Updated from May 16


(GPS) - Get Report

returned to the black for the first time in nine months as the struggling retail giant makes halting steps toward a long-anticipated turnaround.

The stock slipped 3% Friday morning as investors mulled over the company's continuning sales weakness. Gap executives assured Wall Street Thursday night that the company's back-to-basics push is on the way reversing Gap's long decline, but most people seemed inclined to take a wait and see approach on the stock.

Gap said it earned 4 cents a share in the first quarter, on net income of $37 million, down 68% from last year's first quarter. It was the first profit since last year's second quarter. The company said sales were $2.9 billion, down 9% from a year ago. Last week Gap predicted a profit for the quarter, a forecast that surprised analysts, since the then-consensus estimate was for a loss of 4 cents per share.

The San Francisco-based company, which runs the Gap, Old Navy and Banana Republic chains, has been in a steep decline over the last couple years. Same-store sales, which measure activity in shops open at least a year, have fallen for 25 straight months. But the chain, the nation's largest apparel company, is starting to show signs of a turnaround, executives indicated on a conference call Thursday.

Executives, which have addressed their problems with a certain amount of self-deprecation in past calls, were more optimistic Thursday. A large part of the company's strategy has been to return to basics -- the jeans, oxfords and khakis that made the brand famous -- and customers are responding, executives say.

"Our results haven't yet caught up with our efforts," said Mickey Drexler, Gap's CEO, "but we're confident each brand is moving in the right direction."

The company said it was seeing "positive turns" at its Gap stores in both the men's and women's businesses. Meanwhile, Gap appears to be getting its inventory under control: Inventory per square foot was $44 in the first quarter, its lowest level since 1995, said Heidi Kunz, Gap's CFO.

For sure, these are small steps. But for a company that has struggled as much as Gap has, it is clearly good news that Wall Street is latching onto.

In a recent report, Todd Slater called Gap's progress "baby steps," but nevertheless upgraded the stock to buy, saying it was "a compelling earnings recovery story."

Gap dropped 54 cents Friday to $16.35.