TLDR
- GAP shares plummeted up to 13% following fourth-quarter results that underwhelmed on critical benchmarks
- Earnings per share landed at $0.45, falling short of the $0.46 Wall Street forecast
- Old Navy comparable sales increased only 3%, below the anticipated 4.3%; Athleta revenues declined 11%
- Gross profit margin contracted to 38.1%, impacted in part by a 200 basis point tariff headwind
- Fiscal 2026 projections calling for 2–3% revenue expansion aligned with but didn’t surpass analyst expectations
Gap Inc. unveiled its fourth-quarter and complete fiscal 2025 financial results on March 5, 2026. The performance was uneven, triggering a negative market response.
Earnings per share registered at $0.45, falling one penny short of the $0.46 Wall Street consensus. Revenue reached $4.24 billion, meeting projections — though meeting targets doesn’t carry the same weight as exceeding them.
Quarterly net income declined to $171 million from $206 million during the corresponding period last year. This represents a meaningful contraction that warrants investor attention.
The gross profit margin settled at 38.1%, representing an 80 basis point year-over-year decline. Tariffs were a significant contributor to this compression, shaving approximately 200 basis points off merchandise margins.
January’s unprecedented winter weather events added another challenge. At the peak of the storms, approximately 800 Gap locations were forced to temporarily shut down. CFO Katrina O’Connell noted that sales recovered swiftly after conditions improved — but the quarterly impact had already materialized.
Old Navy, the company’s largest revenue generator, delivered comparable sales growth of merely 3%. Wall Street had anticipated 4.3%. When your dominant brand underperforms expectations, investors notice.
Athleta’s struggles persisted through another quarter. Comparable sales declined 10% in Q4, with full-year comps falling 9%. The brand’s net sales dropped 11% during the quarter to $354 million. Leadership emphasized their commitment to “rebuilding the brand for the long term.”
Gap Brand and Banana Republic Step Up
The results weren’t universally negative. The Gap brand demonstrated strength during the quarter, with comparable sales climbing 7% — outpacing the 4.6% analyst consensus.
Banana Republic also contributed positively, reporting 4% comp growth and achieving its third straight quarter of positive comparable sales performance.
For the complete fiscal year, Gap Inc. recorded net sales of $15.4 billion, representing 2% growth, while achieving its eighth consecutive quarter of positive comparable sales. Operating income totaled $1.1 billion, translating to a 7.3% operating margin.
The retailer closed the year holding $3 billion in cash reserves and generated $1.3 billion in operating cash flow. Leadership also unveiled a new $1 billion stock repurchase program.
Guidance Lands Flat
For fiscal 2026, Gap provided guidance calling for revenue growth between 2% and 3%, with adjusted EPS projected at $2.20 to $2.35 — both figures essentially matching analyst forecasts.
This wasn’t the catalyst investors were seeking. Following two years of consistent improvement under CEO Richard Dickson’s leadership, the market anticipated more compelling forward guidance. Meeting expectations fell short of that bar.
An additional complication: the fiscal 2026 outlook incorporated tariff rates that were effective prior to February 20, 2026. Management indicated it’s premature to incorporate more recent tariff adjustments — a prudent stance, but one that renders the guidance appear conservative.
Capital spending for fiscal 2026 is projected to increase to $650 million, up from $470 million in 2025. The board simultaneously approved a Q1 2026 dividend of $0.175 per share, representing approximately a 6% increase from Q4 2025.
First quarter gross margin is anticipated to contract 150 to 200 basis points compared to the prior year, incorporating an estimated 200 basis point tariff impact.
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