A Gap store in Broomfield, Colorado, US. Photo: Rick Wilking/Reuters

Apparel retailer Gap Inc. raised its full-year profit forecast, encouraged by strong sales of its lower-priced Old Navy clothes, and said it would open 40 stores in India as part of its strategy to expand in emerging markets.

Gap has been looking to reduce its dependence on the North American market, which generates more than three-quarters of its sales.

Sales of its other key brands − Gap and Banana Republic − have cooled in the region as shoppers cut down on discretionary spending.

Sales in Asia accounted for only nine per cent of Gap’s total revenue of $16.1 in the year ended February, but are growing fast. The company said in April it expected sales in China to triple in the next three years to $1 billion.

“India is an emerging, vibrant market and an important next step in our global expansion strategy,” said Steve Sunnucks, Global President of Gap.

Gap said it is partnering with Arvind Lifestyle Brand Ltd, a unit of textile manufacturer Arvind Ltd for opening the stores in India. The first stores will open in Mumbai and Delhi. The company, which currently has 231 Gap stores in Asia, is also aiming to open 110 Gap stores in mainland China, Hong Kong and Taiwan this year.

Gap raised its full-year profit forecast to $2.95-$3.00 per share for the year ending February 2015. It had previously forecast $2.90-$2.95 per share.

Analysts on average expected the company to earn $2.95 per share for the year, according to Thomson Reuters I/B/E/S.

Comparable sales at Old Navy stores rose four per cent in the second quarter ended August 2. Sales of Gap and Banana Republic clothing were disappointing. Comparable store sales fell five per cent at Gap and were flat at Banana Republic.

Many large US retailers have reported disappointing quarterly sales at their established stores, pointing to a cutback in spending on discretionary items.

Aeropostale Inc. reported a 13 per cent fall in second-quarter comparable sales, while American Apparel Inc. said quarterly same-store sales declined six per cent.

Gap’s net profit rose to $332 million, or 75 cents per share, in the second quarter, from $303 million, or 64 cents per share a year ago.

Excluding items, the company earned 70 cents per share.

Revenue rose three per cent to $3.98 billion. Comparable sales were flat versus a five per cent increase a year earlier.

Analysts on average expected a profit of 69 cents per share on revenue of $3.96 billion.