Shares of Gap Inc. (GAP) plummeted 17.71% in after-hours trading on Thursday, despite the company reporting better-than-expected first-quarter results for fiscal 2025. The sharp decline came as the clothing retailer warned of significant tariff-related costs that could impact its full-year performance.

Gap reported first-quarter earnings per share of $0.51, surpassing the analyst consensus estimate of $0.45. This represents a 24.39% increase from the same period last year. The company's quarterly sales reached $3.46 billion, slightly above the expected $3.42 billion and marking a 2.21% year-over-year increase. Comparable sales also rose by 2%, beating estimates of a 1.59% increase.

However, the positive results were overshadowed by Gap's warning about the potential impact of tariffs on its business. The company estimates that tariffs could result in added costs of up to $300 million this year. While Gap plans to offset more than half of this amount through mitigation strategies, it still expects a net impact of $100 million to $150 million on its fiscal 2025 operating income, primarily weighted in the second half of the year. Despite these challenges, Gap maintained its previous outlook for sales growth of 1% to 2% for the full year and expects minimal tariff-related impacts in the second quarter. The market's severe reaction suggests investors are deeply concerned about the long-term implications of these tariffs on Gap's profitability and growth prospects.