SAN FRANCISCO — Gap Inc. plans another year of cost-cutting and increased efficiency, Glenn Murphy, chairman and chief executive officer, told shareholders Monday.

Speaking at the annual meeting here, Murphy, who has been at Gap’s helm for nine months, said the company is “creating a culture of cost management,” which helped drive an increase in first-quarter earnings. By controlling inventory and cutting expenses, Gap earnings gained 40 percent to $249 million, or 34 cents a diluted share, despite comparable-store sales that fell 11 percent. This compares with earnings of $178 million, or 22 cents a share, for the same period a year ago, when comps declined 4 percent.

First-quarter sales slipped to $3.38 billion, compared with $3.55 billion last year.

One of the initiatives involves investing in new computer systems, including a merchandise tracker being tested in Europe, Murphy said.

Gap also has launched an e-commerce feature allowing consumers to shop online simultaneously at its four Internet sites — the Gap, Banana Republic, Old Navy and Piperlime — pay for purchases together and have them delivered in one shipment for $7. Another high-tech investment being rolled out to its 3,167 stores is an employee scheduling system for store managers to be more strategic in deploying staff.

Murphy said a top priority is “getting our real estate right” by closing underperforming locations, and strategically opening others. Such “targeted investments” in expansion include the opening of Gap and Banana Republic stores in Russia, under a franchise agreement with Fiba Holding A.S., Russia’s ninth largest bank, which already operates Gap stores in Turkey.

Gap Inc’s total store square footage isn’t expected to change this year, with the anticipated closing of 115 stores and 115 openings. Going forward, Murphy acknowledged a need for “more investment” in stores. “They don’t match up with the brand perception,” he said.

Murphy, who previously was ceo of Shoppers Drug Mart in Canada, described 2007 as a year of “stabilization,” as comps fell 4 percent on net sales of $15.8 billion, compared with 2006, when comps declined 7 percent on net sales of $15.9 billion.

The ceo described Gap Inc. as being more nimble, as well as “brand-centric,” with executives and store managers having more of a grasp on the inner workings of each division and their target consumers.

This story first appeared in the June 3, 2008 issue of WWD. Subscribe Today.

“We will not become complacent….We are committed as a team,” Murphy said.

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