Gap’s Holiday Quarter Disappoints Amidst Winter Storms and Tariff Concerns

Gap Inc. Reported mixed fiscal fourth-quarter results, missing expectations on earnings per share despite meeting revenue consensus. The company cited historic winter storms and lingering concerns over tariffs as key factors impacting performance.

The retailer’s stock fell as much as 9% in extended trading Thursday following the earnings release.

Key Financial Results

• Earnings per share: 45 cents vs. 46 cents expected
• Revenue: $4.24 billion vs. $4.24 billion expected
• Net income: $171 million, or 45 cents per share, compared with $206 million, or 54 cents per share, a year earlier
• Gross margin: 38.1%, slightly worse than analysts expected
• Sales: $4.24 billion, up about 2% compared to $4.15 billion a year earlier

Impact of Winter Storms

Severe weather conditions across the U.S. In January led to approximately 800 temporary store closures at the peak of the storms. This disruption contributed to a miss in comparable sales for Old Navy and impacted overall company results. According to finance chief Katrina O’Connell, trends recovered immediately after the storms passed.

Tariff Concerns and Outlook

Gap’s gross margin was weighed down by tariffs, falling to 38.1%. The company did not factor recent changes to tariffs into its outlook, citing the evolving situation. However, O’Connell noted that a continuation of the current 15% tariff rate, or its expiration in July, could lead to a more favorable outcome than currently projected, as it is slightly below previous rates.

Brand Performance

• Old Navy: Sales rose 3% to $2.3 billion, with comparable sales up 3%, below the expected 4.3%.
• Gap: The namesake brand saw the strongest performance, with sales rising 8% to $1.1 billion and comparable sales up 7%, exceeding expectations of 4.6%.
• Banana Republic: Posted its third straight quarter of positive comparable sales, up 4%, beating expectations of 2.5%. Sales rose 1% to $549 million.
• Athleta: Experienced a decline in sales, down 11% to $354 million and comparable sales down 10%.

Turnaround Plan and Future Growth

The results reach over two years into CEO Richard Dickson’s turnaround plan. Dickson stated the company is now focused on “building momentum” by growing its core apparel business through continuous improvement in product, marketing, and storytelling. Gap is too exploring growth opportunities in beauty, accessories, and a fashion and entertainment platform, with plans to scale these ventures next year.

Guidance

Gap’s guidance for the current and full year was largely in line with expectations, but did not exceed consensus.

• Current Quarter Revenue: Expected to rise between 1% and 2%, compared to expectations of 2%.
• Full Year Sales: Expected to grow between 2% and 3%, in line with expectations of 2.5% growth.
• Full Year Adjusted Earnings Per Share: Expected to be between $2.20 and $2.35, compared to expectations of $2.32, boosted by a $313 million legal settlement.