Gap, Inc. (NYSE:GAP) shares are trading higher premarket Friday after the company reported better-than-expected second-quarter adjusted EPS and raised its FY26 EPS guidance above estimates.
Adjusted EPS of 52 cents exceeded the 48-cent consensus, while sales of $3.651 billion fell short of the $3.690 billion consensus.
Adjusted gross margin expanded 20 basis points to 41.4%, while adjusted merchandise margin increased 80 basis points, including a 30-basis-point benefit from tariff mitigation. Adjusted operating margin, however, fell 70 basis points to 7.1%.
The company paid $62 million in dividends during the quarter, and its board authorized a third-quarter dividend of 17.5 cents per share.
The retailer also repurchased $200 million of shares, bringing year-to-date buybacks to more than $600 million, representing 26 million shares. About $400 million remains available under the current repurchase authorization.
Gap ended the quarter with $2.5 billion in cash, cash equivalents and short-term investments. Inventory at cost was unchanged from a year earlier, although units increased 4%, primarily due to elevated in-transit inventory tied to geopolitical disruptions.
Comparable sales fell 1%. Gap brand led performance, with net sales up 9% and comps rising 10% for its 11th consecutive quarter of positive growth, driven by denim, fleece, kids and baby. The Hailey Jean collaboration with Hailey Bieber sold out quickly, while Gap also relaunched its fragrance line and plans to enter accessories with bags in September. About 35 stores are expected to be remodeled in 2026.
Old Navy, Banana Republic
Gap appointed Michael Francis as president and CEO of Old Navy, effective Nov. 2.
Old Navy comps declined 4%, with women’s summer categories contributing about 3 percentage points of pressure, particularly dresses, shorts and swimwear, alongside weaker traffic.
The seasonal drag is expected to ease in the third quarter, supported by denim, active, sweaters and knits.
Old Navy Sport, with about 40 shop-in-shops, expanded its Fanatics partnership and rolled out its Beauty Company Collection nationwide.
Banana Republic comps, meanwhile, rose 3%, marking its fifth straight quarter of positive growth, with strength across men’s and women’s outerwear, sweaters, denim and linen. Athleta remained pressured, with sales and comps down 12%, but improved inventory productivity through tighter management and selective launches.
Outlook
Gap raised its fiscal 2026 adjusted EPS guidance to $2.35-$2.45 from $2.30-$2.40, above the $2.34 estimate.
The company narrowed its FY2026 sales outlook to $15.554 billion-$15.631 billion from $15.520 billion-$15.670 billion, above the $15.531 billion estimate.
For fiscal 2026:
- Gap expects comparable sales to track roughly in line with overall sales growth; Outlook increased to high-single-digit to low-double-digit growth
- Old Navy’s full-year comparable sales forecast was reduced to flat to down 1%.
- Banana Republic is expected to deliver another year of growth, with full-year comparable sales projected to rise in the low-single-digit range.
- Gap raised its fiscal 26 adjusted gross margin outlook to slightly above last year, with tariffs now expected to provide a modest benefit.
- The company is aiming for $150 million in fiscal year cost savings, with some offsetting inflation and the rest funding growth initiatives.
The company extended its 10% tariff assumption through August, which is expected to deliver about $15 million of incremental net tariff relief, primarily in the fourth quarter. If the rate remains through third quarter, Gap estimates an additional $35 million benefit for the year.
For the third quarter, the company expects sales of $3.958 billion to $3.998 billion, versus the $3.981 billion estimate.
For the third quarter, Gap expects net sales growth of 1.5%-2.5%, with comps about 50 basis points lower. Old Navy comps are forecast at flat to down 1%, improving from Q2’s 4% decline. Gross margin is expected to expand 25-75 basis points, with tariffs contributing about 150 basis points, including 50 basis points from lower Section 122 rates and the rest from mitigation efforts.
GAP Stock Price Activity: Gap shares were up 13.85% at $23.67 during premarket trading Friday, according to Benzinga Pro.
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