Gap Inc. said its net rose 21 percent, in line with expectations, as its apparel stores offered fewer price markdowns amid a makeover to stimulate sales.
The San Francisco company also said it had authorized a $1 billion share buyback, entering into purchase agreements with members of its founding Fisher family.
Net income was $265 million, or 35 cents a share, compared with $219 million, or 27 cents a share, a year earlier.
As previously reported, net sales slipped 4 percent to $4.7 billion.
"While we're aware of the challenging economic environment, our leadership team is committed to delivering the right product to our customers," Glenn Murphy, who took over as chairman and CEO of Gap in July, said in a statement. "We'll work tirelessly to reconnect with customers while we continue to improve our earnings results."
Murphy is striving to turn around years of sliding same-store sales and reinvigorate its merchandise as well as marketing. Last week, the president of the Old Navy chain resigned in a move that Wall Street interpreted to be a result of Murphy's frustration that recent improvements at the lower-cost chain hadn't translated into better sales.
January same-store sales fell 2 percent, less than analysts had expected. Same-store sales fell 5 percent at the company's flagship Gap and Old Navy stores during the fourth quarter. The more upscale Banana Republic chain, however, saw same-store sales climb 2 percent. International same-store sales dropped 1 percent.
Gap earned $1.05 a share in the fiscal year ended Feb. 2. It pegs fiscal 2008 earnings between $1.20 and $1.27 a share, taking into account "a range of outcomes dependent in part on product acceptance and the volatile macroeconomic environment."
Gap also said it plans to increase its dividend by two cents to 34 cents in fiscal 2008.
Gap, which operates more than 3,000 stores around the globe, is valued at 16 times estimated 2008 earnings, a premium to Limited Brandsand Macy's, at nearly 15 and 13, respectively.
In after-hours trading, Gap shares jumped more than 5 percent, after closing at $19.45 on the New York Stock Exchange.