Gap posts strong Q1, maintains optimistic outlook despite tariff uncertainty

Apparel retailer Gap Inc., parent to Old Navy, Gap, Banana Republic, and Athleta, announced net sales of 3.5 billion dollars, a 2 percent increase for its first quarter ended May 3, 2025. Comparable sales also rose by 2 percent year-over-year. Online sales increased 6 percent and represented 39 percent of total net sales, while store sales remained flat.

The company's profitability also saw improvement. Gross margin expanded by 60 basis points to 41.8 percent, operating income reached 260 million dollars, resulting in an operating margin of 7.5 percent. Net income for the quarter stood at 193 million dollars, translating to diluted earnings per share of 51 cents.

President and CEO Richard Dickson hailed the performance, stating, "Gap Inc. delivered strong first quarter results, exceeding financial expectations and gaining market share for the 9th consecutive quarter." “In this highly dynamic environment, we are optimistic yet realistic and remain focused on controlling the controllables as we build our company for long term growth," he added.

Gap achieves strong Q1 growth

From a brand perspective, Old Navy continued its strong momentum with net sales of 2 billion dollars, up 3 percent, and comparable sales also up 3 percent, marking its ninth consecutive quarter of market share gains.

Gap brand net sales increased by 5 percent to 724 million dollars, with comparable sales also up 5 percent, achieving its sixth consecutive quarter of positive comparable sales and eighth consecutive quarter of market share gains, signalling strong customer resonance.

Banana Republic's net sales were down 3 percent to 428 million dollars, with comparable sales flat, as the brand focuses on re-establishment. Athleta faced challenges, with net sales down 6 percent to 308 million dollars and comparable sales down 8 percent, indicating ongoing efforts to reset the brand's product and marketing strategies.

The company ended the quarter with about 3,500 store locations in over 35 countries, of which 2,496 were company operated.

Gap remains positive about outlook

Looking ahead to fiscal year 2025, Gap Inc. projects net sales growth of 1 percent to 2 percent and operating income growth of 8 percent to 10 percent compared to fiscal 2024 results. The outlook anticipates capital expenditures of approximately 600 million dollars, alongside approximately 35 net store closures. However, this full-year outlook does not fully account for the potential impact of tariffs.

For the second quarter of fiscal 2025, the company expects net sales to be approximately flat year-over-year, and gross margin similar to the first quarter.

The company continued its commitment to shareholder returns, distributing 131 million dollars in cash through 61 million dollars in dividends and 70 million dollars in share repurchases, reducing outstanding shares to 374 million. The board of directors also approved a second-quarter fiscal 2025 dividend of 0.165 cents per share.