Updated from 4:46 p.m. EDT

Gap's ( GPS) strong first-quarter results seem to confirm that its turnaround is well under way. But don't look for the apparel retailer's shares to jump much on the news.

Having closed trading Thursday at $17.20 per share, Gap's stock is currently trading at about 20.2 times the company's projected current year earnings. That's a pretty rich valuation for a company that's shrinking its store space this year and which is still in the middle of its turnaround, analysts say.

"At the end of the day, how much are you willing to spend for a turnaround story that doesn't have much square-footage growth?" asks Emme Kozloff, who covers Gap for independent research company Sanford Bernstein. "The stock is trapped in its current valuation." His firm does no banking.

Gap shares reached their nadir last fall at $8.35 a share amidst the company's string of 29 straight months of declining same-store sales. Since then, the shares have more than doubled, as the company's sales have picked up. For the year, the company's stock is up more than 10%.

One might think that the stock would rise higher after Gap's earnings report on Thursday. For the quarter, the company increased its per share earnings by more than five times on strong sales.

The apparel chain earned $202.47 million, or 22 cents a share, in its quarter ended May 3. In its year-ago quarter, Gap posted a profit of $36.68 million, or 4 cents a share.

Revenue at the San Francisco-based retailer increased by 16% over the prior-year period to $3.35 billion. On a same-store basis, which compares similar outlets open more than one year, Gap's sales increased 12%, compared with a 17% decline in the first quarter last year.

Wall Street was expecting Gap to earn 21 cents a share on $3.3 billion in sales. Earlier this month, Gap projected it would earn between 19 cents and 22 cents a share on $3.4 billion in sales in the quarter.

But company officials did not provide guidance for the second quarter or for the rest of the year. That may indicate that the company is trying to keep investor expectations in check, said Rob Wilson, with Tiburon Research Group.

However, that means that investors will have to wait until the second half of the year to have a true sense of how well the company's turnaround effort is going, Wilson said. That's when the company will face more difficult sales and earnings comparisons, he said.

"We're still in a holding pattern until we see the results in the third quarter see what the sales are going to be," Wilson said.

But if investors are looking for a fast-growing revenue or square-footage story, they may have to wait far longer than that. In response to an analyst's question, company chief executive Paul Pressler indicated on a conference call that the company is focused on improving its operations in the short term rather than increasing its square footage or launching some kind of new store concept. In fact, the company plans to decrease its total square footage this year by 2% and close a net of 80 to 90 store locations.

"We're still focused on our turnaround," Pressler said. "We see a tremendous opportunity to get back to our historical margins and improve the efficiency of the business."

Gap officials would have been "idiots" to announce some kind of grand expansion plans, Kozloff noted. Still, that will weigh heavily on the stock.

"There is no second chapter in their growth story," Kozloff said.

To be sure, Gap showed definite progress on its turnaround effort in the quarter.

The company's strong revenue filtered down to the bottom line in large part because of cost controls. Occupancy costs and the costs of goods sold increased by just 3.2% over the prior year's quarter to $2.08 billion. But as a portion of sales, such costs decreased 7.7 percentage points to 61.9%.

In the quarter, Gap saw better gross margins on its merchandise as it sold more products at full price and decreased markdowns, said Byron Pollitt, the company's chief financial officer, on the conference call. Meanwhile, the company saw less "shrink," or lost inventory, Pollitt said.

Gap also managed to keep its operating expenses in line during the quarter. Such expenses increased by 15.9% to $888.5 million year over year, or approximately at the same rate as sales. As a percentage of sales, operating expenses stayed at 26.5%

Although advertising spending and bonuses increased in the quarter, Gap was able to keep operating expenses down through "better payroll efficiency," Pollitt said.

However, not everything was picture-perfect for the company.

Inventory at the apparel chain rose significantly in the quarter, increasing 17.8% over the first quarter last year to $2.11 billion. On a per-square-foot basis, inventory increased 17% to $56.78.

Pollitt noted that the company's inventory levels were low last year, and even with the increase, the company is below its peak levels set in prior years. Meanwhile, the inventory includes less spring merchandise and fewer discounted products than at the same time last year.

"Our inventory is somewhat higher than expected, but we are comfortable with the composition and quality of our inventory," Pollitt said.

Meanwhile, the company's international sales increased 29% to $412 million. But Gap representatives declined to disclose how much of that increase was due to currency fluctuations.

From the end of Gap's first quarter last year until the end of the company's first quarter this year, the dollar declined against the euro by about 23% and vs. the Japanese yen by nearly 7%. Because of the decline, Gap's overseas stores would not necessarily have had to sell more in their local currencies to produce big gains when their sales were translated into U.S. dollars.

"There's something interesting here that nobody is talking about," Wilson said.

But a Gap representative said the company does not normally give out the effect of currency fluctuations on sales.

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