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Gap to return to TV ads, expand into China

/ Source: The Associated Press

The apparel retailer Gap Inc. on Thursday announced plans to return to television advertising in November for its namesake brand, after a two-year hiatus, and said it will continue to expand internationally.

The company will open its first Gap store in China next year, expand its outlet store presence abroad, and launch online businesses in Canada and the U.K., also in 2010. The retailer owns the Banana Republic and Old Navy chains in addition to Gap stores.

The goal now is to "gain and grow market share," said Glenn Murphy, chairman and CEO of San Francisco-based Gap Inc., in an address at the company's investors meeting, broadcast over the Web.

Murphy noted that its online business hasn't lost market share in five years. The company's Internet business has grown from $595 million in sales in fiscal 2005 to more than $1 billion in the latest fiscal year, company officials noted.

Gap also said its Old Navy division plans to roll out a new store design in about 50 locations by the end of the year. Old Navy, which had once dragged down the overall chain, is now enjoying a sales rebound after its merchandise was retooled to cater to frugal moms.

Sabrina Simmons, chief financial officer, said that the company is positioned well, due to its focus over the last two years on delivering healthy merchandise margins, maintaining costs, generating strong free cash flow and improving the company's return on invested capital.

Gap earned $228 million, or 33 cents per share, in the second quarter ended Aug. 1. That compares with $229 million, or 32 cents per share, in the year-ago period. Overall sales fell to $3.25 billion from $3.50 billion a year ago.

Gap's international sales reached $361 million, down from $376 million in the year-ago period. The company's online business for the second quarter rose 17 percent to $224 million, compared with $191 million a year ago.

Gap's sales at stores open at least a year fell 8 percent, dragged down by double-digit sales declines at the North America divisions of Gap and Banana Republic. That measurement, considered a key indicator of a retailer's health, is important because it excludes new stores.

Like many apparel chains, Gap has suffered from shoppers' focus on necessities and away from nonessentials like trendy jeans. But the merchant has been in a better position than some rivals during the recession because it started slimming its inventory beforehand as part of its turnaround effort.

The company has pressed for even more cuts in recent months, trimming the number of stores and shrinking their size.