Sign in

You're signed outSign in or to get full access.

GI

GAP INC (GAP)·Q1 2026 Earnings Summary

Executive Summary

  • Gap Inc. delivered a clean beat in Q1 FY2025 (reported May 3, 2025): revenue $3.463B vs S&P Global consensus $3.416B*, and diluted EPS $0.51 vs consensus $0.456*; gross margin expanded 60 bps YoY to 41.8%, and operating margin rose 140 bps to 7.5% .
  • Brand momentum remained broad-based: Old Navy comps +3%, Gap brand comps +5%, Banana Republic flat, Athleta −8%; online grew +6% to 39% of net sales as stores were flat .
  • FY2025 guidance was maintained (net sales +1–2%, underlying operating income +8–10% excluding tariffs) with new tariff disclosure: $250–300M gross cost with net $100–150M impact to FY2025 operating income after mitigation; Q2 outlook calls for flat sales, gross margin similar to Q1, and slight SG&A leverage .
  • Call focused on tariff mitigation (diversifying sourcing; China <3% by year-end), supply chain resilience, and technology initiatives (RFID, AI enablement) underpinning margin durability and brand reinvigoration .

Values from S&P Global for estimates marked with *.

What Went Well and What Went Wrong

  • What Went Well

    • Broad-based execution and margin expansion: “We expanded operating margin 140 basis points…EPS was $0.51…strong cash balance of ~$2.2B” .
    • Brand momentum: Old Navy delivered its ninth consecutive quarter of share gains with Active and Denim leading; Gap comps +5% with strong full-price sell-through and elevated collaborations (Gap Studio, DOEN, Harlem’s Fashion Row) .
    • Digital strength: Online sales +6% to 39% of net sales; management emphasized Gap Inc. as “the number one branded apparel e-commerce business in the U.S.” .

  • What Went Wrong

    • Athleta underperformed: net sales −6%, comps −8% due to insufficient compelling product for core customers; AUR down modestly primarily from higher promotional activity at Athleta .
    • Tariff headwinds: management quantified a $250–300M gross cost with $100–150M net operating income impact, weighted to H2, despite mitigation strategies .
    • Q2 gross margin YoY implied decline due to lapping prior-year credit card benefit; guidance flags ~60 bps deleverage absent that non-recurring item .

Financial Results

MetricQ3 2024Q4 2024Q1 2025 (current)
Revenue ($USD Billions)$3.829 $4.149 $3.463
Diluted EPS ($USD)$0.72 $0.54 $0.51
Gross Margin %42.7% 38.9% 41.8%
Operating Margin %9.3% 6.2% 7.5%

Q1 FY2025 actual vs S&P Global consensus:

MetricConsensus (Q1 FY2025)Actual (Q1 FY2025)
Revenue ($USD Billions)$3.416*$3.463
Diluted EPS ($USD)$0.456*$0.51

Values from S&P Global for estimates marked with *.

Segment net sales by brand:

Brand Net Sales ($USD Millions)Q1 FY2024Q1 FY2025
Old Navy Global$1,916 $1,981
Gap Global$689 $724
Banana Republic Global$440 $428
Athleta Global$329 $308
Other$14 $22
Total$3,388 $3,463

KPIs (Comps and Digital Mix):

KPIQ1 FY2024Q1 FY2025
Old Navy Comparable Sales %+3% +3%
Gap Comparable Sales %+3% +5%
Banana Republic Comparable Sales %+1% 0%
Athleta Comparable Sales %+5% −8%
Gap Inc. Comparable Sales %+3% +2%
Online Sales % of Net Sales—39%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales GrowthFY2025+1% to +2% +1% to +2% Maintained
Operating Income Growth (Underlying)FY2025+8% to +10% +8% to +10% (ex tariffs) Maintained; clarified “ex tariffs”
Tariff Impact (Net)FY2025N/A$100–150M net impact to operating income; gross $250–300M, mitigation >50% New disclosure
Effective Tax RateFY2025~26% ~26% Maintained
Capital ExpendituresFY2025~$600M ~$600M Maintained
Net Store Closures (company-operated)FY2025~35 ~35 Maintained
Net SalesQ2 FY2025N/AApproximately flat YoY New
Gross MarginQ2 FY2025N/ASimilar to Q1’25 gross margin New
Operating Expense (% of Net Sales)Q2 FY2025N/ALeverage slightly YoY New
DividendQ2 FY2025Q1 DPS $0.165 authorized Q2 DPS $0.165 authorized Maintained

Earnings Call Themes & Trends

TopicQ3 FY2024Q4 FY2024Q1 FY2025Trend
Tariffs & Sourcing DiversificationHighlighted resilient supply chain; China <10% of sourcing Detailed tariff scenario planning; China/product mix; strong cash and mitigation Quantified $250–300M gross/$100–150M net impact; mitigation via sourcing/manufacturing/assortment; China <3% by year-end Intensifying focus; mitigation plans advancing
Technology & AI/RFID—Stood up office of AI; RFID initiatives planned “AI-enabled capabilities” and phased rollout of AI-powered RFID in stores Execution moving from planning to deployment
Product/Category LeadershipOld Navy: Active double-digit growth; Denim gains Old Navy: Dynamic Fleece/Power Soft; Gap: strong holiday campaigns Old Navy: Studio Smooth launch; Active #5 player; Denim #4; Gap elevated collabs with full-price sell-through Sustained momentum; pricing power improving
Digital & OmnichannelOnline 40% in Q3; disciplined inventory Online ~41% Q4; omni focus Online 39% Q1; #1 branded apparel e-comm business Stable high digital mix; omni enhancements
Athleta ResetReturned to comps +5% in Q3 Choppy near-term; flat FY comps; market share gains; more product work Q1 comps −8%; promotional pressure; design investments ongoing Continued reset; volatility expected

Management Commentary

  • CEO framing: “We had positive comp sales for the fifth consecutive quarter, expanded both gross margin and operating margin, and gained market share for the ninth consecutive quarter” .
  • Sourcing strategy: “We now expect [China] to be less than 3% by the end of this year…goal is for no country to account for more than 25% by the end of 2026” .
  • Old Navy/Gap brand strength: “Old Navy continued to gain share in Active as the number five player…Gap Studio…strong sell-through at full price” .
  • Platform investments: “Advancing inventory management, digital product creation, AI-enabled capabilities…strengthening our e-commerce engine” .
  • CFO on margins/discipline: “Gross margin of 41.8% increased 60 basis points…SG&A…leveraging 90 bps” .

Q&A Highlights

  • Tariffs and mitigation: Company estimates $250–300M gross cost; strategies already mitigating >50%; net $100–150M impact weighted to H2 .
  • Pricing: Management does not expect “meaningful price impacts” to consumers; focus on value proposition and share gains .
  • ROD leverage: “ROD will leverage for the full year on any positive sales growth” .
  • Q2 margin cadence: Gross margin similar to Q1, implying ~60 bps YoY decline mainly from lapping credit card benefit .
  • Marketing efficiency: Spending less but “generating more revenue [and] relevance”; social-first strategy improving ROI .

Estimates Context

  • Q1 FY2025: Actual revenue $3.463B vs consensus $3.416B*; Actual diluted EPS $0.51 vs consensus $0.456* (beat on both).
  • FY2025: Consensus revenue $15.005B* (actual $15.086B) and normalized EPS $2.035* (actual $2.20). FY2026: Consensus revenue $15.314B* and normalized EPS $2.084* (directionally modest growth).
  • Target price consensus (FY2025): $26.03*; recommendation text not available via S&P Global pull.

Values from S&P Global for estimates marked with *.

Key Takeaways for Investors

  • The quarter’s clean beat on both revenue and EPS alongside margin expansion underscores durability of the reinvigoration playbook and disciplined SG&A, supporting estimate upward revisions for near-term EPS despite tariff headwinds .
  • Old Navy and Gap are the engine rooms; Active and Denim leadership, plus full-price sell-through on elevated programs, support merchandise margin resilience and pricing power .
  • Tariffs are the principal risk; however, sourcing diversification (China <3%) and mitigation levers reduce net impact to $100–150M, largely H2-weighted—watch for clarity post mid-year milestones .
  • Q2 guide is conservative (flat sales; similar GM) due to lapping a credit card revenue benefit—sets up cleaner second-half comparison with mitigation benefits flowing through .
  • Digital remains a structural strength (39% of sales), and AI/RFID execution should incrementally enhance inventory turns and store service, sustaining ROD leverage with modest topline growth .
  • Athleta is the swing factor; expect choppiness as product and marketing reset—monitor AUR normalization and core product depth improvements through 2H .
  • Near-term trading: favor momentum names (Old Navy/Gap-led comps), margin preservation, and tariff mitigation updates; medium-term thesis hinges on continued category leadership, tech-enabled efficiency, and sustained SG&A discipline driving high-single-digit operating income growth (underlying) .