Gap delivers strong Q1, warns tariffs could cost $100 million to $150 million
Gap Inc. reported better-than-expected earnings and sales and its fifth-consecutive quarter of positive comparable sales fueled by ongoing momentum at Old Navy and Gap.
In remarks on the company’s earnings call, CFO Katrina O’Connell said if the new tariffs rates remain place, they could result in gross incremental cost of approximately $250 million to $300 million. The company currently has strategies to mitigate more than half of that amount.
“After considering these mitigation strategies, the company estimates a remaining net impact of about $100 million to $150 million to fiscal 2025 operating income, primarily weighted to the back half of the year,“ she said. “This is an early view, and trade policy remains dynamic, so we will continue to reassess and refine our approach as future developments arise.”
On the call, CEO Richard Dickson told analysts that that the company has been “successfully” diversifying its sourcing for years, and that China, which formerly was one of Gap’s top sourcing countries, represented less than 10% of product sourcing in 2024.
“Our goal is for no country to account for more than 25% by the end of 2026,” he said.
First Quarter
Net income rose to $193 million, or $0.51 per share, for the quarter ended May 3, compared with $158 million, or $0.41 per share, in the year-ago period. Analysts had expected earnings of $0.44 per share.
Sales rose 2% to $3.46 billion, topping estimates of $3.42 billion. Online sales increased 6% compared to last year and represented 39% of total net sales. Store sales were flat compared to last year. Comparable sales rose 2%.
It was the company’s ninth-consecutive quarter of market share gains.
“The rigor we’ve embedded across the organization continued to serve us well, driving gross margin and operating margin expansion in the quarter,” Dickson said in the earnings release. “These results are yet another proof point that our strategy is working. In this highly dynamic environment, we are optimistic yet realistic and remain focused on controlling the controllables as we build our company for long term growth.”
Here are Gap Inc. sales by brand:
•Old Navy: Sales rose 3% to $2.0 billion, Comparable sales were up 3% marking the 9th consecutive quarter of market share gains for the brand
•Gap: Sales rose 5% to $724 million. Comparable sales were up 5%.
“Gap continued to execute the brand reinvigoration playbook with clarity and consistency, achieving positive comparable sales for the sixth-consecutive quarter and market share gains for the eight-consecutive quarter,” the company said.
•Banana Republic: Sales fell 3% to $438 million. Comparable sales were flat.
•Athleta: Sales fell 6% to $308 million. Comparable sales fell 8%. The company said that “work is being done to reset the brand and improve product and marketing which will take time.”
Gap reaffirmed its fiscal 2025 outlook of net sales up 1% to 2% and is still expecting operating income growth in the 8% to 10% range, excluding any tariff impact. The retailer expects sales to be flat for the current quarter
Gap Inc. ended the quarter with about 3,500 store locations in over 35 countries, of which 2,496 were company operated.
