In the market today, The Gap Inc. (NYSE:GPS) reported a 40% decline in profit in the fourth quarter. According to an article published by the Associated Press, “The clothing retailer wrestled with higher costs and had to discount heavily to attract shoppers during the crucial holiday season.” The Associated Press attributed Gap’s dismal performance in part due to rising costs and an economy that has yet to hit full stride.

4Q Profits

In the fourth quarter, Gap’s profits were $218 million, which stands in stark contrast to the $365 million from the same period one year prior. The same news outlet noted, “The company has closed or shrunk Gap stores and last October, the retailer said it would close 189 locations, 21% of its Gap stores in the U.S., by the end of 2013. At the same time, the company aims to triple the number of Gap stores in China from about 15 as of the end of last year to around 45 by the end of this year.”

If you’re not familiar with Gap, the company operates five separate brands: Gap, Banana Republic, Old Navy, Piperlime, and Athleta. It is based in California, was founded over 40 years ago, and has more than 3,200 stores spread across the world. It has widely utilized social media, as well as one-day discount sites like Groupon, to attract would-be buyers into its fun-loving world. Its 2011 Black Friday deals were widely featured on TLC’s “Extreme Couponing.”

Gap remains focused on growing its online presence going forward. The firm’s financial information noted that the non-U.S. and online sectors combined for 26% of Gap’s sales in 2011, but the retailer is aiming to increase that percentage to 30 by next year. The same sort of strategy was recently seen with Kellogg, which acquired the Pringles brand from Procter and Gamble to capitalize on the stackable chip’s strong presence outside of the United States.

Stock Peformance

Gap is traded on the New York Stock Exchange under the symbol “GPS” and closed Thursday’s trading up 2.35% to $23.52 – about 20 cents shy of its 52-week high of $23.73. However, the stock fell approximately 4 percent in early morning trading on Friday to $22.65 per share.

CEO Statement

Gap CEO Glenn Murphy emphasized the importance of non-U.S. and online sales in a conference call on Thursday: “The first key initiative is to reduce our dependency on our North American specialty bricks-and-mortar business. The second area, which we made quite a bit of progress, is our move to expand our brands internationally. At the beginning of the year, we operated in 31 countries, combination of franchising, company-owned stores. And we ended 2011 by operating in 39 countries.”

Gap is a giant any way you slice it. The company sports 132,000 employees and has a dozen distribution centers. Its product design takes place in New York City, San Francisco, Los Angeles, and London and its website lauds that the company has 10 miles of storefronts in total.

Also on Thursday, Gap executives announced a $1 billion share repurchase authorization plan as well as intentions to raise each share’s dividend to $0.50 for the 2012 fiscal year. Overall, the company has tripled its dividend in the last seven years.

Profit Decrease

For its 2011 fiscal year, Gap’s net income slid 30% to $833 million, down from $1.2 billion. Despite the relatively gloomy news, Murphy was optimistic, commenting in Gap’s financial release, “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. 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.”

Brick and Mortar Stores

Finally, we’d be amiss if we didn’t expand on Gap’s brick-and-mortar store strategy. This year, the company plans to open 125 stores, 55 of which won’t be located in the United States. Additionally, 115 stores will be shuttered: “The closures are weighted towards Gap North America, consistent with the company’s previously-stated strategy.”

So much for U.S. domination.

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