• Q4 earnings rose 4% to $365m
  • Net sales were up 1% to $4.36bn
  • Total comps flat, but Gap fell 2% 

Higher sales at its Banana Republic and Old Navy chains have helped Gap Inc to a 4% rise in fourth quarter earnings - but the specialty clothing retailer warned that soaring costs are likely to dent operating margins in the year ahead.

"During 2010, we executed well on our goal of delivering sales improvement alongside our fourth consecutive year of double-digit earnings per share growth," said Glenn Murphy, chairman and CEO.

The San Francisco based firm said earnings in the three months to 29 January rose 4% to $365m or $0.60 per share, up from $352m or $0.51 per share for the same period last year.

Net sales were up 1% to $4.36bn in the quarter from $4.24bn a year ago. And comparable store sales across the company were flat with the prior year.

By division, same-store sales at Gap North America fell 2% in the fourth quarter, but rose 1% at both Banana Republic and Old Navy. International sales slipped 1%, the company said.

For the fiscal year, earnings edged up to $1.2bn, or $1.88 per share, compared with $1.1bn, or $1.58 per share, the year before. Net sales increased 3% to $14.7bn from $14.2bn last time, and same-store sales rose 1%.

By division, same-store sales at Gap North America fell 1% in the year, but gains were seen at Banana Republic where sales rose 3%, Old Navy where there was a 2% rise, and in its international unit where sales were up 1%.

Gap said top line growth will be a focus in the year ahead, with capital expenditures edging up to $575m, from $557m in the year just ended. Nearly 400 Old Navy stores will be remodelled, and 75 new franchise stores and 50 international company-owned stores set to open.

Included in this projection are 10 to 15 stores in China, 8 to 10 in Italy, and 25 outlet stores. There are also plans to expand its Athleta concept in North America, with about 8 to 10 new stores.

But the company also expects to close about 125 stores, most of which will be at Gap North America.

Earnings per share are expected to be in the range of $1.88 to $1.93 for the fiscal year.