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    GAP
    Earnings call· Jan 2026(Q4 FY26)

    GAP Q4 FY26 earnings call GAP

    Mar 5, 2026 Source

    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

    5

    • 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

    4

    • 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

    16
    CategoryTargetConfidence
    Full Year Net Sales Growth
    approximately 2% to 3% year-over-year
    high materiality
    High
    Full Year Gross Margin
    flat to up slightly year-over-year
    high materiality
    High
    Full Year Net Tariff Impact on Operating Income
    net neutral
    medium materiality
    High
    Full Year Adjusted SG&A as % of Sales
    roughly flat year-over-year
    medium materiality
    High
    Full Year Adjusted Operating Margin
    about 7.3% to 7.5%
    high materiality
    High
    Full Year Interest Income
    approximately $10 million to $15 million
    low materiality
    High
    Full Year Tax Rate
    approximately 27%
    low materiality
    High
    Full Year Reported EPS
    $2.71 to $2.86
    high materiality
    High
    Full Year Adjusted EPS
    $2.20 to $2.35
    high materiality
    High
    Full Year Capital Expenditures
    approximately $650 million
    medium materiality
    High
    Q1 Net Sales Growth
    up 1% to 2% year-over-year
    high materiality
    High
    Q1 Gross Margin
    down about 150 to 200 basis points
    high materiality
    High
    Q1 Adjusted SG&A as % of Net Sales
    about 35%
    medium materiality
    High
    Athleta Sales Declines
    negative mid-to-high single-digit sales declines
    medium materiality
    Medium
    Q1 Dividend Increase
    increased by approximately 6% to $0.175 per share
    medium materiality
    High
    Share Repurchase Authorization
    new $1 billion share repurchase authorization
    high materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    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 billion3%——
    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 billion8%——
    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 million1%——
    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%——

    Operational metrics

    36
    Full Year Net Sales
    $15.4 billionincreased 2% year-over-year
    FY25

    At the high end of the guidance range provided.

    Full Year Comparable Sales
    3%
    FY25

    Fueled by positive comp sales across the three largest brands.

    Full Year Gross Margin
    40.8%declined 50 basis points versus last year
    FY25

    One of the highest gross margins in the last 25 years.

    Full Year Merchandise Margin
    down 80 basis points
    FY25

    Due to the impact of tariffs.

    Full Year ROD Leverage
    30 basis points
    FY25

    Leveraged 30 basis points for the full year.

    Full Year SG&A
    $5.2 billion
    FY25

    Achieved targeted cost efficiencies.

    Full Year Operating Income
    $1.1 billion
    FY25

    A clear reflection of the strength of the platform.

    Full Year Operating Margin
    7.3%10 basis point decline versus last year
    FY25

    10 basis point decline due to estimated 120 basis point impact of tariffs, implying 110 basis points of underlying margin expansion.

    Full Year EPS
    $2.13down 3% versus last year's EPS of $2.20
    FY25

    Reported earnings per share for the full year.

    Cash, Cash Equivalents and Short-term Investments
    $3 billionincrease of over $400 million compared to last year
    End of FY25

    Highest cash balance in nearly 2 decades.

    Full Year Net Operating Cash
    $1.3 billion
    FY25

    Generated from disciplined execution and cost optimization.

    Full Year Capital Expenditures
    $470 million
    FY25

    Invested in high-returning projects.

    Q4 Net Sales
    $4.2 billionincreased 2% year-over-year
    Q4 FY25

    Results were in line with plans despite disruption from extreme weather.

    Q4 Comparable Sales
    3%
    Q4 FY25

    Marking the eighth consecutive quarter of positive comps.

    Q4 Gross Margin
    38.1%declined 80 basis points
    Q4 FY25

    Primarily due to the approximately 200 basis point headwind from tariffs.

    Q4 Merchandise Margin
    down 90 basis points
    Q4 FY25

    Due to the net impact of tariffs.

    Q4 ROD Leverage
    10 basis points
    Q4 FY25

    Leveraged in the quarter.

    Q4 SG&A
    $1.4 billion
    Q4 FY25

    Primarily due to quarterly timing of incentive compensation and strategic investments.

    Q4 Operating Margin
    5.4%down 80 basis points compared to last year
    Q4 FY25

    Primarily due to the approximately 200 basis point headwind from tariffs.

    Q4 EPS
    $0.45versus last year's earnings per share of $0.54
    Q4 FY25

    Reported earnings per share for the quarter.

    Q4 Inventory Levels
    up 7%year-over-year
    Q4 FY25

    Primarily attributable to increases in tariff-related costs, with units down year-over-year.

    Tariff Impact on FY25 Gross and Operating Margins
    approximately 120 basis points
    FY25

    Tariffs significantly influenced fiscal year's gross and operating margins.

    Tariff Impact on Q4 Gross and Operating Margins
    approximately 200 basis points
    Q4 FY25

    Tariffs affected fourth quarter gross and operating margins.

    Incremental Savings Target
    around $150 million
    FY26

    Aimed at enhancing efficiency and effectiveness to manage inflation and reinvest in growth initiatives.

    Loyalty Program Active Members
    nearly 40 million
    Current

    One of the largest programs in U.S. apparel retail.

    Beauty Category Potential
    5% to 20%
    Longer term

    Believed to be a good indicator of the category's potential in Gap Inc.'s business over the longer term.

    Accessories Total Addressable Market
    $15 billion
    Current

    According to Euromonitor.

    Gap Inc. Market Share in Accessories
    1%
    Current

    Represents a significant opportunity for expansion.

    Old Navy Creator Volume
    over 15,000 creatorsalmost 3x the number of creators last year
    Q4 FY25

    Significant increase in creator volume on social media platforms.

    Net Store Closures
    approximately 35
    FY25

    Across the portfolio, with the majority at Banana Republic.

    Q1 Credit Card Agreement Headwind
    approximately 150 basis point spread
    Q1 FY26

    Where comp outpaces net sales, related to lapping last year's benefit, continuing into Q2 but not impacting H2.

    Q1 Underlying Gross Margin
    flat to up 50 basis points
    Q1 FY26

    Implied after accounting for the estimated 200 basis points of net tariff impact.

    H1 Tariff Impact on Gross Margin
    approximately 150 basis point headwind
    H1 FY26

    Sourcing strategies build sequentially through the year.

    H2 Tariff Impact on Gross Margin
    approximately 150 basis point tailwind
    H2 FY26

    Sourcing strategies build sequentially through the year, turning the H1 headwind into a tailwind.

    Charitable Donation
    $50 million
    Q1 FY26

    Pledged to a combination of the Gap Foundation and a donor-advised fund, excluded from adjusted EPS guidance.

    Legal Settlement Benefit
    $0.51
    Q1 FY26

    Estimated benefit related to a legal settlement, included in reported EPS guidance.

    Industry KPIs

    6
    MetricValueDetails
    Sg a OPEX ratio33.5%% of net sales
    Comparable sales3%%
    Store count growthapproximately 35net closures
    Gross margin drivers38.1%%
    Share buyback capital return$155 millionUSD
    Inventory position markdown riskup 7%%

    Product announcements

    4
    ProductTypeDetails
    Old Navy Beauty assortmentupdate
    Gap fragrancelaunch
    Expanded accessory linelaunch
    Encore loyalty programlaunch

    Deals & partnerships

    1
    DisneyApparel 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

    6
    Athleta UnderperformanceQ4 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 ImpactsFY25, 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 DisruptionEnd 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 HeadwindQ1 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 InvestmentsH1 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 DeleverageFY26

    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

    5

    Athleta Sales Performance

    H2 FY26
    CurrentDown 10% in Q4 FY25; negative mid-to-high single-digit sales declines expected in H1 FY26.
    TargetImprovement 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.

    Q&A highlights

    6

    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 read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    Tariff Management & Cost Optimization

    Despite significant tariff impact🌐s (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.

    05

    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.

    06

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.