Key Takeaways
- GAP shares declined as much as 13% following Q4 earnings that underperformed on several important measures
- Earnings per share reached $0.45, falling short of the $0.46 Wall Street forecast
- Old Navy comparable sales increased only 3%, below the anticipated 4.3%; Athleta sales declined 11%
- Gross margin contracted to 38.1%, influenced in part by a 200 basis point tariff impact
- Fiscal 2026 outlook calling for 2–3% revenue growth aligned with analyst projections without exceeding them
Gap Inc. released its fourth quarter and complete fiscal 2025 financial results on March 5, 2026. The performance presented a mixed picture, prompting a negative reaction from Wall Street.
Earnings per share reached $0.45, falling a single cent short of the $0.46 analyst consensus. Revenue totaled $4.24 billion, meeting projections — though matching forecasts failed to generate investor enthusiasm.
Net income declined to $171 million during Q4, compared to $206 million during the corresponding quarter last year. This represents a meaningful contraction that merits attention.
Gross margin settled at 38.1%, representing an 80 basis point year-over-year decline. Tariffs played a significant role in this compression, reducing merchandise margin by approximately 200 basis points.
January’s severe winter weather events created additional headwinds. During the peak of the storms, approximately 800 Gap locations faced temporary closures. CFO Katrina O’Connell indicated that sales recovered swiftly after conditions improved — though the quarterly impact had already materialized.
Old Navy, representing the company’s largest brand, delivered comparable sales growth of only 3%. Wall Street had anticipated 4.3%. Given that this brand generates the majority of Gap’s revenue, this shortfall carries weight.
Athleta extended its challenging performance streak. Comparable sales fell 10% during Q4, with full-year comps declining 9%. Net sales for the brand decreased 11% in the quarter to $354 million. Leadership emphasized its ongoing commitment to “rebuilding the brand for the long term.”
Gap Brand and Banana Republic Deliver Positive Results
Several bright spots emerged from the report. The Gap brand delivered a solid quarter, with comparable sales rising 7% — surpassing the 4.6% consensus forecast.
Banana Republic contributed positively as well, recording comps up 4% and achieving its third straight quarter of positive comparable growth.
For the complete year, Gap Inc. generated net sales of $15.4 billion, representing a 2% increase, while achieving its eighth consecutive quarter of positive comparable sales. Operating income totaled $1.1 billion, yielding an operating margin of 7.3%.
The company closed the year holding $3 billion in cash and produced $1.3 billion in operating cash flow. Leadership also unveiled a new $1 billion share repurchase authorization.
Guidance Meets Expectations Without Exceeding Them
For fiscal 2026, Gap projected revenue growth of 2% to 3% and adjusted EPS ranging from $2.20 to $2.35 — both figures aligning closely with analyst expectations.
This proved insufficient to satisfy investors. Following two years of consistent improvement under CEO Richard Dickson’s leadership, the market anticipated more aggressive targets. Guidance that simply matched forecasts failed to inspire confidence.
An additional consideration: the fiscal 2026 outlook incorporated tariff rates that were current before February 20, 2026. Leadership indicated it remains premature to incorporate more recent tariff modifications — a prudent stance, though one that renders the guidance somewhat conservative.
Capital expenditure for fiscal 2026 is projected to increase to $650 million, rising from $470 million in 2025. The board simultaneously approved a Q1 2026 dividend of $0.175 per share, representing roughly a 6% increase compared to Q4 2025.
First quarter gross margin is anticipated to land 150 to 200 basis points below the prior year, incorporating an estimated 200 basis point tariff impact.
