Cost cutting and restructuring helped Gap Inc to a 19% rise in second quarter net earnings, prompting the US apparel retailer to lift its full-year profit outlook and announce plans for a $1.5bn share buyback programme.

The San Francisco, California-based firm said profit in the three months to 4 August climbed to $152m, or $0.19 per diluted share, from $128m, or $0.15 per diluted share in the same period last year.

Second quarter net sales at the US' largest apparel specialty retailer were down 1% to $3.69bn from $3.71bn last time.

Same-store sales fell 5%, the same as reported in last year's quarter. Online sales were up 26% to $172m from $136m.

"During the second quarter, we made solid progress stabilizing our business, streamlining our organisation and importantly, hiring our new chairman and chief executive officer, Glenn Murphy," said Bob Fisher, a member of Gap Inc's board of directors.

Glenn Murphy, who joined the company at the end of July from Canada's largest drug store chain, Shoppers Drug Mart, added: "We have a lot of work ahead of us, but we have great brands with enormous potential, and I feel confident that our creative talent and dedicated store employees will help fuel our progress."

By division, Banana Republic North America comped upward 4%, International rose 3%, Gap North American declined 6% and Old Navy North America dipped 9%. In the year-ago quarter, Banana Republic North America was off 1%, Gap North America down 6% Old Navy North America down 5% and International down 11%.

Gross margin increased 1.3 points to 34.3% in the second quarter, and operating margin for the second quarter was 6.1%.

The company has taken a number of steps to streamline its operations and refine strategies. Among these was the closure of Forth & Towne after an 18-month launch, with around 550 Forth & Towne jobs eliminated in the first half of 2007.

The pre-tax loss related to the closure in the second quarter of fiscal 2007 was $9m and for the first half of 2007 was approximately $54m.

Gap Inc also cut another 1,200 positions in the second quarter incurring costs of around $20m, mainly in severance payments.

In total, the company has eliminated about 2,200 positions during the first half of 2007, and says the majority of the job cuts are complete. Cost savings from this action are expected to be about $100m.

The company revised its guidance for fiscal year 2007, lifting diluted earnings per share on a GAAP basis to $0.83 to $0.88 from its previous guidance of $0.76 to $0.86.

Separately, Gap Inc said yesterday (23 August) that its board of directors had authorised an additional $1.5bn share repurchase programme, and that it has entered into purchase agreements with individual members of the Fisher family who own around 17% of its outstanding shares.

Gap ended the quarter with 3143 stores in operation.