Updated from 5:15 p.m. EDT

After reporting Thursday that its second-quarter earnings more than tripled,

Gap's

(GPS) - Get Report

stock hit a 52-week high in intraday trading on Friday then fell below its opening price.

Despite the standout earnings report, many investors are apparently still wondering whether the company's turnaround is complete. A number of analysts upgraded to or maintained buy ratings on Gap shares after the company's report, but others expressed continued skepticism.

The company has benefited from easy comparisons with weak earnings and sales numbers last year, noted Robert Buchanan, an analyst with A.G. Edwards, in a research note issued Friday. Meanwhile, Gap has yet to focus its marketing and merchandising on a particular customer group, and instead is continuing to try to appeal to everyone, he said.

"With every single successful store so focused on set (customer) lines, we do not believe the Gap can succeed at its ongoing effort of mass appeal," said Buchanan, in lowering his rating on Gap from "buy" to "hold" "The lack of focus in combination with anticipated deceleration in the pace of year-over-year earnings progress dampens our enthusiasm for this name."

(A.G. Edwards does not have any investment banking business with Gap.)

In recent trading Gap's shares were down 27 cents, or 1.4%, to $19.38. Earlier in the day, shares traded as high as $20.15, which is above the company's previous 52-week high of $19.83.

Gap seemed to give believers reason to cheer with its second-quarter report. In its quarter ended August 2, Gap earned $209.3 million, or 22 cents a share. That result compared with the second quarter last year, when the clothing retailer earned $56.8 million, or 6 cents a share.

Sales at Gap rose to $3.69 billion from $3.29 billion in the year-earlier period. On a same-store basis, which compares results of like outlets open for more than one year, Gap's sales increased 10%. Last year, the company's same-store sales declined 7%.

The results topped Wall Street's expectations and came in at the high end of the company's estimates. Analysts had projected that Gap would earn 21 cents a share on $3.64 billion in sales, according to Thomson First Call. Earlier this month, Gap estimated that it would earn 20 cents to 22 cents a share.

But the company's performance came on top of a weak second quarter last year, in which it reported a decline in earnings from the same period in 2001 on nearly flat sales. The company won't start facing tough comparisons until October. It was in October of last year that Gap broke its more than two-year string of same-store sales declines.

"There are bearish people out there who are going to say, 'wait until October,' " said Rob Wilson, who covers the company for Tiburon Research Group. "People are going to doubt

whether they can post year-over-year sales gains until they actually see it.

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"Somehow, I think they're going to do it."

(Tiburon Research Group does not do investment banking.)

Company officials may have encouraged skeptics by again refusing to provide forward earnings guidance. Gap officials didn't give second-quarter estimates until the beginning of August, after the quarter was over.

Meanwhile, Wall Street is calling for earnings of 21 cents a share on sales of $3.79 billion.

Gap's same-store sales were up at each of its four divisions. At its core namesake stores in the United States, comparable-store sales grew by 9% vs. a 13% decline last year. Same-store sales grew by 13% at Gap's international stores, 5% at Banana Republic and 11% at Old Navy. Such sales declined by 12%, 5% and 1% at each of those divisions, respectively, last year.

For a second quarter in a row, Gap likely saw a strong benefit from the decline of the dollar vs. the euro and other foreign currencies. However, the company did not give any estimates of how foreign-exchange changes might have affected its revenues. Tiburon's Wilson estimated that such benefits might have boosted the company's bottom line by as much as 2 cents.

In addition to strong revenue growth, Gap also held the line on expenses in the quarter. The company's gross margin, which represents the difference between what it charges customers for its products and what the direct cost of those products to the company, increased 2.6 percentage points to 36% of sales.

Higher merchandise margins and lower rent and occupancy costs as a portion of sales helped send gross margins higher, said Byron Pollitt, the company's chief financial officer, on the conference call.

While top-line margin increased, so too did the company's operating margins, as Gap cut back on operating costs. As a portion of sales, operating expenses declined 3 percentage points to 25.2%.

Although the company saw decreased payroll costs as a portion of sales in the quarter, much of the operating expense decline came from a shift in advertising expenses. Gap shifted much of the advertising dollars it typically spends in the second quarter to the first quarter this year, Pollitt said.

However, the company's overall advertising spending is down 24% from last year and in the first half of the year, its operating expenses have grown by 8%, or at a slower rate than sales.

In maintaining her "market perform" rating on Gap shares, Sanford Bernstein analyst Emme Kozloff praised the company's efforts to cut costs, but questioned how much more it can cut. Meanwhile, the company will likely have a difficult time growing its sales because it has already "saturated" the market, Kozloff wrote in a research note.

"Gap's operating improvements are impressive, but future upside potential is much more constrained," Kozloff wrote. "While we applaud Gap's management for executing a solid turnaround, the stock in our view already reflects the good news."

(Bernstein does not do any investment banking.)

Investors will have to wait until the third quarter and beyond to really know if Gap has completed its turnaround, Wilson said. But he believes the signs are right. The company has a good product offering, good marketing and it finally seems to have gained control of its costs, he said.

"There's a lot of positive things going on here," he said.