Executive Summary

Q3 FY2025 results and call materials were scheduled for Nov 20, 2025 but were not yet available in SEC or company repositories at time of analysis; recap below anchors on prior-quarter performance and Q3 guidance communicated on Aug 28, 2025, and will require update once the 8‑K 2.02 and transcript post .
Trajectory into Q3: Q2 FY2025 EPS $0.57, operating margin 7.8%, comps +1%, with gross margin deleverage from lapping credit‑card revenue; management guided Q3 net sales +1.5–2.5% YoY, gross margin deleverage 150–170 bps including ~200 bps net tariff impact .
Strategic progress: brand reinvigoration continued across Old Navy, Gap, Banana Republic; Athleta remains in reset; Google Cloud AI partnership announced Oct 9 to reimagine retail and accelerate AI deployment across design, customer experience, and employee enablement .
Capital returns: Board authorized Q4 FY2025 dividend of $0.165 per share (payable Jan 28, 2026), maintaining cadence into Q3 and Q4 .

What Went Well and What Went Wrong

What Went Well
- “Overdelivered on profit expectations” in Q2 with positive comps for the sixth consecutive quarter; operating margin 7.8% and diluted EPS $0.57, showing operating discipline despite tariff/mix headwinds .
- Gap brand momentum robust: Q2 comps +4% (7th consecutive positive), with CEO highlighting reinvigoration playbook and cultural relevance driving sustained growth .
- Balance sheet strength: cash, cash equivalents, and short‑term investments $2.4B (+13% YoY) at Q2; free cash flow $127M in H1 FY2025, supporting ongoing dividend and buybacks .
What Went Wrong
- Gross margin in Q2 down 140 bps YoY due to lapping incremental credit‑card revenue from FY2024; merchandise margin down 150 bps, partially offset by ROD leverage .
- Athleta underperformed: Q2 net sales −11% YoY, comps −9%; management continues multi‑quarter reset of product and marketing with longer recovery timeline .
- Tariff headwinds: Q2 outlook framed Q3 gross margin deleverage of 150–170 bps including ~200 bps net tariff impact, with elevated inventory costs and accelerated receipts raising inventory YoY into H2 .

Financial Results

Note: Q3 FY2025 results were scheduled for Nov 20, 2025 but not yet posted; tables include trajectory and Q3 placeholder pending filings.

Metric	Q4 FY2024	Q1 FY2025	Q2 FY2025	Q3 FY2025
Revenue ($USD Billions)	$4.149	$3.463	$3.725	Pending (to be updated after 8‑K 2.02 posts)
Diluted EPS ($USD)	$0.54	$0.51	$0.57	Pending
Gross Margin (%)	38.9%	41.8%	41.2%	Guided deleverage 150–170 bps vs 42.7% LY
Operating Margin (%)	6.2%	7.5%	7.8%	Pending
Net Income ($USD Millions)	$206	$193	$216	Pending

Segment Net Sales by Period ($USD Millions)

Segment	Q4 FY2024	Q1 FY2025	Q2 FY2025
Old Navy Global	$2,212	$1,981	$2,150
Gap Global	$980	$724	$772
Banana Republic Global	$545	$428	$475
Athleta Global	$396	$308	$300
Other	$16	$22	$28
Total	$4,149	$3,463	$3,725

Selected KPIs

KPI	Q4 FY2024	Q1 FY2025	Q2 FY2025	Notes
Gap Inc. Comparable Sales (%)	+3%	+2%	+1%	—
Online Sales (% of Net Sales)	41%	39%	34%	Mix shift vs Q4
Old Navy Comparable Sales (%)	+3%	+3%	+2%	—
Gap Comparable Sales (%)	+7%	+5%	+4%	—
Banana Republic Comparable Sales (%)	+4%	Flat	+4%	—
Athleta Comparable Sales (%)	−2%	−8%	−9%	Reset underway

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Sales Growth	FY2025	+1% to +2% (Mar 6)	+1% to +2% (Aug 28)	Maintained
Operating Income/Margin	FY2025	OI +8% to +10% (underlying; tariffs net impact $100–$150M)	Operating margin 6.7%–7.0% including ~100–110 bps net tariff impact	Updated presentation; tariff impact embedded
Gross Margin	Q3 FY2025	n/a	Deleverage 150–170 bps including ~200 bps net tariff impact vs 42.7% LY	New Q3 guide (deleveraging)
Operating Expense (% of Net Sales)	Q3 FY2025	n/a	Slight deleverage due to timing of investments	New Q3 guide
Net Interest Income	FY2025	≈$15M	≈$15M	Maintained
Effective Tax Rate	FY2025	≈26%	≈27%	Raised
Capital Expenditures	FY2025	≈$600M	≈$500–$550M	Lowered
Net Store Closures (Company‑Operated)	FY2025	≈35	≈35	Maintained
Dividend	Q4 FY2025	Board raised to $0.165 per share at Q1 FY2025	Authorized Q4 FY2025 dividend $0.165 (payable Jan 28, 2026)	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 FY2024)	Previous Mentions (Q1 FY2025)	Current Period (Q3 FY2025)	Trend
AI/Technology Initiatives	CTO launched “office of AI”; focus on employee enablement; exploring monetization across consumer experience, product‑to‑market, and productivity	Continued investment in AI and e‑commerce; mitigating tariffs via operations	Google Cloud multi‑year AI partnership announced Oct 9, 2025	Increasing strategic focus
Supply Chain & Tariffs	Navigated disruptions; tariffs top of mind; disciplined inventory	Tariff net impact est. $100–$150M to FY2025 OI; minimal impact to Q2 GM	Q3 GM deleverage guided 150–170 bps incl. ~200 bps net tariff impact	Worsening margin impact in Q3
Product Performance	Old Navy leadership in Active/Denim; Gap momentum; Banana stabilization; Athleta reset	Positive comps across Gap and Old Navy; Athleta comps −8%	Old Navy +2% comps; Gap +4%; Banana +4%; Athleta −9% in Q2 run‑rate	Mixed: strength at Gap/Old Navy; Athleta headwinds
Channels (Omnichannel)	Online 41% of Q4 sales; optimizing footprint (Gap Flatiron, Banana SoHo pilots)	Online up 6% in Q1; 39% of net sales	Online 34% of Q2; store sales −1% YoY	Online mix moderated vs Q4
Capital Allocation	Dividend framework and resumed buybacks ($75M in Q4 FY2024); capex up in FY2025	Capex ≈$600M plan; dividend $0.165	Dividend authorized Nov 12; capex plan updated to $500–$550M	Balanced returns and investment

Management Commentary

CEO (Q2): “With positive comps for the sixth consecutive quarter… it’s clear our strategy is working… advancing our transformation with discipline, clarity, and momentum” .
CEO (Q4 call): “Gap is back in the cultural conversation… comps accelerated to 7%… highest quarterly comp in three years” .
CFO (Q4 call): “Operating margin expanded 330 bps to 7.4%… we see a clear path towards delivering 8–10% operating income growth in fiscal 2025” .
CTO (press): “AI is redefining what’s possible in retail… partnership gives us the expertise and speed to bring AI to life across our business” (Google Cloud announcement) .

Q&A Highlights

Margin drivers and reinvestment: CFO outlined ~$150M cost savings in 2025 across technology, marketing, overhead, stores, with targeted reinvestment into growth and AI‑enabled personalization and supply chain modernization .
Brand momentum and share gains: CEO emphasized share gains across income cohorts and strong positioning of Old Navy in active and denim; Gap’s creative resurgence attracting new generations .
Athleta reset: CEO acknowledged choppy near‑term performance; focus on exciting core customers and improving assortments to regain momentum .
Capital returns: CFO reiterated buyback flexibility ($~$400M authorization remaining) and dividend policy aligned with earnings growth .

Estimates Context

Wall Street S&P Global consensus for Q3 FY2025 EPS and revenue was not retrievable at time of writing due to S&P Global daily request limits; will be incorporated upon availability. Values retrieved from S&P Global.*

Key Takeaways for Investors

Expect Q3 gross margin pressure versus Q2 as tariffs drive ~200 bps net impact, with guided 150–170 bps deleverage vs LY; watch for updated mitigation plans and any acceleration of pricing power or ROD leverage .
Momentum at Gap and Old Navy likely continued into Q3, per Q2 comps and brand commentary; any upside in Q3 sales versus the +1.5–2.5% guide would be a catalyst, especially if GM deleverage is less severe than guided .
Athleta remains the swing factor: confirmation of stabilization or improved comps would support the medium‑term portfolio thesis; absence may weigh on mix and margins .
Balance sheet strength and continuing dividends provide downside support; any incremental buybacks post‑Q3 could signal confidence in trajectory .
AI partnership with Google Cloud suggests medium‑term structural efficiency and personalization gains; look for early use‑case disclosures in Q3/Q4 call narratives .
Inventory and tariff commentary deserve close parsing for FY2025 cadence; higher costs and accelerated receipts were cited in Q2—progress on mitigation is key into holiday .
Post‑print, watch estimate revisions: gross margin/SG&A cadence could reset FY2025 operating margin expectations; pace of comps and merchandise margin trends will drive revisions. Values retrieved from S&P Global.*

Note on source availability: Gap indicated Q3 FY2025 results would be released Nov 20, 2025; as of analysis timestamp, the 8‑K 2.02 and transcript were not yet available in SEC or company repositories and will be added when posted .

GAP INC (GAP)·Q3 2025 Earnings Summary