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Gap shares jump as same-store sales top Street estimates

  • More shoppers made purchases at Gap's less-expensive Old Navy nameplate during the latest period, boosting total sales.
  • Gap's total same-store sales climbed for the fourth consecutive quarter, a sign that the retailer's latest turnaround efforts are paying off.

Gap Inc. shares soared as much as 9 percent after hours Thursday after the apparel retailer reported same-store sales that outpaced Street expectations.

More shoppers made purchases at Gap's less-expensive Old Navy nameplate during the latest period, boosting total sales. Old Navy is notably the biggest revenue contributor for the company.

California-based Gap also raised its earnings outlook for the full year, citing momentum headed into the holidays.

"We continue to make progress against the balanced growth strategy we outlined in September, driving efficiency at our more mature brands, while growing our footprint in the value and active space, and investing in our online and mobile experience," Chief Executive Art Peck said in a statement.

Gap reported earnings per share of 58 cents, adjusted, for the fiscal third quarter, outpacing analysts' estimates based on a Thomson Reuters survey of 54 cents.

Total sales climbed about 1 percent, to $3.84 billion, compared with $3.80 billion a year ago. Analysts were calling for sales of $3.76 billion.

Gap's total same-store sales climbed for the fourth consecutive quarter, a sign that the retailer's latest turnaround efforts are paying off amid a tumultuous environment.

The key metric was up 3 percent, compared with expected growth of 1 percent. That total consisted of a 4 percent comp increase at Old Navy, a 1 percent increase at Gap stores, and a decline of 1 percent in the retailer's Banana Republic division.

A year ago, Gap's total comparable sales dropped 1 percent, dragged down by weaknesses within the Gap and Banana Republic divisions. But for 2017, those apparel brands have managed to claw their way back, as Gap keeps a tighter control on inventory and shutters underperforming locations.

In an attempt to cut costs, Gap has also said it hopes to save about $500 million in expenses over the next three years.

In a September note, Jefferies analyst Ranal Konik said Wall Street had largely underestimated Gap's growth potential.

The apparel retailer has laid out plans to shift its strategy to focus on its two "growth brands" — its cost-conscious Old Navy business and its athletic lines within Athleta.

Konik explained that Old Navy's fleet of stores is appealing since they're typically detached from malls. And in Athleta, the analyst expects the brand to continue to be a "share gainer in an attractive athletic apparel category."

Looking to the full year, Gap now expects adjusted earnings per share to fall within a range of $2.08 to $2.12. Previously, Gap was calling for fiscal 2017 earnings of between $2.02 and $2.10 a share.

Same-store sales for fiscal 2017 are expected to climb in the low single digits.

As of Thursday's market close, Gap shares have climbed more than 22 percent in 2017.

WATCH: Gap reports third-quarter earnings