The Gap, Inc.

Gap Inc. reported first-quarter net sales of $3.5 billion, up 1% year over year, with comparable sales up 2%. Reported EPS was $0.90 and adjusted EPS was $0.38 versus $0.51 last year. Gross margin was 40.5%, down 130 basis points, but ahead of guidance; adjusted operating margin was 5.2% versus 7.5%? last year? No, management said it was down 230 basis points year over year. By brand, Old Navy net sales were $2 billion (+1%) with comps up 1%; Gap net sales were $796 million (+10%) with comps up 10%; Banana Republic net sales were $431 million (+1%) with comps up 2%; and Athleta net sales were $270 million (-12%) with comps down 11%. For fiscal 2026, the company now expects full-year net sales growth of 1% to 2%, adjusted operating margin of 7.3% to 7.5%, and adjusted EPS of $2.30 to $2.40. Second-quarter guidance calls for net sales flat to down 1%, gross margin about flat to down 50 basis points, and SG&A deleverage of about 110 to 120 basis points.

Richard Dickson said the quarter showed continued progress in the transformation, with share gains, stronger brand relevance and disciplined execution. He emphasized that Gap is building momentum through culturally relevant storytelling, that Old Navy’s issue is specific to seasonal product rather than consumer weakness, and that Athleta is in a rebuild year. His tone was upbeat but measured: he repeatedly said the company is early in the year, not starting as strongly as hoped, and is focused on outperforming from here.

Katrina O’Connell focused on the financial discipline behind the quarter: net sales of $3.5 billion (+1%), gross margin of 40.5% (-130 bps), reported EPS of $0.90, and adjusted EPS of $0.38 versus $0.51 last year. She noted $313 million of legal settlement net gain and a concurrent $50 million charitable donation were excluded from adjusted metrics, and that SG&A was $972 million reported and $1.2 billion adjusted, or 35.3% of sales. She also highlighted $135 million of capex in Q1, expected fiscal 2026 capex of about $650 million, $2.6 billion of cash and short-term investments, $213 million of operating cash flow, $78 million of free cash flow, about $400 million of share repurchases year to date, and the raised quarterly dividend to $0.175 per share.

Analysts focused heavily on Old Navy’s weaker seasonal product performance, asking whether the issue was macro or self-inflicted, when assortment and value would be fixed, and whether the shortfall could spill into back-to-school. Management said consumer behavior remained consistent and the problem was mainly internal execution in dresses and other seasonal categories; they said changes in price points and messaging were already improving trends, with the back half expected to improve as seasonal pressure lapses. Questions also covered tariffs, buybacks, and the tax refund season. Katrina said the tariff relief is being held partly as a buffer and partly for possible competitive pricing, that Q2 weighted-average shares should be around 371 million, and that the company is not including potential tariff refunds in guidance because timing and eligibility remain uncertain.