Gap says restructuring and reducing supply chain costs led to a surprise profit in the first quarter.
Investors were apprehensive, as shares of the company rose as high as 16% in extended trading.
Executives said the company spent less on salaries and other operating expenses in order to improve margins, along with efforts to reduce inventories.
Two quarters of inventory has been lower, as the company works to clear excess apparel purchased last year.
Inventory volumes fell 27%, compared to a year earlier, according to the company's Chief Financial Officer Katrina O Connell.
The COVID-19 pandemic had more stock in stock while consumer demand surged, leaving unloading piles of unsold stock as spending normalized.
The company has eliminated nearly 2,300 jobs in two separate layoffs since September, the company said in a statement.
By the end of the year, the company will have closed about 350 underperforming Gap and Banana Republic stores and will open fewer stores.
Sales for all Gap products fell in the quarter, as the company struggled to update inventory and match consumer trends.
In the first quarter, Gap reported a net profit of 1 cent, better than the analyst forecast for a loss of 16 cents.
The company's net sales fell 6% to $3.28 billion. The analysts were expecting $3.29 billion.
Gap maintained its annual sales forecast and expects second-quarter sales to fall in the mid-to-high-single-digit range. Analysts expect 4.95% of sales to drop in the second quarter.