Gap to Cut Namesake Stores in U.S. to Focus on Expanding Internationally

Gap Inc. (GPS) plans to close stores in the U.S. while expanding its international and online business and said falling cotton prices will boost its profit margin.

Gap will reduce its North American namesake stores to about 700 by the end of 2013, a 21 percent decrease from the count in the first half of this year and a 34 percent drop from the end of 2007, Chief Financial Officer Sabrina Simmons said today at an investor meeting in New York. Cotton prices that have declined since reaching records this year will help increase profitability, the company said.

“We are focusing on a smaller and healthier fleet in North America,” Simmons said. “Normalizing cotton prices should help our margins as well.”

The company said it plans to return operating margins to 2010 levels “over time.” Gap’s operating income was 12.8 percent of its sales in its fiscal 2010, according to Bloomberg data. The measure narrowed to 9.9 percent in the quarter ended in July.

Gap will also expand the presence of its namesake and Banana Republic stores in China, South America and Italy, said Stephen Sunnucks, president of international operations.

Gap rose less than 1 percent to $17.92 at 4:15 p.m. New York time. The San Francisco-based company’s shares have declined 19 percent this year.

Photographer: Kim White/Bloomberg

Sabrina Simmons, chief financial officer of Gap Inc. Close

Sabrina Simmons, chief financial officer of Gap Inc.

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Photographer: Kim White/Bloomberg

Sabrina Simmons, chief financial officer of Gap Inc.

To contact the reporter on this story: Ashley Lutz in New York at alutz8@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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