Apparel retailer Gap Inc
The retailer, owner of the Gap, Old Navy and Banana Republic chains, also said its board of directors had authorized a new $500 million share repurchase program.
The company's shares were slightly down in extended trading.
Gap, which operates more than 3,000 stores in the United States and abroad, has been streamlining its operations to combat a longtime sales slide at its main Gap brand, where the company has been working to improve its merchandise.
Third-quarter net profit was $307 million, or 44 cents per share, up from $246 million, or 35 cents per share, a year earlier. Analysts on average forecast earnings of 44 cents per share, according to Thomson Reuters I/B/E/S.
As previously reported, total revenue rose 1 percent in the quarter to $3.59 billion.
The company has enjoyed a revival in sales at its lower-cost Old Navy chain due to better merchandising. But sales at Gap stores, as well as its more upscale brand Banana Republic, have remained lackluster.
Gap said its gross profit margin in the quarter rose 380 basis points to 42.5 percent, while its operating margin rose to 13.9 percent from 11.1 percent in the year-ago period.
Chief Executive Glenn Murphy said the third-quarter operating margin was the company's highest in a decade.
Looking ahead to the holiday season, we're focused on gaining market share as we invest in marketing and present a strong value proposition to our customers across our brands, Murphy said in a statement.
Gap, which has started to advertise its Gap brand on television again after a long absence, said its operating expenses rose by $40 million in the quarter, largely due to fall marketing campaigns.
It said those costs would be up between $100 million to $120 million in the fourth quarter versus the prior year, with marketing expenses up about $45 million.
Inventory per square foot was down 9 percent in the quarter.
Shares closed at $21.86, down 2 percent on the New York Stock Exchange, and were trading slightly down at $21.25 in extended trade.
(Reporting by Alexandria Sage; Editing Bernard Orr)