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Gap Profit Tops Estimates as Increased Discounts Boost Sales

Gap Inc., the biggest U.S. specialty-apparel retailer, posted third-quarter profit that exceeded analysts’ estimates as mall retailers deepened discounts to woo shoppers before the holiday season.

Net income for the quarter ended Nov. 2 rose 9.4 percent to $337 million, or 72 cents per share, from $308 million, or 63 cents, a year earlier, the San Francisco-based company said today in a statement. Analysts projected 71 cents, the average of estimates compiled by Bloomberg.

Chief Executive Officer Glenn Murphy has been drawing customers to the Gap brand with new denim and fitness apparel while bargain-focused Old Navy gains shoppers seeking deals. Net sales for the quarter rose 2.9 percent to $3.98 billion, meeting analysts’ average estimate.

“Their performance in the third quarter should suggest they still have all the tools in the toolbox and they’re certainly going to use them for the holiday season,” Dorothy Lakner, a New York-based analyst at Topeka Capital Markets said in an interview before the release. She has a buy rating on the shares.“That the product is good at Old Navy and Gap is a big advantage.”

Gap rose 1.5 percent to $41.86 at 4:00 p.m. in New York. The shares had gained 33 percent this year through the close of regular trading yesterday.

Sales at Banana Republic brand stores open at least a year fell 1 percent in the third quarter while the Gap brand gained 1 percent and Old Navy sales were flat.

Download: Earnings

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