Gap Inc. on Thursday reported comparable sales below Wall Street expectations as customers cut back on discretionary spending, while the company warned that US tariffs would weigh on margins in the current quarter.
Rising prices and uncertainty from the Trump administration’s trade policy have slowed consumer spending, posing fresh challenges to CEO Richard Dickson’s turnaround strategy to revitalise the company’s brands.
For the quarter ended 2nd August, Gap’s comparable sales rose 1%, missing the 2.26% growth expected by analysts. Net sales increased slightly to US $ 3.73 billion, broadly in line with estimates compiled by LSEG.
Sales at the company’s budget-friendly Old Navy and namesake Gap brands each rose 1%, but its higher-priced Banana Republic and Athleta labels posted declines, with Athleta falling 11% as weakness in athleisure continued.
Analyst Sky Canaves of EMarketer noted that Dickson had delivered on his pledge to reinvigorate the Gap brand but added that it remained uncertain whether he could achieve the same for Athleta, where sales continue to slip.
The company now expects annual operating margin between 6.7% and 7%, down from 7.4% in 2024. This outlook factors in a tariff impact of 100 to 110 basis points, equivalent to US $ 150 million to US $ 175 million.
Canaves added that margins could erode further as the year progresses, citing tariff impacts and a heavily promotional holiday season.
In May, Gap projected tariff-related costs of US $ 250 million to US $ 300 million and said it aimed to mitigate more than half while reducing reliance on imports from countries facing high US tariffs.
