The Gap, Inc.

Second-quarter net sales were $3.7 billion, down 2% year over year, with comparable sales down 1%. Reported gross margin was 52.8%; adjusted gross margin was 41.4%, up 20 basis points year over year. Reported EPS was $1.38; adjusted EPS was $0.52 versus $0.57 last year. Reported operating margin was 18.5%; adjusted operating margin was 7.1%, down 70 basis points. For the full year, Gap now expects net sales growth of 1% to 1.5% with comparable sales roughly in line, adjusted gross margin slightly up versus last year, adjusted operating margin of 7.4% to 7.6%, and adjusted EPS of $2.35 to $2.45. For third quarter, the company expects net sales up 1.5% to 2.5% year over year, comparable sales about 50 basis points below net sales, adjusted gross margin up 25 to 75 basis points versus last year, and Old Navy comps roughly flat to down 1%.

Richard Dickson framed the quarter as evidence that the transformation is working overall, even though revenue fell short of expectations. He emphasized that Gap and Banana Republic are sustaining momentum, Old Navy has a clear fix path after missteps in seasonal assortment and marketing, and Athleta is being rebuilt more cautiously. His tone was confident and action-oriented, repeatedly pointing to August improvement, a sharper fall plan, and new initiatives like Old Navy Sport, beauty, and accessories as second-half catalysts.

Katrina O'Connell highlighted strong gross margin discipline, with adjusted gross margin up 20 basis points to 41.4% and adjusted merchandise margin up 80 basis points, partly helped by about 30 basis points from tariff mitigation. SG&A was $1.3 billion, or 34.3% of sales, and adjusted operating margin was 7.1%, down 70 basis points as investments in growth accelerators weighed on expenses. She also noted $154 million of capex in the quarter, $289 million year to date, expected full-year capex of about $650 million, $62 million of dividends paid, more than $600 million of repurchases year to date, $2.5 billion of cash and investments, and year-to-date free cash flow of $261 million.

Analysts pressed management on how quickly Old Navy can recover, what markers will show improvement, and whether marketing and pricing changes are enough to restore consistent comps. Dickson said the seasonal headwinds are now behind the business, August sales improved, Cardi B marketing is driving the most viewed Old Navy campaign in history, and MrBeast back-to-school content is resonating. Questions also focused on capital allocation, with management saying buybacks remain under review, and on inventory and ROD deleverage, where O'Connell explained the pressure comes from fewer store closures, modest openings, and higher capital spending that increases depreciation.