SAN FRANCISCO, Nov 21, 2007 (AP) -- Apparel retailer Gap Inc. said Wednesday its fiscal third-quarter earnings rose 26 percent as lower marketing costs helped offset a slowdown in sales at its Gap and Old Navy chains, and lifted its outlook for the full year.

The San Francisco-based company, which named a new CEO during the summer, said net income for the quarter ended Nov. 3 rose to $238 million, or 30 cents per share, from $189 million, or 23 cents per share, in the year-ago period.

The result surpassed estimates on Wall Street, where analysts expected profit of 29 cents per share. It also was at the top end of Gap's target range, which the retailer had raised earlier this month.

Sales were flat at $3.85 billion, and slightly lower than analysts' consensus estimate of $3.86 billion.

Same-store sales fell 5 percent compared with the period ended Nov. 4 a year ago, with Gap North America recording a 6 percent drop and Old Navy same-store sales falling 8 percent.

Same-store sales, or sales at stores open at least a year, is a key measure of retailer performance, because it gauges growth at existing stores rather than from newly opened ones.

Gap, which also operates the Banana Republic and Piperlime brands, said it cut marketing expenses by about $75 million in the quarter, as planned.

The company's shares fell 24 cents to $19.96 in morning trading.