Gap raised its annual sales forecast and its first-quarter results beat market expectations, boosted by strength in its Old Navy and Gap brands as budget-strained Americans snap up its trendy denim bottoms and active wear apparel.

Shares of the company surged 21 percent after the bell as the Banana Republic owner saw strong spring shopping, similar to mall-based retailers like Abercrombie & Fitch, which had also hiked its annual sales goal.

Gap’s quarterly store sales jumped 3 percent from a year ago as it has been expanding its store presence, while online sales rose 5 percent to account for 38 percent of the total sales.

The company’s turnaround strategy to lower promotions and focus on right product assortment is yielding results after weak growth last year due to lacklustre demand and supply chain issues.

“Shoppers are willing and able to spend if they see value in an on-trend, well-made dress from Gap or a burrito bowl from Chipotle,” Zak Stambor, a senior analyst at Emarketer said.

Gap also lifted its fiscal 2024 margin forecast to at least 150 basis points growth compared with a prior target of as much as 50 bps expansion.

It now sees annual sales to be up slightly from last year and compared with prior expectations of roughly flat sales.

First-quarter gross margin jumped 410 basis points to 41.2 percent. Analysts had expected margin of 38.54 percent.

At Old Navy, comparable sales grew 3 percent compared with 1 percent decline a year ago, while Gap logged 3 percent growth.

Its net sales for the quarter ended May 4 rose 3 percent to $3.39 billion, edging past analysts’ average estimate of a 0.3 percent rise to $3.29 billion. Comparable sales rose 3 percent from a year ago and compared with expectations of 0.9 percent, according to LSEG data.

It earned 41 cents per share.

Peer American Eagle Outfitters had on Wednesday missed quarterly revenue estimates as sticky inflation hurt demand for its clothing and accessories.

By Savyata Mishra; Editing by Arun Koyyur

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Gap Reports Upbeat Quarterly Sales on Improving Demand for Old Navy Apparel

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