Key Takeaways
- Shares of GAP plunged up to 13% following disappointing Q4 results
- Earnings per share of $0.45 fell short of the $0.46 Wall Street consensus
- Old Navy comparable sales grew only 3% versus expectations of 4.3%; Athleta dropped 11%
- Gross margin contracted to 38.1%, impacted by approximately 200 basis points from tariffs
- Fiscal 2026 outlook calling for 2–3% sales growth merely matched analyst projections
Gap Inc. unveiled its fourth quarter and complete fiscal 2025 financial performance on March 5, 2026. The results proved disappointing, triggering a sharp selloff in shares.
Earnings per share registered at $0.45, falling one cent short of the $0.46 Wall Street consensus. Sales reached $4.24 billion, meeting projections — though simply meeting forecasts failed to impress the market.
Net earnings declined to $171 million during the fourth quarter, compared to $206 million during the equivalent period last year. This represents a meaningful deterioration that warrants attention.
Gross profit margin came in at 38.1%, representing an 80 basis point year-over-year decline. Tariffs played a significant role in this compression, impacting merchandise margin by approximately 200 basis points.
January’s unprecedented winter weather conditions added additional headwinds. During the peak of the storms, nearly 800 Gap locations were forced to temporarily shut their doors. CFO Katrina O’Connell noted that sales recovered swiftly after conditions improved — however, the quarterly impact had already materialized.
Old Navy, representing the company’s largest brand by revenue, delivered comparable sales growth of merely 3%. Wall Street had anticipated 4.3%. When your flagship brand underperforms, it creates significant challenges.
Athleta’s struggles persisted. The brand’s comparable sales declined 10% in Q4, with full-year comps sliding 9%. Net revenue for Athleta fell 11% during the quarter to $354 million. Leadership emphasized they’re “focused on rebuilding the brand for the long term.”
Gap Brand and Banana Republic Provide Bright Spots
The quarter wasn’t entirely negative. The Gap nameplate brand performed well, achieving comparable sales growth of 7% — surpassing the 4.6% analyst forecast.
Banana Republic also contributed positively, recording 4% comp growth and extending its positive comparable sales streak to three quarters.
For the complete fiscal year, Gap Inc. generated net revenue of $15.4 billion, representing 2% growth, and achieved its eighth straight quarter of positive comparable sales. Operating profit reached $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 new $1 billion stock buyback program.
Forward Guidance Fails to Inspire
For fiscal 2026, Gap projected revenue expansion of 2% to 3% and adjusted earnings per share between $2.20 and $2.35 — both essentially matching Wall Street’s expectations.
This proved insufficient for investors. Following two years of consistent progress under CEO Richard Dickson’s leadership, the market anticipated more aggressive projections. Inline guidance disappointed.
An additional consideration: the fiscal 2026 projections were formulated using tariff rates effective before February 20, 2026. Management indicated it’s premature to incorporate more recent tariff developments — a prudent approach, though one that makes the outlook appear conservative.
Capital spending for fiscal 2026 is projected to increase to $650 million, up from $470 million in 2025. The board additionally 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 year-over-year, incorporating an estimated 200 basis point headwind from tariffs.
