The Gap 2026 Q2 Earnings Strong Performance as Net Income Rises 4.9%

The Gap (GAP) reported fiscal 2026 Q2 earnings on August 29, 2025. The company beat profit expectations and delivered a modest revenue increase, despite macroeconomic headwinds. Guidance for the year was in-line, with the firm reiterating its net sales growth targets and acknowledging gross margin pressure from tariffs.

Revenue
The Gap’s total revenue rose slightly by 0.1% year-over-year to $3.73 billion in 2026 Q2. Old Navy Global remained the largest contributor, generating $2.15 billion in revenue, followed by Gap Global with $772 million. Banana Republic Global and Athleta Global added $475 million and $300 million, respectively. Smaller segments, including Other and Other (2), accounted for $28 million each, rounding out the total revenue to $3.73 billion.

Earnings/Net Income
Earnings per share (EPS) for The Gap increased by 5.5% to $0.58 in 2026 Q2, compared to $0.55 in the prior year, driven by stronger net income of $216 million, up 4.9% from $206 million. The company’s profitability continued to improve, despite ongoing economic challenges.

Price Action
Following the earnings report, The Gap’s stock price edged down 0.45% in the latest trading session but gained 2.75% over the past week and surged 11.90% month-to-date.

Post Earnings Price Action Review
The post-earnings trading strategy of buying The Gap stock when it outperformed expectations and holding for 30 days yielded impressive returns of 132.63%, significantly outperforming the benchmark’s 76.15%. The approach demonstrated strong risk-adjusted performance with a Sharpe ratio of 0.92 and zero maximum drawdown, indicating effective risk management.

CEO Commentary
Richard Dickson, CEO, highlighted the company’s outperformance on profit and revenue expectations, crediting operational and financial discipline for a 360-basis-point gross margin expansion to 41.2%. He noted six consecutive quarters of positive comp sales and emphasized the revitalization of core brands like Old Navy and Gap, while acknowledging the ongoing challenges at Athleta. Dickson expressed optimism about long-term growth, driven by strategic investments in supply chain, technology, and culture.

Guidance
CFO Katrina O’Connell reiterated fiscal 2025 guidance, projecting net sales growth of 1% to 2% and an operating margin of 6.7% to 7%, down from the prior year. The company expects third-quarter net sales to grow by 1.5% to 2.5%, with gross margin anticipated to deleverage by 150 to 170 basis points due to tariff pressures. Capital expenditures for the year are expected to range between $500 million and $550 million.

Additional News
On the night of the earnings release, The Gap’s stock fell approximately 1.3%, closing at $21.40. The stock’s decline came amid slightly lower-than-expected revenue of $3.73 billion, compared to a $3.74 billion forecast. However, net income of $216 million, or $0.58 per share, exceeded expectations, with a 4.9% year-over-year increase. Management highlighted ongoing margin pressures from tariffs, forecasting a full-year operating margin of 6.7% to 7%, down from 7.4% in the previous year. Despite near-term headwinds, the company remains confident in long-term margin expansion and strategic growth initiatives.