Don’t expect Gap Inc. (GPS) to return to growth in 2008.

That was the between-the-lines message from CEO Glenn Murphy, who delivered fourth quarter results on Thursday. “We know at some point, this business has to show improvement on the top line,” Murphy told analysts on a conference call after the markets closed. But Murphy made clear that the company’s priority for 2008 was to grow profits by better managing costs.

That strategy has so far delivered results for Gap, the $16 billion owner of the Gap, Old Navy and Banana Republic chains that once defined casual dressing before losing its way earlier this decade. Fourth quarter profit rose to $265 million, or 35 cents a diluted share, compared with $219 million, or 27 cents, the year earlier, largely because inventory and other expenses were kept in check. Gap’s inventory per square foot, for instance, was down by 15% at the end of the fourth quarter, compared with the same period a year ago.

The results pushed Gap shares higher by $1.15, or nearly 6 percent, to $20.60 in after hours trading.

But cost reductions and better expense management can only take Gap so far. If the San Francisco-based retailer is ever to emerge from the funk of the last few years, it will need to start growing sales. Fourth-quarter sales fell 5% to $4.68 billion, compared with $4.92 billion a year ago. Sales at stores open at least a year were down 3% in the period, compared with a 7% drop the prior year. The recently-completed fourth quarter contained one less week of sales than did the same period a year ago, partially accounting for some of the fall-off.

Gap does not provide sales guidance, but CFO Sabrina Simmons said that the challenging economic environment would make it more difficult for the company to grow comparable store sales this year.

As a result, Gap is proceeding cautiously with capital expenditures, which are expected to total $500 million this year, down from $682 million in 2007. The company plans to open 100 stores, mainly abroad, and close 85 locations, most of them Gap stores. In the United States, the company said it intends to be very “selective” about opening new stores, and is looking instead at making existing locations more profitable.

One way to keep investors happy in the absence of growth is to buy back stock. The company spent $613 million to repurchase 30 million shares in the fourth quarter, and authorized a new $1 billion buyback. Of that amount, about $158 million will be repurchased from the Fisher family, which founded Gap in 1969 and collectively owns slightly more than one-third of the company’s outstanding shares. Gap also said it would increase its annual dividend by 6% to 34 cents a share.

The company’s Gap and Old Navy brands are undergoing the biggest changes. Gap recently parted ways with Old Navy president Dawn Robertson over what Murphy called “philosophical” differences on how to move the brand forward. Current marketing did not focus enough on the brand’s value message, an imbalance that Murphy said he hopes to have adjusted by the back-to-school shopping season.

That is about the time that Old Navy’s newly installed creative director, the designer Todd Oldham, will start to have an impact on merchandise in the stores. A few months later, in the fall, designer Patrick Robinson’s new looks for Gap will start to hit store shelves. If the designers’ clothes connect with consumers, Gap stands to win big. Given its tighter expense structure, even the slightest improvement in same-store sales would provide a boost to the bottom line.

For now, however, Murphy is keeping expectations low. Gap and Old Navy have tried to reinvent themselves several times in the last few years to no avail. “It would be easy for us to get ourselves too excited too soon,” Murphy said.

If Eddie Lampert wants to compare Sears Holdings (SHLD) to the Super-Bowl-winning New York Giants, as he did in a quarterly letter to shareholders released today, he should try a different playbook.

Like the Giants, who stumbled through much of the early season, Sears has performed dismally this year. Sears today reported that fourth-quarter profit plunged 47% to $426 million, or $3.17 a diluted share, compared with $811 million, or $5.27 a share. Domestic sales at stores open at least a year fell 4% at Sears and 5.2% at Kmart in the period. Despite increased promotional activity to markdown goods, inventory continued to rise, up 1% compared with the prior year, according to Morgan Stanley analyst Gregory Melich.

Unlike the Giants, who were able to regroup for an upset championship win, Sears shows no signs of turning the corner anytime soon. Notably, January sales were the weakest of the quarter. “Extrapolating January trends leads us to believe that top line shortfalls are likely to continue (at least into 1Q),” wrote Adrianne Shapira of Goldman Sachs in a note to clients.

Sears shares declined 36 cents to $101.24 in morning trading. Though that’s well off a 52-week-high of $195, some analysts said the shares have further to fall. Melich of Morgan Stanley considers a fairer price to be in the mid-$70-range.

“Like Eli Manning,” wrote Lampert (who happens to be a Jets fan), referring to the Giants MVP quarterback, “we know what it’s like to be underestimated and questioned, but we intend to keep working on our game to achieve our full potential.”

So far Lampert has focused on the blocking and tackling of retailing — expense management, markdown discipline and systems — without addressing the bigger picture: What does Sears stand for today, and why should consumers shop there instead of competitors like Best Buy (BBY), Target (TGT) or Wal-Mart (WMT)? Each of those competitors has a clear mission. Best Buy is the place for electronics, Target is fashion at a price, and Wal-Mart is everyday low prices. What is Sears?

Until that question is answered, it’s no wonder that Lampert considers big investments in Sears’ stores to be a losing proposition. In the letter to shareholders, he made the case that he could get a better return simply by keeping the money in cash.

Much about the company’s future will depend on who Sears hires to replace outgoing chief executive Aylwin Lewis, who was let go in January as part of a broader strategy to shake up the company by dividing it into five business units.

Sears’ ability to attract Eli-Manning-like talent is complicated by Lampert’s involvement in the company as chairman and largest shareholder. Though Lampert has suggested he would relinquish oversight of day-to-day operations, reports suggest otherwise. According to the Chicago Tribune, for example, candidates who have been contacted about the CEO job are worried they may not have the freedom to make unfettered decisions without Lampert playing Monday-morning quarterback. And that could mean another losing season for Sears.

Someone’s in the kitchen with Martha: celebrity chef Emeril Lagasse.

After searching for an acquisition for years, Martha Stewart Living Omnimedia (MSO) on Monday said it bought the rights to Lagasse’s television programming, cookbooks, website, licensed kitchen products and food such as the Bam! B-Q sauce, spices and marinades. The agreement excludes Lagasse’s 11 restaurants and corporate offices.

The deal, for $45 million in cash plus $5 million in stock, marks the first time Stewart has deigned to share the spotlight with another celebrity inside her company and is a solid step toward diversifying away from her omnipotent presence. As Fortune reported last month, MSO has been looking to bring another tastemaker into the fold. The company has held talks in recent months with the designer Cynthia Rowley and Jonathan Adler, known for his home décor, but both deals unraveled.

Investors applauded the move pushing shares up $1.06, or 17.29 percent, to $7.19.

But before getting too carried away, it’s worth noting that the Emeril Lagasse business, like so many of MSO’s other new ventures, is still tiny. The company generated just $14 million in 2007 revenue.

Meanwhile, it’s unclear how some of MSO’s other initiatives are performing, notably the launch of a home line at Macy’s. Morgan Joseph analyst David Kestenbaum noted in a report to clients published Tuesday that MSO has so far failed to provide any clear-cut evidence of the launch’s success at a time when Macy’s is struggling with sub-par sales and store closures.

MSO has an even bigger problem looming this year in the form of Kmart royalties, which are expected to drop to $20 million from $65 million.

“Given the uncertainty of ramping up nascent initiatives in a difficult operating environment, we are downgrading to hold until we can see more clarity on Martha Stewart in 2008,” Kestenbaum wrote.

Gap’s ongoing attempts to right itself suffered a further setback Tuesday, when it said the president of its Old Navy chain would leave the company effective immediately.

Though the decision appears to have been mutually arrived at by the Old Navy president, Dawn Robertson, who had been in the job less than 16 months, and Gap’s (GPS) Chief Executive Glenn Murphy, her departure shows that the specialty apparel retailer still has a long way to go to turn itself around.

Robertson, 52, known for her high-energy management and even higher sense of style, made some progress breathing new life into Old Navy by upping the fashion quotient, speeding up merchandise deliveries and jettisoning its trademark campy advertisements in favor of sleeker marketing.

Despite those improvements, Robertson has so far failed to deliver the bump in sales and traffic counts that Murphy is looking for, suggesting that she may have overreached in her broader vision to reposition Old Navy away from its roots as a discount store for the family and make it more appealing to twenty-something shoppers looking for fashion at a price. “A lot of strategies were put in place under Dawn, and so far the results are mixed,” said Gap spokeswoman Stacy MacLean. “We were disappointed with fall and holiday.”

MacLean said Robertson’s departure was not just motivated by a lack of financial progress but also included other factors, such as cultural fit. Sources said the Robertson and Murphy differed philosophically over how to run the company.

Robertson is known for a strong personality that can be infectious and motivating — “like a cheerleader on steroids,” said one person who has worked with her– but also difficult to contain. Her preference for designer clothing, Gucci and Chanel are favorites, may also have contrasted with the more laid-back style of Gap’s San Francisco headquarters, where khakis and button downs are the norm.

Asked whether Old Navy would stick with Robertson’s strategy, MacLean said the company planned to move forward with some elements of the plan and proceed more cautiously with others. “We think a faster pipeline is in the interest of our customers,” she said, referring to Robertson’s initiative to speed up the delivery of merchandise to stores. “But we do not want to alienate our core customers in any way.”

In late January, Old Navy hosted a fashion show in New York to introduce the press to its new image. Designer Todd Oldham, whom Robertson had hired as creative director, edited the line, which included safari themes. Many of the updated looks are just hitting stores now, leading some observers to wonder whether Robertson was given enough time to achieve her goals. Because of long lead times, it is often difficult to affect a turnaround in retailing in less than two years.

The shakeup at Old Navy, largely unexpected by Wall Street analysts, is the latest in a series of management changes aimed at improving sales at Gap, which in addition to Old Navy also operates the Gap and Banana Republic chains. Gap shares lost 47 cents, or 2.39 percent, to close at $19.23 Tuesday.

Former CEO Paul Pressler was let go in January 2007, just three months after he hired Robertson, who had previously served as a managing director of Myer, an Australian department store chain. Marka Hansen was moved from her post atop Banana Republic to run the Gap division, and one of her deputies, Jack Calhoun, was placed in charge of Banana Republic in October. Gap today named Tom Wyatt, a seasoned apparel executive, who joined the company in 2006 and was most recently running its outlet division, as the interim head of Old Navy while it searches for a permanent replacement.

Robertson was to receive an annual salary of $900,000 (she was paid $242,308 for the three months she worked during fiscal 2007) plus a signing bonus of $300,000. Though Robertson’s contract calls for repayment of the bonus if she were to leave voluntarily within two years, MacLean, the Gap spokesman, said the company has no plans to recoup the money.

Analysts seemed divided over what Robertson’s departure would mean for Old Navy, with some worrying that too much change could be troublesome for the chain. “When you are on a course, and then all of a sudden you correct and go in another direction, that can be a negative too,” said Christine Chen of Needham & Co.

For Sun Capital, acquiring Kellwood - the maker of Calvin Klein sportswear and Phat Farm urban apparel - may turn out to be the easy part. Turning the business around is likely to be far tougher.

After five months of not-so-friendly courtship, Sun Capital finally has the prize in its sights. A deal looks imminent, providing that a majority of Kellwood’s (KWD) shareholders tender their stock by tomorrow, a likely outcome given that several large investors have indicated their support for the $21 a share offer. After previously rejecting Sun’s bid twice and then telling shareholders to make up their own minds, Kellwood’s board today came out in favor of the proposal, which values the company at $543 million based on the number of shares outstanding as of Nov. 3. Kellwood also agreed to terminate its cash tender for up to $60 million in senior notes, further paving the way for a deal. Kellwood’s shares rose 39 cents, or 1.9 percent, to $20.92.

If the tender is successfully completed, it would bring to an end one of the odder takeover battles on Seventh Avenue, a world where hostile deals are still a rarity. “Nothing about this deal was by the book,” said Louis Meyer, an analyst with Oscar Gruss & Son.

And questions persist. Why would Kellwood’s board agree to an offer of $21 a share in February when it deemed that same offer inadequate in September? And why would Sun Capital want to acquire one of the weaker competitors in an apparel industry going through an enormous shakeout? With stronger players like Liz Claiborne (LIZ) and the Jones Apparel Group (JNY) struggling to survive, the prospects for Kellwood - which derives the bulk of its revenue from out-of-favour moderate labels like Sag Harbor - look bleak.

Let’s start with the first question. Back in September, Kellwood’s board was confident that the company’s management could execute on its turnaround plan, which included an upscale repositioning with the acquisition of trendy labels such as Vince, known for its sweaters sold at Saks Fifth Avenue and Hanna Andersson, a children’s brand. Then the economy unravelled and the turnaround was suddenly much harder to achieve. So Kellwood’s board went shopping for an offer that would beat out Sun Capital. No offers materialized, and with a recession looming if not already here, Sun’s proposal looked a lot more attractive.

The foot-dragging approach of directors has not won a lot of fans on Wall Street. “The board’s job is to stand up and make the call, and this call should have been made long before today,” Meyer, the analyst, said.

With Kellwood nearly in its grasp, how does Sun Capital plan to keep the apparel maker from sinking further? The stock is down 33 percent from its July high and would be even lower if not for Sun’s interest. So far the private equity firm isn’t saying much, beyond this statement issued today by Sun Capital Vice President Jason Bernzweig: “We are prepared to commit substantial resources beyond the purchase price to build Kellwood’s business.” Sun Capital Spokesman Richard Hurwitz declined to elaborate.

What that likely means is an investment in the higher-tier brands such as Vince and Hollywould, another contemporary clothing maker, and a consolidation of the ailing moderate labels. “I could see them cutting costs, improving the supply chain and consolidating divisions — all things that can be done more easily as a private company than a public company,” said Paul Charron, the former Chief Executive of Liz Claiborne who is now an advisor to Warbug Pincus.

But building those upscale brands into sizeable businesses is going to take a long time. When Kellwood bought Vince in 2006, it said the brand was on track to do $45 million in sales. Even if Kellwood doubled the size of the business over the past two years, Vince would still only account for a fraction of Kellwood’s nearly $2 billion in overall revenue. “I’m not sure how Sun is going to fix this company, beyond doing what management was already doing,” Meyer said.

The fate of that management, including Chief Executive Robert Skinner, is so far unclear. “Our intention is to work with the management to turn around the business,” Hurwitz said. But no one is ruling out the possibility of an executive shake-up if results don’t materialize. As for a more radical makeover such as a break-up of the company, don’t bet on it. No analyst that I’ve talked to estimates that the sum of the parts is worth more than the whole.

Sun Capital acquired its roughly 11.4 percent stake in Kellwood at a price that averaged in the high $20-a-share range, considerably more than it is paying for the remainder of the stock. By that measure, it appears as if Sun is getting a bargain. Given the state of Kellwood’s business and the health of the apparel sector, this deal may turn out to be not such a good buy after all.