Highlights:

• Q2 net sales were ~$3.73 billion with comparable sales up 1%; management flagged tariff headwinds that could compress margins.
• CEO Richard Dickson said a key brand has “begun its turnaround,” while Athleta remains a drag.
• Shares fell after-hours as investors weighed softer comps and margin guidance of ~6.7%–7% for the year.

Gap Inc. reported second-quarter results that showed modest topline growth and a slight comp increase, alongside a warning that higher U.S. tariffs will pressure profitability. Management struck an optimistic tone on brand revitalization—highlighting early progress at one of the company’s most strategic banners—even as discretionary demand and trade policy uncertainty complicate the retail backdrop.

Earnings Snapshot: Beat on EPS, Cautious on Margins

For the quarter ended Aug. 2, 2025, Gap posted net sales of about $3.73 billion, roughly in line with expectations, and comparable sales rose 1% versus ~2.3% anticipated. Adjusted EPS was reported at $0.57, modestly above consensus. The company guided full-year operating margin to ~6.7%–7%, citing tariff costs and ongoing promotion discipline as key variables. Shares traded lower after-hours as investors focused on the margin outlook and tempered comp trajectory.

Brand Performance: Green Shoots at Gap, Athleta Lags

CEO Richard Dickson said one of the group’s most important brands—interpreted by analysts as the Gap namesake—has “begun its turnaround,” supported by fresher product and stronger marketing engagement. Old Navy and Gap eked out low-single-digit growth, while Athleta’s same-store sales declined, underscoring uneven momentum across the portfolio. Leadership changes at Athleta (with a Nike veteran stepping in) aim to restore growth in the higher-margin active segment.

Tariffs, Mix, and the Profit Algorithm

Management quantified tariff exposure at roughly $150–$175 million of operating-income impact this year after mitigation, helping explain the tighter margin guide. Sourcing diversification continues, with China expected to represent less than 10% of imports in 2025 and to fall further, but the immediate cost overhang remains. Against a backdrop of softer discretionary spend, Gap’s ability to defend price, reduce discounting, and lean on more efficient supply chains will be central to stabilizing gross margin.

Market Reaction and Strategic Priorities

While marketing initiatives—such as the denim-led KATSEYE campaign—are bolstering brand relevance, traffic patterns softened late in the quarter, suggesting consumers may be pulling forward purchases or trading down. Execution risk remains elevated: sustaining comps without margin erosion, reigniting Athleta, and keeping inventory clean into the holiday period are all in focus. For Israeli and global investors, Gap’s read-through on apparel demand, pricing power, and tariff passthrough offers a timely gauge of U.S. consumer resilience.

Looking ahead, the key watch-items are comp durability into Q3/Q4, Athleta’s trajectory under new leadership, and any updates to tariff mitigation that could widen the margin envelope. If early brand green shoots translate into sustained traffic and full-price sell-through, the turnaround narrative strengthens; if not, mix and markdowns could reassert pressure on profitability in a still-competitive apparel landscape.