SAN FRANCISCO, May 21 (Reuters) - Cost cuts helped Gap Inc (GPS.N) beat quarterly profit expectations on Thursday 21 May and investors cheered a long-overdue sales improvement in the apparel retailer's Old Navy chain.

Gap

Net profit in the company's first quarter fell nearly 14 percent to $215 million, or 31 cents per share, from $249 million, or 34 cents per share, a year earlier.

Analysts, on average, had been expecting earnings of 30 cents per share, according to Reuters Estimates.

Earlier this month, the operator of the Gap, Old Navy and Banana Republic chains raised its earnings forecast to a range of 29 cents to 30 cents.

Revenue fell 7 percent to $3.13 billion and operating expenses fell $73 million in the quarter, the San Francisco- based company said.

Gap, which has been cutting costs throughout its organization, has also benefited from new improvements in merchandise and marketing at its long-struggling Old Navy chain, where same-store sales fell 3 percent in the quarter compared with 18 percent a year earlier.

But those gains have been offset by recent weakness in Banana Republic, whose higher prices have turned off consumers focused on bargains in the downturn. Same-store sales at Banana Republic fell 13 percent from 4 percent a year earlier.

And a lingering slump at Gap stores, which saw a 12 percent fall in same-store sales during the quarter compared with a 7 percent drop a year earlier, has made investors question how long a turnaround at the iconic brand will take.

Inventory was down 12 percent at the end of the quarter, Gap said. Apparel retailers have lowered inventory levels in the consumer spending slump so they are not burdened later with too many markdowns, which undermine profit margins.

Gap, which has not given a full-year outlook since its last quarter, said it still expects to open about 50 stores in fiscal 2009 and to close 100, including repositioned stores.

The company's shares were steady after hours after closing at $15.98, or less than 1 percent higher, on the New York Stock Exchange. (Reporting by Alexandria Sage; Editing by Andre Grenon)