• Q4 profit slumps 40.3% to $218m from $365m
  • Net sales slipped 2.3% to $4.3bn
  • Comparable sales fell 4%

Specialty clothing retailer Gap Inc says improving its business in North America is a "top priority" after higher costs, lower sales and promotions contributed to a 40.3% drop in fourth quarter profit.

The San Francisco based company on Thursday (23 February) said it earned $218m, or $0.44 per share, in the three months to 28 January, down from $365m, or $0.60 per share, in the same period last year.

Fourth quarter net sales slipped 2.3% to $4.3bn from $4.4bn, with comparable sales (which include online sales) falling 4%. In its North American units, comparable sales fell 3% at Gap, were flat at Banana Republic and dropped 6% at Old Navy. International sales were down 8%.

Higher costs contributed to a 540 basis points drop in quarterly gross margin to 32.8%.

"There's no doubt that improving our performance, especially in our base businesses, is the top priority in 2012, and we're confident this is the right time to invest wisely to win back customers," said chairman and CEO Glenn Murphy.

For the full year, net income tumbled 17% to $833m, or $1.56 per share, from $1.2bn the year before. Net sales were down 1% to $14.5bn, and comparable sales fell 4%.

By division, comparable sales fell 4% at Gap North America, were down 1% at Banana Republic North America, slipped 3% at Old Navy North America, and dropped 7% at its International stores.

"In spite of 2011 earnings being 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," Murphy added.

Separately, the retailer said its board of directors has approved a new $1bn share repurchase plan, and that it intends to increase the annual dividend by $0.05 per share to $0.50 during the current year.

The company also expects earnings per share to be in the range of $1.75 to $1.80 for the year.