By Sabrina Escobar

Gap beat expectations for its fiscal first quarter, but the stock tumbled in after-hour trading Thursday following the company's warning that tariffs could dent full-year profit by more than $100 million.

The apparel retailer, which owns Gap, Old Navy, Athleta, and Banana Republic, reported earnings of 51 cents a share on $3.5 billion in revenue. Analysts polled by FactSet were forecasting 45 cents a share and $3.4 billion in revenue for the quarter ended May 3.

Same-store sales rose by 2% year over year, better than projections for a 1.7% increase. Gap and Old Navy both saw increases in same-store sales; Banana Republic's same-store sales were flat, and Athleta saw an 8% year over year decline.

"These results are yet another proof point that our strategy is working, " said CEO Richard Dickson. "In this highly dynamic environment, we are optimistic yet realistic and remain focused on controlling the controllables as we build our company for long term growth."

Shares of Gap were down 16% in late trading, as company commentary over the potential effect of tariffs overshadowed the earnings beat. The stock has gained 18% this year.

Although Gap technically reiterated its guidance for the full year -- which called for company sales to rise between 1% and 2%, with operating income growing between 8% and 10% from 2024's $1.1 billion -- it added an important tariff caveat. The guidance doesn't reflect the potential effects of new levies, which, if implemented, will negatively affect operating income.

Tariff implementation was paused Wednesday after a surprise ruling by the Court of International Trade, but a federal appeals court issued a temporary stay on the trade court's order Thursday afternoon.

Were tariffs to go back in effect at the rate effective Wednesday morning -- a 10% baseline levy, and a 30% on most imports from China -- they could dent Gap's operating income by between $100 million to $150 million this year after mitigation efforts, the company said. Without mitigation strategies, the gross incremental cost ranges from $250 million to $300 million.

The second half of the year will bear the brunt of the tariffs, Gap said. Indeed, second-quarter guidance calls for net sales to be about flat year over year, in line with expectations, and gross margin will be similar to the first quarter's 41.8%.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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May 29, 2025 16:42 ET (20:42 GMT)

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