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Gap falls as investors eye cautious outlook

NEW YORK (AP) -- While a resurgent Gap's first-quarter profit topped Wall Street's expectations, the retailer's backing of a full-year earnings outlook that remains below analysts' estimates pressured its stock on Friday.

THE SPARK: Gap Inc., the owner of The Gap, Old Navy and Banana Republic clothing chains, still expects earnings for the full year to range between $2.52 per share to $2.60 per share. Analysts polled by FactSet have forecast $2.72 per share, on average.

The company reported a first-quarter profit of 71 cents per share, which beat the 69 cents per share that Wall Street anticipated. Revenue met analysts' estimates.

THE BACKGROUND: Gap continues to reap benefits from a turnaround program that it began early last year. Its quarterly performance shows that efforts by the chain to attract customers with brightly colored fashions and lively ads are helping to boost sales.

Revenue at stores opened at least a year — an industry measurement of a retailer's health — rose 2 percent for the entire chain during the quarter. The global businesses at both Gap and Old Navy each posted an increase of 3 percent, while Banana Republic's global division was unchanged from a year ago. Online revenue rose 27 percent.

THE ANALYSIS: Edward Yruma of KeyBanc Capital Markets said in a client note that Gap's results continue to impress as its Gap, Old Navy and Banana Republic brands are performing reasonably well.

The analyst reaffirmed a "Hold" rating.

While Gap had a strong quarter, Sterne, Agee & Leach's Ike Boruchow said he feels the company's earnings growth may moderate as the year continues partly because of tougher comparisons with prior-year periods.

The analyst said that Gap does not have a major fashion trend to help boost its sales this year, like its colored denim did for last year's results.

Boruchow maintained an "Underperform" rating and $35 price target.

A Gap representative did not immediately respond to an email seeing comment.

SHARE ACTION: Down 88 cents, or 2 percent, to $40.48 in afternoon trading. The stock has traded in a 52-week range of $25.02 to $41.86. It is up about 30 percent for the year to date.