The Gap, Inc.
Q2 2027 Earnings
GAAP EPS of $1.38 includes $417 million net IEEPA tariff recovery in cost of goods sold (approximately $512 million in tariff refunds partially offset by approximately $95 million vendor appreciation commitment) and $5 million of related interest income. Adjusted EPS of $0.52 excludes these items.
Market Reaction
Did GAP Beat Earnings? Q2 2027 Results
Gap Inc. delivered a mixed second quarter for fiscal 2026, posting adjusted EPS of $0.52 against a consensus estimate of $0.49, a beat of 5.84%, even as net sales of $3.65 billion fell 2.0% year-over-year and came in 1.11% below expectations. The headline GAAP figure of $1.38 per diluted share was heavily inflated by a roughly $417 million net recovery tied to IEEPA tariff refunds, a one-time item that pushed reported gross margin to 52.8%; strip that out and adjusted gross margin of 41.4% was up just 20 basis points year-over-year, reflecting the underlying business reality. Brand performance was sharply uneven: the Gap brand surged with comparable sales up 10%, while Old Navy, the company's largest brand, saw comparable sales drop 4%, a weakness that prompted a leadership change with Michael Francis named as its incoming president and CEO. Looking ahead, management raised its full-year adjusted diluted EPS outlook to approximately $2.35 to $2.45 and narrowed net sales growth expectations to up 1% to 1.5%, with Old Navy now expected to post comparable sales flat to down 1%.
- Gap brand posted 10% comparable sales growth driven by denim, fleece, and kids and baby categories
- Adjusted gross margin expanded 20 basis points driven by 80 basis points merchandise margin improvement
- Average unit retail increased across all brands
- Old Navy comparable sales declined 4% due to pressure in women's seasonal assortment and unanticipated traffic slowdown
- Athleta comparable sales declined 12% as the brand continues to rebuild
- Online sales decreased 1% and represented 35% of total net sales
- Store sales decreased 3% year-over-year
- IEEPA tariff recovery of approximately $417 million recorded in cost of goods sold
“While top-line results in the second quarter were modestly below expectations, continued operational and financial rigor contributed to gross margin strength resulting in the Company exceeding profit expectations.”
Gap CEO, on the earnings call
Forward Guidance & Outlook
The company updated its full-year fiscal 2026 outlook: net sales expected up 1% to 1.5% year-over-year (narrowed from up 1% to 2%). Old Navy comparable sales now expected flat to down 1% (vs. prior flat to up 1%). Gap brand comparable sales raised to high-single to low double-digit growth (vs. prior high-single digits). Adjusted gross margin expected up slightly year-over-year. Adjusted operating margin expected at approximately 7.4% to 7.6% (raised from 7.3% to 7.5%). Adjusted diluted EPS expected approximately $2.35 to $2.45 (raised from $2.30 to $2.40). GAAP diluted EPS expected approximately $3.77 to $3.87. Capital expenditures expected approximately $650 million. Diluted weighted average share count expected approximately 367 million. For Q3 fiscal 2026, net sales expected up 1.5% to 2.5% YoY, gross margin up about 25 to 75 basis points, and slight leverage in operating expense as a percentage of net sales. Following the Section 301 announcement in July, the company now assumes a roughly 10% incremental tariff rate from July 24 through end of August, providing approximately $15 million of net tariff relief to full-year gross profit concentrated in Q4.
GAP YoY Financials
GAP Revenue by Segment
GAP Revenue by Geography
Figures from SEC filings and company reports. Not investment advice.