Gap shares jump as investors focus on profit beat over weak forecast

A man walks past a Gap store on Oxford Street in London

(Reuters) - Shares of Gap climbed as much as 8% on Friday, after the apparel retailer's quarterly profit beat indicated that the Old Navy parent's cost cuts were paying off even as easing demand weighed on its sales forecast.

The company's shares see-sawed following results after markets closed on Thursday but rose to $10.31 in regular trading on Friday after Jefferies and Bank of America raised their price targets on the stock.

Gap, which last month hired Barbie turnaround executive Richard Dickson from Mattel as top boss, has slashed more than 2,000 jobs since last year and closed underperforming Gap and Banana Republic stores in an effort to rein in costs.

The attempts to cut back on promotions and control excess inventory also eased the pressure on its margins. Gross margin increased 310 basis points to 37.6% in the second quarter from a year earlier.

"(It's) no easy task at hand, but the ground work has been laid," said Barclays analyst Adrienne Yih.

She added with the new CEO at helm this could be a new era for Gap, "one based on calculated design and innovation risk, a return to profitable growth, and reclaiming brand leadership across the portfolio."

Still, the company forecast a steeper-than-expected drop in current-quarter sales and missed sales expectations for the second quarter and also warned it was losing market share to rivals including Shein, Amazon and T.J. Maxx.

(Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Sriraj Kalluvila)