Shares of Gap Inc. (GAP) plummeted 17.71% in after-hours trading on Thursday, following the release of the company's first-quarter earnings report and forward-looking statements. While the clothing retailer beat earnings expectations, investors were rattled by the projected impact of tariffs and a cautious outlook for the coming quarters.

Gap reported first-quarter earnings per share of $0.51, surpassing the analyst consensus estimate of $0.45. The company's net sales for the quarter reached $3.46 billion, slightly above the expected $3.42 billion. Despite this positive performance, the focus quickly shifted to the challenges ahead.

The most significant factor driving the stock's decline was Gap's announcement regarding the impact of tariffs on its business. The company estimates that tariffs could result in additional costs of $250 million to $300 million for the fiscal year 2025. Even with mitigation strategies in place, Gap expects a net impact of $100 million to $150 million on its operating income, primarily weighted towards the second half of the year.

Adding to investor concerns, Gap provided a cautious outlook for the upcoming quarter and full fiscal year. The company projects Q2 net sales to be approximately flat year-over-year, while full-year net sales growth is expected to be in the range of 1% to 2%. This modest growth projection, coupled with the tariff headwinds, appears to have dampened investor enthusiasm despite the company's better-than-expected Q1 results.