Gap Inc. (GAP) shares tumbled 15.31% in pre-market trading on Friday, despite reporting better-than-expected first-quarter results. The sharp decline came as the clothing retailer warned of significant tariff-related costs that could impact its full-year performance and forecasted flat sales for the upcoming quarter.

For the first quarter of fiscal 2025, Gap reported earnings per share of $0.51, surpassing the analyst consensus estimate of $0.45. The company's quarterly revenue reached $3.46 billion, slightly above the expected $3.42 billion. Comparable sales also rose by 2%, beating estimates of a 1.59% increase. However, these positive results were overshadowed by concerns about future performance and the impact of tariffs.

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. This significant hit to profitability, coupled with a forecast of flat sales for the second quarter, has rattled investors. Additionally, the company reported ongoing challenges with its Banana Republic and Athleta brands, with Athleta seeing an 8% year-over-year decline in same-store sales. Despite these headwinds, Gap maintained its previous outlook for full-year sales growth of 1% to 2%, which some investors may view as overly optimistic given the current challenges.