this part of the DNA of the company.…Each one of our brand presidents in North America knows what has to get done. It’s non-negotiable. We must get more consistent product at all three brands, but particularly Gap North America.”

Murphy stressed the importance of getting new customers into the stores and using new media and new strategies to get them. The company will also introduce some categories to the stores, although Murphy did not detail them, and close about 125 stores, mostly Gap North America units. The retailer will open 65 stores domestically this year.

“My focus on North America is still very strong. We have to make sure this business performs. We need to grow in North America. We are building momentum here, not just in our international business.” Two weeks ago, Murphy replaced Marka Hansen with Art Peck to run Gap North America.

Rising product sourcing costs will drive operating margins down in 2011 from 2010’s 13.4 percent, with Gap projecting EPS for 2011 at $1.88 to $1.93.

Also on Thursday, Gap revealed a $2 billion share repurchase program and raised its dividend from 40 cents last year to 45 cents for fiscal 2011.