• Net earnings fell to $303m from $307m
  • Net sales increased 2% to $3.65bn
  • Same-store sales flat with last year

The cost of expanding its business overseas has dragged on Gap Inc's third quarter, after the specialty clothing retailer yesterday booked a 1% drop in earnings.

The San Francisco based retailer said net earnings fell to $303m from $307m, but earnings per share rose 9% to $0.48 from $0.44 last year.

Net sales increased 2% to $3.65bn, up from $3.59bn last time. But same-store sales, a key measure of retail performance, were flat, the company said.

By division, sales rose 1% at both Gap and Banana Republic in North America but fell 2% at Old Navy. International sales rose 3% and online sales were up 15%.

"We improved the top line and grew our earnings per share this quarter while keeping a clear focus on North America and making strategic global investments, including new market entries in China and Italy," said Glenn Murphy, chairman and chief executive officer.

"Looking ahead, our brands and employees are determined to deliver for our customers this holiday through strong marketing and great product."

In the third quarter Gap Inc expanded its online reach by launching sites in Canada and the UK and increasing international shipping to more than 80 countries.

Last week it opened Gap stores in Shanghai and Beijing with a simultaneous online launch in China. And it plans to open Gap and Banana Republic stores in Italy.