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Originally published Thursday, February 23, 2012 at 1:02 PM

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Gap's 4th-quarter profit falls 40 percent

Gap Inc. reported a 40 percent drop in fourth-quarter profit as the clothing retailer wrestled with higher costs and had to discount heavily to attract shoppers during the crucial holiday season.

AP Retail Writer

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NEW YORK —

Gap Inc. reported a 40 percent drop in fourth-quarter profit as the clothing retailer wrestled with higher costs and had to discount heavily to attract shoppers during the crucial holiday season.

The operator of Banana Republic, Gap, Old Navy and Athleta chains also announced its board approved a new $1 billion share repurchase authorization and approved a plan to increase the annual dividend per share by 11 percent, from 45 cents in fiscal year 2011 to $0.50 for the current year.

The company has struggled for years to reclaim its former fashion status.

Its Gap chain, in particular, has reported annual sales drops the last seven years at North American stores open at least a year. That measurement excludes stores that open or close during the year and is considered a key measure of a retailer's health. A slowly recovering economy and rising costs have only compounded the U.S. clothing seller's woes.

The clothing chain said Thursday that it earned $218 million, or 44 cents per share, in the three months ended Jan. 28. That compares with $365 million, or 60 cents per share, in the same period last year.

Analysts expected earnings of 42 cents per share on revenue of $4.28 billion.

The retailer had sales of $4.28 billion for the fourth quarter, down from $4.36 billion in the year-ago period. Revenue at stores open at least a year was down 4 percent. By division, Gap North America saw a 3 percent decline, while Banana Republic's domestic sales were unchanged compared with the year-ago period. Old Navy North America's division suffered a 6 percent drop. The international division had an 8 percent decline.

The company, based in San Francisco, has closed or shrunk Gap stores and last October, the retailer said it would close 189 locations, 21 percent of its Gap stores in the U.S., by the end of 2013. At the same time, the company aims to triple the number of Gap stores in China from about 15 as of the end of last year to around 45 by the end of this year.

Overall, the company intends to cut its square footage in the U.S. by 10 percent from 2007 levels by 2013. It also seeks to have revenue that comes from outside of the U.S and online combined to account for 30 percent by that same year. Those two divisions represented 26 percent of its sales in 2011.

A February 2011 management shake-up ended with a new president for the Gap brand, and last May the chain's design director, Patrick Robinson, was ousted. It also established a Global Creative Center and consolidated its marketing in New York.

Meanwhile, the company announced that Tom Wyatt, president of its Old Navy brand, has resigned. It also named two new creative leaders for both Old Navy and the company's namesake business. Wyatt left Feb. 3.

"In spite of 2011 earnings below last year, we're pleased with the progress we made against our long-term strategic plan, including growing our online business and expanding internationally," Chairman and CEO Glenn Murphy said in a statement. "There's no doubt that improving our performance, especially in our base business, is the top priority in 2012."

Gap expects earnings per share for the current year to be in the range of $1.75 to $1.80. Analysts expect $1.80 per share, according to FactSet.

The results were announced after the markets closed. Shares rose 54 cents to close at $23.52 during regular trading hours. They added another 23 cents to $23.75 in after-hours trading.

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