NEW YORK (AP) — Gap Inc. said Thursday that its third-quarter profit fell 36 percent, confirming the challenges the clothing company faces heading into the holiday shopping season.

The San Francisco-based operator of the Banana Republic, Gap, Old Navy and Athleta chains has been struggling for years to reclaim its former fashion status. Its Gap chain, in particular, has reported sales drops the last six years at stores open at least a year in North America, a key measure of a retailer's health.

Continued deep discounting and rising production costs have only compounded the largest U.S. clothing seller's troubles.

Shares of Gap Inc. fell 10 cents after hours. They closed at $19, down 48 cents, or 2.5 percent, before the company reported its results as the markets slipped overall.

The company has closed or shrunk its Gap stores and last month described its plan to close 189 locations, or 21 percent of its namesake 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 next month to roughly 45 a year later.

Overall, the company intends to cut its square footage in the U.S. by 10 percent by 2013, compared with 2007, and to double the share of its revenue that comes from outside of the U.S. to 30 percent.

A February management shake-up ended with a new president for the Gap brand, along with a new chief marketing officer and new advertising agency. The company also established a Global Creative Center in New York and consolidated its marketing in New York. And in early May, it ousted the Gap chain's design director, Patrick Robinson.

"Across our brands, we're intensely focused on improving our current sales trend, including making necessary product and marketing adjustments, with a view toward building momentum as we head into 2012," Glenn Murphy, Gap Inc.'s CEO and chairman, said in a statement. "We're ready to compete aggressively this holiday."

Gap said it earned $193 million, or 38 cents per share, for the three months that ended Oct. 29, compared with $303 million, or 48 cents per share, a year earlier. Its overall revenue slipped just 1.8 percent to $3.58 billion.

The profit was slightly better than analysts expected, however. They were looking for earnings of 36 cents per share and revenue of $3.59 billion.

The company's third-quarter revenue at stores open at least a year dropped 5 percent, including online sales. By division, the figure fell 6 percent for Gap stores in North America, but 1 percent for Banana Republic's North America fleet and 4 percent for Old Navy's.

During Gap Inc.'s annual meeting with analysts last month, executives said they plan to have closed 34 percent of Gap stores between 2007 and the end of 2013, not including Gap Outlets. That will leave it with 700 Gap stores, down from 1056. It plans to add 50 Gap Outlet stores for a total of 250 in 2013.

The company said it aims to maintain its Old Navy stores in North America but make them smaller. Old Navy has decreased its square footage by 8 percent to 18.5 million since 2007.

Gap is testing new merchandising and marketing ideas. Gap Kids has collaborated with designer Diane von Furstenberg to design a children's line for next spring. And during next week's kickoff if the holiday 2011 shopping season, nearly 1,000 stores across the company's brands will open on Thanksgiving Day in the U.S. That's about 10 percent more than a year ago, according to spokeswoman Louise Callagy.

Gap stood by its full-year profit guidance. The company expects to earn between $1.40 and $1.50 per share. Analysts had expected $1.50 per share, according to Factset.