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Gap shares were back in vogue on Monday after the retailer behind Old Navy and Banana Republic lifted its outlook for fourth quarter earnings above Wall Street’s estimates.

The San Francisco-based company said it expects to report adjusted full-year earnings in the range of $2.01 to $2.02 a share, above its previous expectations for earnings modestly above the high end of its previous guidance of $1.92 a share. It also topped analysts’ estimates of $1.96. For the fourth quarter, earnings projections in the range of 50 to 51 cents a share in the fourth quarter were ahead of Wall Street’s forecasts of 45 cents.

Gap also said that net sales climbed 2 per cent to $828m from a year ago in January and 1 per cent to $4.4bn in the fourth quarter.

“Against a challenging retail backdrop, we’re pleased to report growth in our top-line and comp sales during the critical holiday quarter,” said Art Peck, chief executive officer. “We remain focused on actions that will strengthen our brands and recapture market share.”

Indeed, Gap said same-store sales rose 2 per cent in the fourth quarter, compared with a 7 per cent drop in the year ago period. Like-for-like sales rose 5 per cent at Old Navy, the company’s largest division, were flat at its eponymous brand and 3 per cent at Banana Republic.

That was welcome news to shareholders, who sent Gap shares 3 per cent higher in extended trading to $23.68. While Gap had easier year-on-year comparisons, department stores and retailers have widely posted disappointing results during the key holiday period.

For the month of January however, Gap sales did disappoint. Overall same-store sales rose 1 per cent last month, below analysts’ estimates for a 2.1 per cent gain, according to Bloomberg data. A 2 per cent rise in like-for-like sales at Old Navy missed expectations for a 4.7 per cent gain. Sales at Banana Republic slid 4 per cent, steeper than analysts’ estimates for a 2.5 per cent drop, while sales at Gap Global exceeded estimates, rising 3 per cent, topping expectations for a 1 per cent gain.

Gap shares declined 41 per cent in 2015 and were down more than 9 per cent last year as the company, like other clothing retailers, suffered from changing millennial preferences and growing competition from e-commerce.

Fast fashion retailers like H&M and Zara that mimic catwalk styles for a fraction of the cost have also taken a toll on the retailer. And a string of product misses at its Banana Republic brand hurt sales in recent years and prompted brand president Andi Owen’s exit last month.

Gap shares are up 2.4 per cent so far this year.

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