Gap Controls Costs, Posts 1st-Quarter Profit

Gap Inc., the biggest U.S. clothing retailer, had an unexpected first-quarter profit of 2 cents to 3 cents a share after sales fell less than forecast and the company controlled costs. Gap’s stock rose to a four-month high.

Analysts had anticipated a loss of 4 cents in the period ended Saturday, according to the average estimate of those surveyed by Thomson Financial/First Call. Sales fell 9% to about $2.9 billion from $3.2 billion a year earlier, Gap said.

Gap held down expenses and kept inventory below levels of a year ago, helping the retailer avoid a third straight quarterly loss.

Chief Executive Millard Drexler is returning the company to selling more basic clothing such as khakis and jeans after trendy fashions flopped. A less-than-expected sales decline in April suggests that Drexler’s strategy may soon begin to pay off, investors said.

“We have faith in Drexler,” said Gary Furukawa, chief investment officer for Seattle-based Freestone Capital Management, which manages $800 million in assets and owns 690,000 Gap shares.

“You go through hot and cold streaks. He went through a cold streak,” Furukawa said.

Ending two consecutive losses probably alleviated some investors’ concerns about the San Francisco-based company, he said.

Shares of Gap rose $1.08, or 7.3%, to $15.79 on the New York Stock Exchange, their biggest percentage gain since Jan. 10. The stock has risen 13% this year.