(RTTNews) - Specialty retailer Gap Inc. (GPS: News ) Thursday said its first quarter profit declined over last year, hurt by lower sales amid the worsening economic conditions. The company's quarterly earnings, however, exceeded analysts' expectations.

Gap posted net earnings of $215 million or $0.31 per share for the first quarter, down from $249 million or $0.34 per share in the prior year quarter. On average, 20 analysts polled by Thomson Reuters expected the company to earn $0.30 per share for the first quarter. Analysts' estimate typically excludes special items.

First quarter net sales declined to $3.13 billion from $3.38 billion in the same quarter last year. Sixteen analysts had a consensus revenue estimate of $3.14 billion for the first quarter.

Business-wise, Gap North America's first quarter net sales fell to $834 million from $976 million in the similar quarter last year. Banana Republic North America reported a decrease in the net sales of $475 million for the quarter from $538 million in the previous year quarter.

Old Navy reported net sales of $1.18 billion, down from $1.24 billion last year. International revenues decreased to $369 million from $398 million in the comparable quarter of fiscal 2007.

The San Francisco, California-based company's comparable store sales decreased 8%, compared with a decrease of 11% in the year-ago quarter.

As a percentage of sales, gross margin decreased 10 basis points to 39.6% for the first quarter of fiscal year 2009. Operating margin remained flat with 11.3% of sales.
During the quarter, Gap opened 11 store locations and closed 11 store locations, compared to 33 openings and 23 closings for the prior year quarter.

The company ended the first quarter of fiscal year 2009 with 3,149 store locations, and net square footage decreased 0.3% from the end of fiscal year 2008.

Gap continues to expect that it will open about 50 stores and close about 100 stores for fiscal year 2009, including repositions. The company continues to expect that net square footage will decrease about 2 percent in fiscal year 2009 over last year. The company continues to expect capital spending of about $350 million for fiscal year 2009.

In March, Gap decided to reduce the size of its board from 13 to 10 members, and cut both the annual cash retainer and stock compensation for remaining Directors by 15%. The company also said that its chairman and chief executive officer, Glenn Murphy, volunteered to cut his annual salary by 15%. Further, merit-based salary increases were eliminated for most headquarters employees for 2009.

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