The operator of the Gap, Old Navy and Banana Republic brands also gave a 2011 profit outlook that was above Wall Street's average estimate.
Gap said the focus in 2011 would be to continue remodeling its large Old Navy stores, focusing on a smaller format, while opening company-owned and franchise stores abroad.
Net income in Gap's holiday fourth quarter rose 3.7 percent to $365 million, or 60 cents per share, from $352 million, or 51 cents per share, a year earlier.
Analysts, on average, had expected earnings of 57 cents per share, according to Thomson Reuters I/B/E/S.
As previously reported, revenue rose nearly 3 percent to $4.36 billion, as same-store sales, a key measure of retail performance, were flat.
A turnaround in the company's main Gap chain has been slow in coming and the head of that casual brand was recently replaced.
Gap has been revitalizing its merchandise to spur shopper loyalty, but sales have remained inconsistent, despite improvements, and Chief Executive Glenn Murphy has expressed frustration.
Although Gap shares have been rising since the beginning of
the year, they have not reached the nine-year high of $26.21 gained in April of last year as the stock market rallied and confidence grew in the economic recovery.
The company faces intense competition from a host of retailers selling casual American fashion and some analysts say its stores are too large and its fashion inconsistent.
Sourcing costs will drive down operating margins during fiscal 2011, Gap said. The higher price of cotton and petroleum-based synthetics has increased the cost of making garments for all apparel makers.
Still, Gap gave a 2011 profit outlook that was above Wall Street's estimates. It said 2011 earnings would range between $1.88 and $1.93 -- above the $1.86 expected by analysts.
Also on Thursday, department stores Macy's Inc
Old Navy, which sells lower-cost fashions to families, has been remodeling its stores to a smaller and easier-to-shop format. It said some 400 stores would be remodeled by the end of 2011.
Moreover, the company will open about 50 company-owned stores internationally -- including 10 to 15 new stores in China -- and about 75 franchise stores during the year.
Capital expenditures in 2011 will increase to about $575 million from $557 million last year due to the international store openings and Old Navy remodels.
Gap increased its quarterly dividend to 45 cents per share for fiscal 2011 from 40 cents per share in 2011.
(Reporting by Alexandria Sage; editing by Andre Grenon)