SAN FRANCISCO, March 6, 2026, 02:31 PST
Gap said Thursday that U.S. tariffs are set to hit profits this quarter and projected 2026 earnings that, at the midpoint, trail what analysts had been expecting. Shares dropped 7% after hours following the company’s fourth-quarter report.
The miss stings, especially as chief executive Richard Dickson had begun to put things back on track. Gap reported a positive comparable sales streak for the eighth quarter running, but fresh tariff pressure—plus another drop at Athleta—highlighted just how patchy the turnaround remains.
Gap isn’t alone here. Both American Eagle and Abercrombie & Fitch have pointed to tariff-related margin strain and signaled adjustments to their plans for the year, highlighting the ongoing vulnerability apparel companies face around shifting trade policy.
Net sales for the fourth quarter edged up 2% to $4.2 billion. Comparable sales, which include both physical locations and digital, gained 3%. Online revenue increased 5%, now accounting for 42% of total sales.
Gross margin slipped by 80 basis points to 38.1%, as tariffs weighed heavily on the metric. Gap reported diluted earnings of 45 cents per share.
Gap is projecting net sales growth of 2% to 3% for fiscal 2026, alongside adjusted earnings—excluding certain items—between $2.20 and $2.35 per share. Notably, the midpoint lands just shy of the $2.32 average analysts expected. The retailer based this outlook on pre–Feb. 20 tariff rates, meaning any subsequent policy or court decisions aren’t reflected in the guidance.
Katrina O’Connell, the company’s finance chief, flagged that shifts in global tariff rates for 2025 delivered “a substantial impact” on profit. For the first quarter, Gap is bracing for gross margin to shrink by roughly 150 to 200 basis points, with tariffs alone responsible for a 200-basis-point—two percentage point—drag. Reuters
Gap’s divisions told very different stories this quarter. Old Navy climbed 3%, the Gap label itself saw an 8% bump, and Banana Republic inched up 1%. Not so for Athleta—sales there tumbled 11%, with comps down 10%.
Dickson pointed to the company’s “playbook” as the reason for what he called “consistent results.” Gap signed off on a fresh $1 billion share buyback and bumped its first-quarter dividend up roughly 6%. Capital spending is set to climb, too, with plans for about $650 million this year versus $470 million for fiscal 2025.
Sky Canaves at eMarketer flagged U.S. trade policy uncertainty as “the single biggest force” weighing on the sector. Gap pulls roughly 46% of its merchandise from Southeast Asia—think Vietnam and Indonesia—and has responded by tweaking its sourcing mix and bumping up some prices, like denim, trying to counter tariff costs. Reuters
The immediate concern stands out: Athleta is still struggling, and shoppers in lower-income brackets are waiting for deals. Gap posted a 3% increase in same-store sales for the holiday quarter—that missed Wall Street’s mark. Inventory climbed 7%, a move the company attributed mostly to tariffs inflating product costs.
