May 17, 2012 / 8:19 PM / 7 years ago

Gap raises profit outlook, shares rise

(Reuters) - Gap Inc (GPS.N) raised its yearly profit forecast, prompted by first-quarter earnings that topped Wall Street estimates and rising sales, and its shares rose 8 percent after hours.

A woman walks past the Gap flagship store in San Francisco, California August 18, 2011. REUTERS/Robert Galbraith

For the full year, Gap estimated earnings of $1.78 to $1.83 a share, above the $1.75 to $1.80 it forecast in February.

“It’s important to remain measured in our outlook given that our biggest selling seasons are still ahead of us,” said Chief Financial Officer Sabrina Simmons.

Given the first quarter beat, “the current forecast does appear to be conservative,” said Betty Chen, an analyst with Wedbush Securities.

She said that while the company appeared to be on the right track, “We’re all waiting to see some sustainability.”

For the first quarter ended April 28, the owner of the Gap, Old Navy and Banana Republic chains earned $233 million, or 47 cents a share, compared with $233 million, or 40 cents a share, a year ago.

Analysts, on average, had been expecting Gap to earn 46 cents a share, according to Thomson Reuters I/B/E/S.

After years of being accused of selling boring clothes, Gap has regained an edge in fashion, following a prolonged turnaround that included a change in top management.

The company’s spring merchandise is selling well, and its website has been revamped.

Gap, the third biggest clothes retailer in the world after Zara owner Inditex (ITX.MC), and H&M owner Hennes & Mauritz AB (HMb.ST), had preannounced that sales rose 6 percent to $3.49 billion, while comparable store sales were up 4 percent.

During the quarter, sales at established North American stores rose 5 percent each for the Gap and Banana Republic brands. Sales at Old Navy stores rose 4 percent, the company said.

Gap shares rose to $28.50 after the bell. They closed down 2.9 percent at $26.31 on Thursday on the New York Stock Exchange.

Reporting by Nivedita Bhattacharjee in Chicago; Editing by Andre Grenon, Phil Berlowitz and Richard Chang

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