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Gap lifts sales view on strong demand for namesake brand, Old Navy; shares soar

By Savyata Mishra

(Reuters) -Gap raised its annual sales forecast and its first-quarter results beat market expectations, boosted by strength in its Old Navy and Gap brands as Americans snap up its trendy denims and limited edition apparel.

Shares of the company surged 23% after the bell as the Banana Republic owner saw strong spring shopping, similar to mall-based retailers like Abercrombie & Fitch, which had also hiked its annual sales goal.

Gap's quarterly store sales jumped 3% from a year ago as it has been expanding its store presence, while online sales rose 5% to account for 38% of the total sales.

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The company's turnaround strategy to lower promotions and focus on improved product assortment is yielding results after weak growth last year due to low demand and supply chain issues.

"Shoppers are willing and able to spend if they see value in an on-trend, well-made dress from Gap or a burrito bowl from Chipotle," Zak Stambor, a senior analyst at Emarketer said.

Gap also lifted its fiscal 2024 margin forecast to at least 150 basis points growth compared with a prior target of as much as 50 bps expansion.

It now sees annual sales to be up slightly from last year and compared with prior expectations of roughly flat sales.

First-quarter gross margin jumped 410 basis points to 41.2%.

At Old Navy, comparable sales grew 3% compared with 1% decline a year ago, while Gap logged 3% growth.

Its net sales for the quarter ended May 4 rose to $3.39 billion, edging past analysts' average estimate of $3.29 billion. It earned 41 cents per share compared to estimates of 14 cents.

In contrast, American Eagle Outfitters missed quarterly revenue estimates, while Kohl's posted a surprise quarterly loss.

"Brands with a strong aesthetic or sharp brand positioning are thriving," Stambor said.

(Reporting by Savyata Mishra in Bengaluru; Editing by Arun Koyyur)