Gap's (NYSE:GPS) second-quarter earnings may have been better than a lot of people expected, but the emphasis on cost-cutting says to me that the tough times aren't over for this long-struggling retailer.

Second-quarter net income increased 50.7% to $229 million, or $0.32 per share. (This beat Wall Street's expectations by a penny.) Sales, however, weren't nearly as impressive, decreasing about 5% to $3.50 billion, and same-store sales fell by a substantial 10%.

The retailer touted inventory management and successfully pushed higher-margin merchandise out the door. However, I still can't see any reason to be too terribly excited about Gap when sales continue to fall. Furthermore, not one of its concepts increased same-store sales during the quarter; Banana Republic's usually a bright spot, but its comps fell 6%, and long suffering Old Navy's comps plunged by 16%.

Last summer, when new CEO Glenn Murphy was hired, I admitted there was some reason for cautious (very cautious) optimism, but the new hire certainly wasn't any guarantee of a home run. I also said I would watch with interest for any sign of revitalization in Gap's beleaguered brands. Given the second-quarter comps data, I think the jury's still out on that element of the turnaround strategy -- and it's a key element. And of course, if Gap's fashion has floundered for a while, the tough economic environment makes turning things around even harder.

There are more compelling retail stocks out there. Gap's trading at 17 times trailing earnings and has a PEG ratio of 1.60. Compare that to American Eagle Outfitters (NYSE:AEO), which is trading at just eight times earnings, with a PEG ratio of 0.67. And even though Abercrombie & Fitch (NYSE:ANF) isn't one of my favorite retail stocks by a long shot, if you're looking for bargains, it still looks far cheaper than Gap, trading at 10 times earnings with a PEG ratio of 0.67.

Or, you could simply pay up for quality and skip the beaten-down retail stocks altogether. Urban Outfitters (NASDAQ:URBN) may be trading at 30 times earnings at the moment, but its PEG ratio is only 1.13, and it has shown amazing execution despite the difficult consumer climate.

Pick your retail stocks carefully, folks. I continue to find Gap one of the least compelling specialty retail stocks out there; it might just burn your portfolio.

Gap and American Eagle Outfitters are Motley Fool Stock Advisor picks. The Fool owns shares of American Eagle Outfitters. Try any of our Foolish newsletters today, free for 30 days.

Alyce Lomax owns shares of Urban Outfitters. The Fool has a disclosure policy.