The Gap, Inc. reported mixed Q1 2026 results, beating gross margin expectations and raising its full-year EPS outlook. Net sales edged up 1% year over year to $3.50 billion, matching consensus, with comparable sales up 2%. Adjusted diluted EPS fell to $0.38 due to a 200 basis point tariff headwind, but unadjusted GAAP EPS jumped to $0.90 on a $313 million legal settlement gain. Performance was fragmented: the Gap brand rose 10% and Old Navy ticked up 1%, while Banana Republic dropped 11%. Gross margin fell 130 basis points to 40.5% on tariff costs, with ending inventory flat.
Note: Gap's FY'25 ended on January 31, 2026. Q1'26 refers to the quarter that ended on May 2, 2026.
The retailer expects full year net sales growth of 1% to 2% ($15.5 billion to $15.7 billion), down from its prior forecast of 2% to 3%. It targets flat to slightly up gross margins and an adjusted operating margin of 7.3% to 7.5%. Gap raised its adjusted diluted EPS guidance to a range of $2.30 to $2.40—up 8% to 12% year over year—against the $2.33 consensus. Full year reported GAAP EPS is projected at $2.83 to $2.93, reflecting a $313 million legal settlement gain. Full year capital expenditures are estimated at approximately $650 million.
For Q2 2026, Gap forecasts net sales to be flat to down 1%, with gross margin flat to down 50 basis points, and SG&A expenses expected to deleverage 110 to 120 basis points due to growth investments
Gap is a global specialty retailer offering clothing, accessories, and personal care products for men, women, and children. It markets its products under the Gap, Old Navy, Banana Republic, Athleta, GapKids, babyGap, and Intermix brands.
Gap Inc. operates four distinct brands targeting different customer segments: Old Navy, which focuses on value-driven, fashion-conscious families; Gap, aimed at young adults seeking casual, modern essentials; Banana Republic, positioned toward more affluent and relatively older customers with a premium aesthetic; and Athleta, which caters to active, wellness-focused women with an emphasis on performance and lifestyle apparel.
Below are key drivers of Gap Inc.'s value that present opportunities for upside or downside to the current Trefis price estimate:
For additional details, select a division from the interactive Trefis split for Gap Inc. at the top of the page.
Old Navy is the single largest contributor to Gap Inc.'s valuation, driven by scale and mass market positioning.
Old Navy benefits from a broad demographic reach and price competitiveness, allowing it to capture a significant share in the value apparel category.
Recent focus on inventory discipline and reduced promotions has supported gross margin recovery, which is critical for overall profitability.
The company's integrated store and digital platform support convenience and customer retention, enhancing long term revenue stability.
Macroeconomic pressure on discretionary spending continues to impact apparel demand, particularly among lower-income consumers, affecting traffic and conversion rates.
Gap Inc. is prioritizing cost control, supply chain efficiency, and inventory optimization to protect margins amid volatile demand.
The company is sharpening its focus on core brands and reducing complexity, aiming to drive a clearer brand identity and improved execution.
