Given the Q1 gross margin guide, why are there not more offsets to the 200 basis point tariff headwind, especially after successful mitigation in H2 2025?

Katrina O'Connell clarified that the 200 basis point tariff impact in Q1 is similar to Q4 FY25. Sourcing strategies build sequentially, resulting in a 150 basis point headwind in H1 FY26 and a 150 basis point tailwind in H2 FY26, making the full year net neutral. She also noted that Q1 promotion assumptions are relatively flat year-over-year (unlike Q4's improvement) and ROD will see slight deleverage. “our sourcing strategies are going to build sequentially throughout the year. So the 200 basis point impact in Q1 becomes about 100 in Q2 and actually flips to a tailwind, all net neutral on the full year.”

What is the next leg for the Gap brand to accelerate market share, and can you elaborate on the underlying sequential acceleration embedded in the Q1 revenue growth forecast?

Richard Dickson highlighted Gap's 9 consecutive quarters of positive comps, 7% comp on top of 7% last year, and market share gains, particularly in denim (ranking #6 from #10). He emphasized multigenerational appeal, strength in key categories, and reduced discounting. Katrina O'Connell confirmed the Q1 implied comp guide of 2.5% to 3.5% (midpoint 3% in line with Q4 trends), noting Old Navy's consistency and Athleta's expected H1 declines. “Gap has consistently gained market share. Now it's through compelling product assortments, better marketing and in-store execution.”

Can you provide color on store sales by brand, whether cultural campaigns are targeting increased store traffic, and learnings from the Old Navy Beauty pilot?

Richard Dickson stated that 'Fashiontainment' campaigns drive interest and traffic to omnichannel experiences, with stores being crucial for product and storytelling. Successful new store formats (e.g., Gap Flatiron) are giving confidence to accelerate rollouts. For beauty, the Old Navy pilot in 150 stores validated strong consumer interest, enhanced engagement, and was basket-building, with Gap fragrance relaunching this summer. “The pilot validated strong consumer interest, confirmed that beauty really enhances the engagement, it's basket building and it's exciting our customers.”

GAP

GAP (GAP) Q4 FY26 earnings call: guidance and Q&A

Q: How is Gap Inc. balancing investments in core business momentum with seeding new growth accelerators, and what is the expected revenue impact of these accelerators in 2026?

Richard Dickson explained the company's three-phase transformation, currently in 'building momentum,' focusing on continuous improvement of the core apparel business (low to mid-single-digit growth) while seeding accelerators in beauty, accessories, and technology. Katrina O'Connell added that $150 million in incremental savings will fund these investments, with significant impact expected in 2027 and beyond, leading to flat SG&A as a rate of sales for FY26. “When you combine the context of continuous improvement of our core business, delivering low to mid-single-digit growth with the accelerators, which begin to scale in 2027 and beyond, it really creates an exciting growth proposition.”

Earnings call· Jan 2026 (Q4 FY26)· Consumer Discretionary· Mar 5, 2026

Source: earnings call transcript

Executive summary

The Gap, Inc. Q4 FY26 — Strong Performance Across Core Brands and Strategic Growth Accelerators

The Gap, Inc. delivered another strong quarter, extending its streak of positive comparable sales and achieving its second consecutive year of top-line growth, driven by its three largest brands. The company is now transitioning into a "building momentum" phase, focusing on continuous improvement in its core apparel business while seeding growth accelerators in beauty, accessories, and technology. This strategic shift aims to build scale and relevance, supported by a strong balance sheet and increased shareholder returns.

Highlights

Achieved 3% comparable sales in Q4 FY25, marking the eighth consecutive quarter of positive comps.
Full year FY25 net sales grew 2% at the high end of outlook, fueled by 3% comparable sales.
Delivered one of the highest gross margins in 25 years at 40.8% for the full year FY25.
Generated $1.1 billion in full year FY25 operating income and ended 2025 with $3 billion in cash, highest in nearly 2 decades.
Board approved a new $1 billion share repurchase authorization and increased Q1 FY26 dividend by 6% to $0.175 per share.

Concerns

Athleta net sales decreased 11% and comparable sales were down 10% in Q4 FY25.
Q4 FY25 gross margin declined 80 basis points year-over-year, primarily due to a 200 basis point tariff headwind.
Q1 FY26 gross margin expected to be down 150-200 basis points, including an estimated 200 basis point net tariff impact.
Q1 FY26 adjusted SG&A as a percentage of net sales expected to be about 35%, reflecting timing of growth investments.

Guidance & targets

Category	Target	Timeline	Confidence
Full Year Net Sales Growth	approximately 2% to 3% year-over-year high materiality	FY26	High
Full Year Gross Margin	flat to up slightly year-over-year high materiality	FY26	High
Full Year Net Tariff Impact on Operating Income	net neutral medium materiality	FY26	High
Full Year Adjusted SG&A as % of Sales	roughly flat year-over-year medium materiality	FY26	High
Full Year Adjusted Operating Margin	about 7.3% to 7.5% high materiality	FY26	High
Full Year Interest Income	approximately $10 million to $15 million low materiality	FY26	High
Full Year Tax Rate	approximately 27% low materiality	FY26	High
Full Year Reported EPS	$2.71 to $2.86 high materiality	FY26	High
Full Year Adjusted EPS	$2.20 to $2.35 high materiality	FY26	High
Full Year Capital Expenditures	approximately $650 million medium materiality	FY26	High
Q1 Net Sales Growth	up 1% to 2% year-over-year high materiality	Q1 · FY26	High
Q1 Gross Margin	down about 150 to 200 basis points high materiality	Q1 · FY26	High
Q1 Adjusted SG&A as % of Net Sales	about 35% medium materiality	Q1 · FY26	High
Athleta Sales Declines	negative mid-to-high single-digit sales declines medium materiality	H1 · FY26	Medium
Q1 Dividend Increase	increased by approximately 6% to $0.175 per share medium materiality	Q1 · FY26	High
Share Repurchase Authorization	new $1 billion share repurchase authorization high materiality	Open-ended	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Old Navy The brand's price value equation is resonating with consumers, winning with strategic categories and across a wide range of income levels. Comparable sales: up 3%Fifth consecutive quarter of positive compsRanks as a top 3 brand in 9 of the 10 largest apparel categoriesGained share in all 5 of the largest categories on a rolling 12 basisActive and denim continue to grow shareDisney's #1 apparel brand direct-to-consumer partner in the United States	$2.3 billion	3%	—	—
Gap brand Demonstrating momentum as it continues to expand its customer base across generations, firmly back in growth mode. Comparable sales: up 7%Ninth consecutive quarter of positive compsOn top of last year's 7% comp growthStrength in key categories like fleece, including logo, denim and sleepwearMeaningfully pulled back discountingGained share in denim in 2025, increased ranking to #6 from #10 two years ago	$1.1 billion	8%	—	—
Banana Republic Reflecting progress in product elevation and sharper marketing and merchandising, returning to its roots as a storytelling brand. Comparable sales: up 4%Third consecutive quarter of comp growthSharper merchandising and executionGreater synergy between men's and women'sLeather, suede, cashmere and texture reinforcing brand's distinctive point of view	$549 million	1%	—	—
Athleta The company remains focused on rebuilding the brand for the long term, with progress expected to take time. Comparable sales: down 10%Remains a work in progressRe-architecting the assortmentReorganizing the brand around consumer insights#5 women's active brand	$354 million	-11%	—	—

GAP operating KPIs by quarter

GAP operating KPIs stated on its earnings calls, by fiscal quarter
KPI	This call Jan 2026 Q4 FY26	Apr 2026 Q1 FY27	Change vs prior quarter
Loyalty program members	<40M has one of the largest programs in US apparel retail with nearly 40 million active members. Source: earnings call transcript	~40M In the first quarter, we also relaunched our loyalty program, Encore, transitioning our house file of around 40 million customers from a traditional transaction-based program to a broader customer engagement platform. Source: earnings call transcript	—

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Product announcements

Product	Type	Timeline
Old Navy Beauty assortment	update	Q4 FY25
Gap fragrance	launch	Summer 2026
Expanded accessory line	launch	Holiday 2026
Encore loyalty program	launch	Last week (late Feb/early Mar 2026)

Deals & partnerships

Disney Apparel brand direct-to-consumer partnership

Old Navy has been positioned as Disney's #1 apparel brand direct-to-consumer partner in the United States, driving strong performance in kids and baby categories.

Risks & headwinds

Athleta Underperformance Q4 FY25, H1 FY26

Net sales decreased 11% and comparable sales were down 10% in Q4 FY25. Negative mid-to-high single-digit sales declines expected for H1 FY26.

Mitigation:Rebuilding the brand for the long term, re-architecting assortment, building key items into enduring franchises, reorganizing around consumer insights, appointing Maggie Gauger to lead reinvigoration.

Tariff Impacts FY25, Q4 FY25, H1 FY26

Influenced FY25 gross and operating margins by approximately 120 basis points. Affected Q4 FY25 gross and operating margins by approximately 200 basis points. Expected 150 basis point headwind to H1 FY26 gross margin.

Mitigation:Extensive tariff mitigation strategies, adjusted sourcing strategies, expected to be net neutral to FY26 full year operating income.

Extreme Weather Disruption End of January (Q4 FY25)

Disruption from expansive store closures due to extreme weather.

Mitigation:Results were in line with plans despite the disruption, implying effective management.

Credit Card Agreement Headwind Q1 FY26, Q2 FY26

Approximately 150 basis point spread where comp outpaces net sales.

Mitigation:Related to lapping last year's benefit from the credit card agreement; does not impact the back half of the year.

SG&A Deleverage from Growth Investments H1 FY26

Initially causing some SG&A deleverage.

Mitigation:Expected to leverage in the second half as the company laps higher spend from the back half of last year, funded by $150 million in incremental savings.

ROD Deleverage FY26

Expected to deleverage slightly as a percentage to sales.

Mitigation:As the company concludes its multiyear program of rationalizing store footprint and begins to reaccelerate capital expenditures.

What to watch in Q1 FY27

Athleta Sales Performance

H2 FY26

Current Down 10% in Q4 FY25; negative mid-to-high single-digit sales declines expected in H1 FY26.

Target Improvement towards positive growth.

Why it matters

Athleta is a work in progress; its turnaround is key for portfolio growth and the company's long-term strategy.

Athleta net sales of $354 million decreased 11% versus last year and comparable sales were down 10%. We remain focused on rebuilding the brand for the long term.

Find out whether GAP delivers this. Inve re-checks your case every morning.

Q&A highlights

How is Gap Inc. balancing investments in core business momentum with seeding new growth accelerators, and what is the expected revenue impact of these accelerators in 2026?

Richard Dickson explained the company's three-phase transformation, currently in 'building momentum,' focusing on continuous improvement of the core apparel business (low to mid-single-digit growth) while seeding accelerators in beauty, accessories, and technology. Katrina O'Connell added that $150 million in incremental savings will fund these investments, with significant impact expected in 2027 and beyond, leading to flat SG&A as a rate of sales for FY26.

“When you combine the context of continuous improvement of our core business, delivering low to mid-single-digit growth with the accelerators, which begin to scale in 2027 and beyond, it really creates an exciting growth proposition.”

asked by Mark Altschwager · answered by Richard Dickson

2 min read 6 chapters

Detailed narrative

Brand Reinvigoration & Performance

Gap Inc. achieved its second consecutive year of top-line growth with 3% comparable sales, driven by Old Navy (3% comp), Gap (7% comp), and Banana Republic (4% comp). This consistent performance across its three largest brands, including Gap's ninth consecutive quarter of positive comps, demonstrates the effectiveness of the brand reinvigoration playbook and the company's ability to perform while transforming.

Old Navy gained market share in all 5 largest categories, while Gap increased its denim ranking to #6 from #10 two years ago.

Strategic Growth Accelerators

The company is moving into a "building momentum" phase, focusing on continuous improvement in its core apparel business and seeding growth accelerators. These include expanding into beauty and accessories, leveraging the Fashiontainment platform with the appointment of a Chief Entertainment Officer, and advancing technology capabilities, particularly with AI, to drive scale, relevance, and revenue.

Beauty and accessories are currently underdeveloped categories with significant market potential, with beauty representing 5-20% of sales for other fashion apparel retailers and accessories having a $15 billion TAM.

Financial Strength & Capital Allocation

Gap Inc. ended FY25 with $3 billion in cash, its highest in nearly two decades, and generated $823 million in free cash flow. This strong financial position supports a balanced capital allocation framework, including increased capital investments of $650 million for FY26, a 6% increase in the Q1 dividend to $0.175 per share, and a new $1 billion share repurchase authorization aimed at slight accretion.

The company also made a $50 million charitable donation from a legal settlement.

Tariff Management & Cost Optimization

Despite significant tariff impacts (120 bps on FY25 gross/operating margins, 200 bps on Q4 FY25 gross/operating margins), the company's mitigation strategies effectively managed these pressures. For FY26, tariffs are expected to be net neutral on the full year operating income, with a 150 bps headwind in H1 turning into a 150 bps tailwind in H2, supported by $150 million in incremental cost savings.

This approach aims to combat inflation and reinvest in strategic growth initiatives.

Athleta Rebuilding Efforts

Athleta remains a work in progress, with Q4 FY25 net sales down 11% and comps down 10%. The company has appointed Maggie Gauger to lead its reinvigoration, focusing on re-architecting the assortment, building enduring franchises, and reorganizing around consumer insights.

Progress is expected to take time, with negative mid-to-high single-digit sales declines anticipated for Athleta in the first half of FY26, as the team works on the second half turnaround.

Loyalty Program & AI Strategy

Gap Inc. launched "Encore," a reimagined loyalty program for its nearly 40 million active members, shifting from points to experiences that integrate fashion and entertainment. The AI strategy focuses on enabling enterprise-wide adoption, optimizing high-impact processes for efficiency, and reinventing customer, product, and enterprise journeys to reduce friction and unlock productivity.

This includes equipping teams with AI tools and focusing on areas where AI can meaningfully reduce customer friction.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.