TLDR
- Q2 2025 EPS came in at $0.57, up 6% year-over-year.
- Gross margin expanded 360 bps to 41.2%, but tariffs pose pressure.
- Old Navy, Gap, and Banana Republic delivered positive comps.
- Athleta sales fell 11%, with comps down 9%.
- Gap ended the quarter with $2.4B in cash and strong liquidity.
Gap Inc. (NYSE: GAP) stock traded at $21.57, down 0.51% as of 9:51 AM EDT, following the release of its Q2 2025 earnings on August 28.
The retailer reported earnings per share (EPS) of $0.57, a 6% improvement versus last year. Net sales were flat at $3.7 billion, while comparable sales rose 1%. Gross margin expanded by 360 basis points to 41.2%, highlighting the company’s operational efficiency.
CEO Richard Dickson praised the progress, noting the business “overdelivered on profit expectations and achieved topline goals” while maintaining positive comps for the sixth consecutive quarter.
Brand Performance Breakdown
Gap’s largest brand, Old Navy, generated $2.2 billion in sales, with comps up 2%. The Gap brand posted $772 million in sales, with comps up 4%, marking its seventh straight quarter of growth. Banana Republic delivered $475 million in sales, down 1% year-over-year, but comps were positive at 4%.
The key weak spot was Athleta, where sales dropped 11% to $300 million, and comps declined 9%. Management acknowledged the brand’s assortment missed consumer expectations, requiring a reset to realign with market demand.
Financial Highlights
Operating income for Q2 stood at $292 million, with an operating margin of 7.8%. Net income was $216 million, translating to EPS of $0.57. Gap ended the quarter with $2.4 billion in cash, providing flexibility for ongoing investments and shareholder returns.
The company spent $82 million repurchasing 3 million shares and reported $127 million in free cash flow year-to-date. SG&A expenses were $1.2 billion, leveraging 130 basis points compared to last year.
Outlook and Tariff Impact
For fiscal 2025, Gap maintained its net sales growth outlook of 1% to 2% but revised operating margin guidance to between 6.7% and 7%. Tariffs are expected to have a net impact of $150 million to $175 million, or about 100 to 110 basis points on operating margin.
For Q3, management projects sales growth of 1.5% to 2.5% but anticipates gross margin deleverage of 150 to 170 basis points due to an estimated 200 basis point tariff headwind.
Performance vs. S&P 500
As of August 29, 2025, Gap’s YTD return was -6.59%, compared with the S&P 500’s +10.09%. On a 1-year basis, GAP is down 2.48%, while the S&P gained 15.80%. However, on a 3-year return, Gap surged 158.37%, far outpacing the S&P’s 60.65%, underscoring its longer-term recovery trajectory.
