Gap trims sales guidance after weak Old Navy performance

• Old Navy's comparable sales grew only 1% versus the expected 3%, with CEO Richard Dickson attributing weakness to product missteps in seasonal categories like dresses and swim rather than consumer spending issues
• Gap's namesake brand surged 10% in comparable sales, far exceeding the 5.5% expectation, while Athleta continued struggling with an 11% decline in comparable sales
• The company raised its profitability outlook and expects an $80 million benefit from reduced tariff rates, half of which is reserved for potential promotions and half for higher fuel costs

Gap Trims Sales Guidance After Weak Old Navy Performance

Key Developments:

Gap Inc. reported mixed fiscal Q1 results, beating earnings expectations but missing revenue targets, prompting a downward revision of its full-year sales outlook. The company now expects companywide sales growth of 1-2%, down from the previous 2-3% forecast.

Financial Performance:

• Q1 revenue: $3.50 billion vs. $3.52 billion expected (up from $3.46 billion YoY)
• Net income: $339 million ($0.90 per share)
• Adjusted EPS guidance raised due to tax favorability and interest income
• Company anticipates $80 million benefit from reduced tariff rates, held in reserve

Brand Performance:

• Old Navy (largest brand): Comparable sales grew only 1% vs. 3% expected; overall sales reached $2 billion. Spring/summer assortment, particularly dresses and swim shorts, underperformed, though active, denim, and kids categories showed strength.
• Gap: Strong performance with 10% comparable sales growth (vs. 5.5% expected); total sales of $796 million driven by denim, fleece, and kids.
• Banana Republic: 2% comparable sales growth (vs. 4% expected); $431 million in sales, marking fourth consecutive quarter of positive comps.
• Athleta: Continued struggles with 11% comparable sales decline; overall sales fell 12%.

Management Commentary:

CEO Richard Dickson attributed Old Navy's weakness to product assortment issues rather than macroeconomic headwinds, noting the company is "winning with all income cohorts." The company reserved half its tariff savings for potential promotional activity to stimulate demand.