By Teresa Rivas

Gap's fiscal first quarter was very much a microcosm of what's happening to the consumer as the divide of the K-shaped economy deepens.

Gap Inc. said it earned 38 cents a share, a penny ahead of analysts' estimates, on revenue that rose 1% year over year to $3.5 billion, a hair below the $3.52 billion consensus. The stock dropped 16% however with investors likely reacting to lower second-quarter guidance. Gap now expects revenue to be down 1% to flat, roughly below consensus. For the full year it sees earnings coming in at $2.30 to $2.40 per share, above the $2.29 analysts were targeting. Its revenue outlook, for growth of 1% to $22, is also below its prior range of 2% to 3%. It too falls short of the average analyst estimate.

The big issue was Old Navy, which accounts for over half the company's sales. Management acknowledged its own missteps on the conference call, with Chief Executive Richard Dickson saying that the division was "primarily impacted by the women's dress business, wherein, reviewing the season, we did not execute as effectively, and as a result, customers did not respond to our assortment the way that we had intended."

Still, it's worth noting that Old Navy tends to have the cheapest prices among Gap's three main brands, and we've seen plenty of other evidence this earnings season that lower-end shoppers are feeling inflation's pinch, even as the overall consumer spending picture remains resilient.

Comparable sales were up just 1% at Old Navy, compared to a 10% jump at Gap (about 23% of sales) and 2% at tonier Banana Republic (12.5% of sales).

The stock gained ground in the year after our initial December 2024 recommendation but are down 19% since our original call and 22% since we re-upped last December. The immediate outlook doesn't leave much room for optimism either. The second quarter seems like it will be impacted by clearing out inventory before the company can reset in time for the second half of the year and the key fall/back to school/holiday season. That means investors don't have to bargain hunt today. If the second quarter shows that the effects will linger longer, it may be time to rethink the stock as a whole.

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June 01, 2026 20:58 ET (00:58 GMT)

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