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Gap's upbeat quarterly results show improving demand for Old Navy apparel

FILE PHOTO: A woman shops at a Gap store at the King of Prussia Mall

By Ananya Mariam Rajesh and Katherine Masters

(Reuters) -Gap beat Wall Street expectations for fourth-quarter results on Thursday, buoyed by strong demand on improved product offerings at its Old Navy and namesake brands during the holiday season and lower markdowns.

The company's shares rose 4% to $20.05 in extended trading.

CEO Richard Dickson's plans to push ahead with reinventing Gap's brands, mainly Old Navy, have helped drive consumer interest in its apparel and accessories.

The Banana Republic parent had seen sales slump in the past several quarters as customers moved to competitors such as Amazon.com and Shein that offer compelling product assortments.

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Fourth-quarter comparable sales at the Gap brand rose 4% and Old Navy saw a 2% increase, while Athleta and Banana Republic sales slumped 10% and 4%, respectively.

Lower supply-chain costs related to freight and manufacturing coupled with controlled promotions and price increases on some products such as leggings and skinny jeans helped the company's gross margin jump 38.9%, an increase of 530 basis points.

"This is still not a company that's generating much in the way of sales growth but ... (margins) are showing signs of getting better," Morningstar analyst David Swartz said.

However, Gap expects fiscal 2024 net sales to be flat compared with $14.89 billion in 2023. Analysts had expected a 0.48% rise, according to LSEG data.

Gap's forecast signals that improving its product assortments mainly at Athleta and Banana Republic could take longer than expected.

"Regarding Banana Republic, we are focused on re-establishing this brand to thrive in the premium lifestyle space," Dickson said on a post earnings call.

"As I've dug in with the Banana Republic team, I've realized that we are behind on the fundamentals, having the right product in the right place with the right price."

Gap's fourth-quarter net sales rose 1.3% to $4.30 billion, beating estimates of $4.22 billion.

The company reported a profit of 49 cents per share, beating estimates of 23 cents.

(Reporting by Ananya Mariam Rajesh in Bengaluru and Kate Masters in New York; Editing by Shounak Dasgupta)