Gap says restructuring efforts and easing supply chain costs led to a surprise profit in the first quarter.
Investors liked the news, sending shares of the retailer jumping as high as 16% in extended trading.
Executives said the company spent less on salaries and other operating costs in a bid to improve margins, along with efforts to reduce inventories.
The company has had two straight quarters of lower inventory as it works to clear excess apparel purchased last year.
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Inventory volumes declined 27% from a year earlier, according to Chief Financial Officer Katrina O’Connell.
Gap increased inventory during the COVID-19 pandemic as consumer demand surged, only to be left with piles of unsold inventory as spending normalized.
The company's reorganization efforts has eliminated about 2,300 corporate positions in two rounds of layoffs since September.
Interim CEO Bob Martin in a post-earnings call said job cuts should contribute to nearly $550 million in estimated annualized savings.
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The company will have closed about 350 underperforming Gap and Banana Republic stores by the end of the year and will open fewer stores than projected.
Still, sales for all Gap's four brands declined in the quarter as the retailer struggled to update inventory and match consumer trends.
Gap reported first-quarter adjusted profit of 1 cent, better than the analyst estimate for a loss of 16 cents, according to Refinitiv IBES data.
The company's net sales fell 6% to $3.28 billion. Analysts were expecting $3.29 billion.
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Gap maintained its annual sales forecast and expects second-quarter sales to fall in the mid-to-high-single-digit range. Analysts on average expect second-quarter sales to decline 4.95%.
Reuters contributed to this report.
