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Gap's 1Q profits rises 43 pct.

Published: Thursday, May 23, 2013 3:24 p.m. CST

NEW YORK (– After years of struggling, Gap is back in style.

Gap Inc., which owns the Gap, Old Navy and Banana Republic clothing chains, reported on Thursday a 43 percent increase in its fiscal first-quarter net income, as the company continues to reap benefits from the turnaround plan that it began early last year. The company, based in San Francisco, also reiterated its full-year earnings outlook.

The latest results are welcome news for customers and investors who've watched Gap over the years flounder from an industry darling to a has-been. Gap's performance shows that efforts by the chain to attract customers with brightly colored fashions and lively ads are helping to boost sales continue to take hold.

"We are pleased with our strong start to the year, especially first-quarter sales," said Glenn Murphy, chairman and CEO of Gap in a statement. "We remain focused on continuing to deliver shareholder value."

Gap said it earned $333 million, or 71 cents per share, for the three-month period ended May 4. That compares with $233 million or 47 cents per share, in the year-ago period. Revenue rose 6.9 percent to $3.73 billion. Analysts had expected 69 cents per share on revenue of $3.73 billion.

Revenue at stores opened at least a year — an industry measurement of a retailer's health — rose 2 percent for the entire chain. The global businesses at both Gap and Old Navy each posted an increase of 3 percent, while Banana Republic's global division was unchanged from a year ago.

It's been a long slog uphill for Gap. After turning basics like T-shirts and khakis into must-have fashions in the 1990s, Gap fell out of favor with customers after the turn of the century. In particular, poor fit, boring fashions and drab colors hurt the company's flagship brand for most of the past decade.

After Murphy took the top job in 2007, the chain began closing and shrinking stores and cutting inventory to boost its profits. But the chain still struggled to solve its biggest problem: shoppers weren't buying its clothes unless they were deeply discounted.

But Gap is striking the right note with shoppers these days. The company has made several changes, including a management overhaul, new ads and partnerships with other designers. The company also hired new talent: The Banana Republic division brought in fashion designer Narciso Rodriguez, who began serving as an adviser to the brand starting with the fall 2013 collection.

And like many companies, Gap, which operates a total of 1,385 stores globally, also has been looking overseas for growth. In China, Gap opened two additional stores in the first quarter for a total of 49 stores in that country.

Gap said Thursday that it continues to expect earnings for the full year to be $2.52 per share to $2.60 per share. That's below analysts' expectations for $2.72 per share.

The company's shares have more than doubled to about $41, from about $18 in January of 2012 when the turnaround started to gain hold.

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