Clothing chain Gap Inc. said Thursday that sales at stores open at least a year fell 11 percent in December, a better-than-expected result, helped heavily by promotions.

As a result, the company raised its fiscal fourth-quarter earnings forecast, saying its loss excluding charges will be no worse than its third-quarter loss of 6 cents a share. Gap previously warned its fourth-quarter loss would exceed the third-quarter loss.

Total sales for the five weeks ended Jan. 5 were flat with a year ago at $2.2 billion.

"December sales results significantly exceeded our expectations across all divisions, driven by intense promotional activity," said Chief Financial Officer Heidi Kunz. Kunz said while merchandise margins were well below last year's, they showed improvement compared with projections at the beginning of December.

Kunz also said the company was pleased with the amount of inventory sold during the month, especially at Old Navy, which has suffered the steepest same-store sales declines of its chains.

San Francisco-based Gap, which has been posting falling same-store sales for the past 21 months, has struggled for at least two years against declining interest from customers, a possible over-saturation of its U.S. store base and fashion missteps at all three of its divisions.

GAP RAISES FORECAST

Last month, Gap said same-store sales -- a widely used gauge of retail performance -- slumped 25 percent, as it continues to battle the weak U.S. economy in addition to its own problems.

The company reported its first quarterly loss in more than a decade in November, and has seen its share price halved in the past year.

The San Francisco-based retailer said same-store sales at its Gap stores fell 9 percent while sales at its Old Navy stores open at least a year fell 14 percent. Banana Republic same-store sales fell 3 percent in December 2001.

"Given the results quarter to date and our outlook for January, we expect to report a loss per share no worse than the $0.06 loss per share excluding the tax charge" in the third quarter, Kunz said.

The retailer's denim sales were better than its other items during the month, she said, while sales at its GapKids division continued to outperform the adult Gap chain sales.

Analysts polled by research firm Thomson Financial/First Call are currently expecting the retailer's fourth-quarter results to range from a loss of 20 cents to a profit of 1 cent a share, with a mean estimate of a loss of 12 cents. It reported earnings of 31 cents a share in the year-ago period.

Kunz said Gap expects to end the fourth quarter with $2.2 billion in total debt, which is $300,000 less than the end of the third quarter. The company expects to have about $800 million in cash at the end of the fourth quarter, she said.