GAP Q2 Deep Dive: Mixed Brand Momentum Amid Tariff Headwinds and Category Shifts

Clothing and accessories retailer Gap (NYSE:GAP) met Wall Street’s revenue expectations in Q2 CY2025, but sales were flat year on year at $3.73 billion. The company expects next quarter’s revenue to be around $3.91 billion, close to analysts’ estimates. Its GAAP profit of $0.57 per share was 4% above analysts’ consensus estimates.

Is now the time to buy GAP? Find out in our full research report (it’s free).

StockStory’s Take

Gap’s second quarter results reflected steady execution of its brand reinvigoration strategy, with management crediting progress at Old Navy, Gap, and Banana Republic for driving 1% same-store sales growth despite a challenging environment. CEO Richard Dickson pointed to “greater discipline” and targeted category investments, especially in denim and activewear, as key factors sustaining performance. Although Athleta underperformed, management emphasized that rigorous cost controls helped preserve margins even as certain product segments required heavier discounting.

Looking ahead, management’s guidance is shaped by ongoing category momentum at Old Navy and Gap, fresh marketing campaigns, and the expectation that operational discipline will help offset escalating tariff costs. CFO Katrina O’Connell highlighted planned mitigation efforts—such as sourcing shifts and targeted pricing—as central to minimizing the impact of new trade policy, while noting that the outlook assumes “a relatively consistent macroeconomic environment” but acknowledges continued consumer and geopolitical uncertainty. Management remains focused on sustaining brand momentum and protecting profitability through cost savings and selective investment.

Key Insights from Management’s Remarks

Management attributed Q2’s performance to disciplined execution across core categories, cost management, and targeted brand campaigns, while also flagging tariff-related pressures and mixed results among its four brands.

• Old Navy’s category focus: The brand delivered strong results by emphasizing key product categories like denim and activewear, with management highlighting the highest-volume denim sales in a decade and successful marketing partnerships to drive engagement.
• Gap’s cultural resurgence: Gap saw broad-based growth, particularly in women’s and men’s apparel, fueled by the “Better in Denim” campaign and viral collaborations. Management cited these initiatives as driving higher average unit retails (AUR), improved customer engagement, and growing relevance among younger consumers.
• Banana Republic’s repositioning: The brand’s efforts to refine its product assortment and harmonize men’s and women’s collections began to pay off, with management noting improved customer consideration and new customer growth, especially in women’s bottoms and travel-inspired categories.
• Athleta’s reset year: Athleta underperformed as the assortment failed to meet customer expectations. The appointment of Maggie Gauger, formerly of Nike, as the new president and CEO, marks a strategic shift aimed at reviving the women’s activewear brand over time.
• Tariff and cost discipline: Management stressed the impact of recent tariffs on gross margin and operating margin outlooks, but emphasized mitigation through cost savings, supply chain adjustments, and selective pricing actions. These efforts are seen as critical to preserving profitability in the face of external headwinds.

Drivers of Future Performance

Gap’s guidance hinges on continued brand momentum, effective tariff mitigation, and disciplined cost management, while acknowledging uncertainty in consumer demand and global trade policy.

• Tariff mitigation strategies: Management outlined plans to offset tariff impacts through changes in sourcing, manufacturing, and targeted pricing, aiming to maintain value for consumers without eroding margins. The company expects these efforts to neutralize most of the incremental cost pressures in the next year.
• Brand reinvigoration momentum: Ongoing investments in marketing, product assortment, and digital engagement are expected to drive sustained comp growth at Old Navy and Gap. Executives highlighted early back-to-school performance and robust consumer response to new campaigns as signs of continued momentum.
• Athleta turnaround and leadership: The reset at Athleta remains a key watchpoint, with management expressing confidence in new leadership to stabilize and reposition the brand. Recovery at Athleta is expected to be gradual, with progress hinging on assortment alignment and marketing effectiveness.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) the effectiveness of tariff mitigation efforts and their impact on operating margins; (2) signs of sustained category leadership and comp growth at Old Navy and Gap, particularly around back-to-school and holiday campaigns; and (3) concrete evidence of progress in Athleta’s turnaround under new leadership. Execution on inventory management and marketing efficiency will also be key factors to monitor.

Gap currently trades at $21.60, in line with $21.67 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free).

Our Favorite Stocks Right Now

Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.