Highlights;
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Tariff Impact: Gap’s stock declined as tariffs are now expected to cost between $150 million and $175 million, up from the prior estimate of $100-150 million, affecting operating margins by 1-1.1 percentage points.
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Quarterly Performance: Gap exceeded EPS expectations ($0.57 vs. $0.55) but missed revenue ($3.73B vs. $3.74B). Net income rose slightly to $216 million, with comps up 1%, though lower than expected.
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Brand Results: Old Navy and Gap saw comps growth (2% and 4%, respectively), while Banana Republic also performed well. Athleta underperformed with comps down 9%, prompting a brand reset and new leadership from Nike veteran Maggie Gauger.
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Strategic Measures: Gap is mitigating tariff effects through supplier adjustments and price tweaks. Despite margin pressures, successful marketing campaigns and a strong cash position reflect strategic turnaround efforts, aiming for continued growth.
Gap’s stock dropped in extended trading on Thursday following the company’s warning that tariffs would negatively impact its future profits. During its last earnings report in May, Gap estimated that tariffs would cost between $100 million and $150 million on a net basis. However, the company revised this estimate to a higher range of $150 million to $175 million on Thursday.
Gap now projects its full-year operating margin to fall between 6.7% and 7%, down from the previous fiscal year’s 7.4%. This decline reflects a tariff impact of approximately 1 to 1.10 percentage points. In the current quarter, the company anticipates its gross margin to decrease by 1.5 to 1.7 percentage points, primarily due to these tariff costs.
Beyond the tariff challenges, Gap, which owns brands like Old Navy, Athleta, Banana Republic, and its namesake Gap, reported mixed results for its fiscal second quarter. Here’s how the company’s performance compared to Wall Street expectations, based on an analyst survey by LSEG:
- Earnings per share: $0.57 vs. $0.55 expected
- Revenue: $3.73 billion vs. $3.74 billion expected
For the three-month period ending August 2, Gap reported a net income of $216 million, or 57 cents per share, compared to $206 million, or 54 cents per share, in the prior year. Sales rose slightly to $3.73 billion from $3.72 billion last year. However, both total sales and comparable sales fell short of expectations. Comparable sales grew by 1%, below the 1.9% increase anticipated by analysts, as per StreetAccount.
While Old Navy, Gap, and Banana Republic saw increases in comparable sales, Athleta’s 9% decline weighed heavily on the company’s overall performance. CEO Richard Dickson expressed disappointment with Athleta’s results, stating, “We’ve paid a lot of attention to courting a new customer and didn’t have enough offerings for our core customer. As we reset, we’re being transparent that this is a year of adjustment for us.”
In an effort to revamp Athleta, Gap recently appointed Maggie Gauger, a seasoned executive from Nike, as the brand’s new CEO—marking the third leadership change for Athleta in two years.
Gap reaffirmed its fiscal 2025 net sales growth outlook, expecting revenue to grow between 1% and 2%, in line with LSEG estimates of 1.6%. For the current quarter, the company forecasts sales growth of 1.5% to 2.5%, slightly better than the 2% predicted by analysts.
To mitigate tariff impacts, Gap is working with suppliers, diversifying its supply chain, and implementing targeted price adjustments. The company emphasized that it doesn’t expect further declines in operating income from tariffs in 2026. Dickson noted, “We’re making targeted pricing adjustments while ensuring we deliver the right value proposition to consumers.”
Under Dickson’s leadership, Gap has seen significant improvements, including six consecutive quarters of comparable sales growth, a $2.2 billion cash reserve, and a reestablished presence in pop culture. The company recently launched a successful “Better in Denim” campaign featuring the hit song “Milkshake,” which garnered 20 million views in three days, 400 million total views, and 8 billion impressions. It also became the No. 1 search on TikTok.
Dickson highlighted Gap’s evolution from a promotional-focused retailer to a culturally impactful brand, stating, “We’re telling great stories, driving merchandising initiatives, and shaping culture. This is what our playbook looks like when executed well.”
The denim category remains competitive, with Levi’s collaboration with Beyoncé and American Eagle’s campaign with Sydney Sweeney drawing attention. Despite these efforts, Gap is working to stand out in a challenging retail environment where consumers are cutting back on discretionary spending.
While Gap has made progress in its turnaround, Wall Street expects consistent performance, and the company must continue to exceed expectations. Its gross margin of 41.2% fell short of the 41.9% anticipated by analysts.
Here’s a breakdown of each brand’s performance:
- Old Navy: The largest brand reported $2.2 billion in sales, up 1% year-over-year, with a 2% increase in comparable sales (vs. 2.2% expected).
- Gap: The namesake brand saw $772 million in sales, up 1%, with a 4% rise in comparable sales (beating the 4.1% forecast). This marks the seventh consecutive quarter of comparable sales growth.
- Banana Republic: Sales were $475 million, down 1% year-over-year, but comparable sales surged 4%, far exceeding the 0.2% expectation.
- Athleta: The brand reported $300 million in sales, down 11% year-over-year, with comparable sales declining 9%. The new CEO aims to reverse this downturn and reconnect with Athleta’s core audience.
Gap’s efforts to regain momentum and ceny retain its position as a cultural powerhouse are evident, but the road ahead remains challenging.
Source: https://www.cnbc.com/2025/08/28/gap-gap-q2-2025-earnings.html
