Gap Expects $150-175M Tariff Headwind for 2025, Reiterates 1-2% Net Sales Growth Outlook

Gap Inc. reported Q2 2025 results, exceeding profit expectations and achieving top-line goals for the sixth consecutive quarter. The company outlined a tariff headwind of $150M-$175M for 2025, but reaffirmed its 1%-2% net sales growth outlook. CEO Richard Dickson expressed satisfaction with the results, citing strong customer response to its new product offerings and marketing campaigns.

Gap Inc. (NYSE: GAP) reported its Q2 2025 results, demonstrating resilience and positive customer response to its new product offerings and marketing campaigns. The company exceeded profit expectations and achieved its top-line goals for the sixth consecutive quarter. Despite a $150M-$175M tariff headwind for the year, Gap Inc. reaffirmed its 1%-2% net sales growth outlook [1].

The company reported flat net sales of $3.7 billion for the quarter, with positive comparable sales growth of 1% year-over-year. This marks the sixth consecutive quarter of positive comparable sales growth. The company achieved diluted earnings per share (EPS) of $0.57, up 6% year-over-year [1]. CEO Richard Dickson expressed satisfaction with the results, highlighting the strength of Old Navy, Gap, and Banana Republic brands, which delivered 2%, 4%, and 4% comparable sales growth, respectively. Athleta, however, experienced a 9% comparable sales decline [1].

Digital performance was solid, with online sales increasing by 3% to represent 34% of total sales. However, gross margin contracted by 140 basis points to 41.2%, primarily due to lapping benefits from a credit card revenue-sharing agreement in the previous year [1]. The company's financial position remains strong, with $2.4 billion in cash and short-term investments, up 13% year-over-year, and inventory levels increased by 9% to $2.3 billion [1].

Gap Inc. continues to invest in its brands, with the appointment of Maggie Gauger as the new President and CEO of Athleta, who previously held key leadership roles at Nike. The company is focused on brand reinvigoration efforts, strategic pursuit of core categories such as denim and active, and collaborations as key drivers of momentum, particularly at Old Navy and Gap [3].

The company's outlook for the full year remains positive, with net sales expected to grow by 1% to 2%, and an operating margin of 6.7% to 7%, including an estimated net tariff impact of approximately 100 to 110 basis points [1, 3]. Management has reiterated its commitment to shareholder returns, with $62 million in dividends and $82 million in share repurchases [1].

References:
[1] https://www.stocktitan.net/news/GAP/gap-inc-reports-second-quarter-fiscal-2025-lhrbg8exsek0.html
[2] https://finance.yahoo.com/news/gap-nyse-gap-reports-q2-203432131.html
[3] https://seekingalpha.com/news/4490250-gap-outlines-150m-175m-tariff-headwind-for-2025-while-reaffirming-1-percent-2-percent-net