Key Takeaways
- Shares of GAP dropped as much as 13% following disappointing Q4 results
- Earnings per share of $0.45 fell short of the $0.46 analyst consensus
- Old Navy comparable sales grew only 3%, below the 4.3% forecast; Athleta declined 11%
- Gross margin contracted to 38.1%, impacted by approximately 200 basis points from tariffs
- Fiscal 2026 outlook of 2–3% revenue growth matched but failed to surpass expectations
Gap Inc. delivered its fourth quarter and full fiscal 2025 earnings report on March 5, 2026, presenting a combination of results that failed to satisfy investors.
The retailer posted earnings per share of $0.45, falling a cent short of the $0.46 Wall Street consensus. Revenue reached $4.24 billion, matching analyst projections — though meeting expectations without exceeding them left investors wanting more.
Net income declined to $171 million during the quarter, compared to $206 million in the year-ago period. This represents a meaningful contraction that merits attention.
Gross margin settled at 38.1%, representing an 80 basis point year-over-year decline. Tariffs played a significant role in this compression, weighing on merchandise margin by approximately 200 basis points.
Severe winter weather in January created additional headwinds. At the height of the storms, roughly 800 Gap locations were forced to close temporarily. CFO Katrina O’Connell noted that sales recovered rapidly following improved weather conditions — but the quarterly impact had already materialized.
Old Navy, representing the company’s largest revenue driver, delivered comparable sales growth of merely 3%. This fell short of the 4.3% analyst forecast. When your flagship brand underperforms, it resonates across the entire organization.
Athleta’s challenges persisted. The brand recorded a 10% comparable sales decline in Q4, with full-year comps down 9%. Net sales for Athleta contracted 11% in the quarter to $354 million. Leadership emphasized ongoing efforts to “rebuild the brand for the long term.”
Gap Brand and Banana Republic Deliver Bright Spots
The report wasn’t entirely disappointing. The Gap brand demonstrated solid momentum, posting 7% comparable sales growth — surpassing the 4.6% consensus forecast.
Banana Republic also contributed positively, with comps increasing 4%, marking the brand’s third straight quarter of positive comparable growth.
For the complete fiscal year, Gap Inc. recorded net sales of $15.4 billion, representing 2% growth, and achieved its eighth consecutive quarter of positive comparable sales. Operating income totaled $1.1 billion, translating to a 7.3% operating margin.
The retailer closed the year holding $3 billion in cash and produced $1.3 billion in operating cash flow. Management also unveiled a fresh $1 billion share buyback authorization.
Forward Guidance Meets But Doesn’t Exceed Expectations
For fiscal 2026, Gap projected revenue growth in the 2% to 3% range and adjusted EPS between $2.20 and $2.35 — both figures aligning closely with analyst expectations.
This proved insufficient for the market. Following two years of consistent improvement under CEO Richard Dickson’s leadership, investors sought more aggressive targets. Meeting expectations without surpassing them disappointed.
An important caveat: the fiscal 2026 outlook incorporated tariff rates effective before February 20, 2026. Management indicated it was premature to account for subsequent tariff adjustments — a prudent stance, though one that renders the guidance somewhat conservative.
Capital spending for fiscal 2026 is projected to increase to $650 million, up from $470 million in 2025. The board simultaneously authorized a Q1 2026 dividend of $0.175 per share, representing approximately 6% growth versus Q4 2025.
First quarter gross margin is anticipated to decline 150 to 200 basis points compared to the prior year, incorporating an estimated 200 basis point headwind from tariffs.
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