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Gap raises profit outlook

Elise Amendola/AP

Gap Inc. raised its yearly profit forecast, prompted by first-quarter earnings that topped Wall Street estimates and rising sales, and its shares rose 8 per cent after hours.

For the full year, Gap estimated earnings of $1.78 (U.S.) 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.

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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, and H&M owner Hennes & Mauritz AB, had preannounced that sales rose 6 per cent to $3.49-billion, while comparable store sales were up 4 per cent.

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

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

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