Gap (GAP) Q2 2025 earnings

Gap Stock Falls After Tariff Warning and Mixed Q2 Results

Gap’s stock price took a hit in extended trading on Thursday following the company’s warning that tariffs will have a significant impact on its profits moving forward. The specialty apparel company, which owns popular brands like Old Navy, Athleta, Banana Republic, and its namesake banner, reported mixed results for its fiscal second quarter. While earnings per share came in at 57 cents, beating expectations of 55 cents, revenue fell short at $3.73 billion compared to the anticipated $3.74 billion.

The company’s net income for the quarter was $216 million, or 57 cents per share, up from $206 million, or 54 cents per share, a year earlier. Sales rose slightly to $3.73 billion from $3.72 billion in the same period last year. However, comparable sales rose only 1%, which is weaker than the expected 1.9% increase. The disappointing performance was largely due to Athleta’s 9% decline in comparable sales, which dragged down the company’s overall results.

Impact of Tariffs and Efforts to Offset

Gap initially expected tariffs to cost between $100 million and $150 million on a net basis, but it now anticipates these costs to be between $150 million and $175 million. The company’s full-year operating margin is expected to be between 6.7% and 7%, down from 7.4% in the previous fiscal year, reflecting a tariff impact of 1 percentage point to 1.10 percentage points. To offset the impact of tariffs, Gap is working with its suppliers, adjusting its sourcing, diversifying its supply chain, and taking targeted price increases where necessary.

CEO Richard Dickson stated that the company is making targeted adjustments to pricing but noted that these adjustments are not substantially different from what Gap has done in the past. The focus remains on presenting the right value proposition to consumers and sustaining momentum and market share gains. Notably, Gap does not expect the annualization of tariffs to cause any further declines in operating income in 2026.

Brand Performance and Future Outlook

A closer look at each brand’s performance shows mixed results. Old Navy, Gap’s largest brand, saw sales of $2.2 billion, up 1% compared to last year, with comparable sales up 2%. The namesake Gap brand saw net sales of $772 million, up 1%, with comparable sales up 4%, marking the seventh consecutive quarter of comparable sales growth. Banana Republic saw net sales of $475 million, down 1%, but comparable sales were up 4%, far ahead of expectations.

Athleta, however, saw sales of $300 million, down 11% compared to last year, with comparable sales down 9%. The brand’s new CEO, Maggie Gauger, is tasked with reversing this slump and reconnecting with Athleta’s core consumer. Despite the challenges, Gap reaffirmed its fiscal 2025 net sales growth outlook, expecting revenue to grow between 1% and 2%. For the current quarter, the company expects sales to grow between 1.5% and 2.5%, better than the estimated 2% growth.

Gap has made significant strides in its turnaround plan under Dickson’s leadership, with six straight quarters of comparable sales growth and a $2.2 billion cash pile. The company’s brands are back at the center of culture and conversation, with recent marketing campaigns, such as the “Better in Denim” campaign, achieving significant success. As the retail landscape continues to evolve, Gap’s ability to adapt and innovate will be crucial in maintaining its competitive edge.