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The Gap, Inc. GAP reported fourth-quarter fiscal 2025 results, wherein both the top and bottom lines met the Zacks Consensus Estimate. On a year-over-year basis, the company’s top line increased, but the bottom line declined.
Top-line results benefited from broad-based brand momentum, supported by strong customer engagement and continued execution of GAP’s brand reinvigoration strategy. Comparable sales increased during the fourth quarter, reflecting growth across key brands including Old Navy, Gap and Banana Republic, while the Gap brand delivered particularly strong gains driven by improved product relevance and cultural marketing initiatives. The company recorded a solid holiday season with net sales rising year over year, as strength in categories such as denim, fleece and activewear resonated with consumers.
GAP posted fourth-quarter earnings of 45 cents per share, which declined 16.7% from the year-ago quarter, and came in line with the Zacks Consensus Estimate.
The Gap, Inc. price-consensus-eps-surprise-chart | The Gap, Inc. Quote
Net sales came in at $4.23 million, up 2% year over year, and met the Zacks Consensus Estimate. Comparable sales (comps) rose 3% year over year. The company saw sturdy results at Old Navy and Gap, and progress at Banana Republic. Online sales rose 5% year over year, accounting for 42% of the total sales. Store sales remained flat year over year.
Shares of this Zacks Rank #3 (Hold) company have lost 8.1% over the past three months against the industry’s 0.9% growth.
Old Navy: Net sales at Old Navy Global edged up 3% year over year to $2.3 billion. Comps rose 3% year over year. Old Navy continues to outperform in key strategic categories and across a wide range of income levels. Sales for Old Navy Global beat our model’s estimate of $2.3 billion.
Gap Global: Net sales rose 8% year over year to $1.1 billion, while comps increased 7%, highlighting the ninth straight quarter of positive comps. The brand continued to build strong momentum as its renewed focus on heritage, product relevance and cultural storytelling resonated with consumers across generations. Our model estimates sales for Gap Global to be $994.2 million.
Banana Republic: Net sales rose 1% year over year to $549 million, while comps rose 4%. Sales lagged our estimate of $555.1 million. The company’s foundational efforts, from elevated product offerings to culturally relevant storytelling, are clearly resonating with consumers, supporting a third consecutive quarter of strong performance.
Athleta: Net sales dropped 11% year over year to $354 million, and comps also dipped 10%. Net sales lagged our estimate of $407.6 million. The brand is starting with the fundamentals and implementing the reinvigoration playbook with discipline to position itself for long-term recovery, a process that will take time.
The gross margin of 38.1% fell 80 basis points (bps) year over year. Meanwhile, we estimated the adjusted gross margin to be 38.3%.
The merchandise margin declined 90 basis points (bps), mainly due to an estimated net tariff impact of roughly 200 bps. Lower discounting resulted in a higher average unit retail. Rent, occupancy and depreciation, as a percentage of sales, leveraged 10 bps year over year.
Further, the adjusted operating margin of 5.4% fell 80 bps in the reported quarter from last year’s adjusted operating margin. Our model anticipated an adjusted operating margin of 5.2%.
Operating expenses were $1.4 billion, up 2.4% year over year.
Gap ended the fiscal fourth quarter with cash and cash equivalents and short-term investments of $3 billion, up 28.4% from the year-ago period. As of Jan. 31, 2026, it had a total stockholders’ equity of $3.8 billion and a long-term debt of $1.5 billion.
At the end of fiscal 2025, merchandise inventory was up 7% year over year to $2.2 million.
As of Jan. 31, 2026, the company reported net cash from operating activities of $1.3 billion, with free cash flow of $823 million, underscoring its disciplined approach to business management. Capital expenditures for the same period totaled $470 million. GAP paid cash dividends of $62 million during the fourth quarter, and the board has approved a fourth-quarter dividend of $16.50 cents per share. The company also approved a first-quarter fiscal 2026 dividend of $17.50 per share, reflecting an approximate 6% rise.
During fiscal 2025, GAP repurchased 7 million shares for $155 million, ending the year with 372 million shares outstanding. The board also approved a new $1 billion share repurchase authorization. Overall, the company returned $402 million to its shareholders through dividends and share repurchases during fiscal 2025.
As of Jan. 31, 2026, Gap had around 3,500 stores in more than 35 countries, of which 2,474 were company-operated. Net store closures for fiscal 2025 are likely to be about 32.
For fiscal 2026, the company expects net sales to grow 2% to 3% year over year, supported by continued comparable sales growth across its three largest brands, while Athleta sales are projected to decline in the mid- to high-single-digit range in the first half of the year.
Gap forecasts gross margin to be flat to slightly higher compared with fiscal 2025 levels, as higher average unit retails and improved sell-through help offset tariff impacts that are expected to be net neutral for the full year. The effective tax rate is estimated to be roughly 27%. Net interest income is expected to be nearly $10-$15 million compared with $17 million recorded in fiscal 2025.
Regarding SG&A, the company expects adjusted SG&A expenses as a percentage of sales to remain roughly flat year over year as it continues to focus on improving operational efficiency. Management plans to generate approximately $150 million in incremental cost savings through better cost discipline and productivity initiatives.
GAP projects adjusted operating margin in the range of 7.3-7.5% and adjusted earnings per share of $2.20-$2.35, representing 4-10% growth year over year. Capital expenditures are expected to be about $650 million, primarily directed toward store upgrades, technology and supply chain initiatives as the company continues to invest in growth while maintaining disciplined cost management.
For the first quarter of fiscal 2026, the company expects net sales to increase in the range of 1-2% year over year. Gross margin is anticipated to decline roughly 150 to 200 basis points from the prior-year level due to an estimated 200-basis-point tariff headwind. Adjusted operating expenses are expected to be about 35% of net sales.
Some better-ranked stocks are American Eagle Outfitters Inc. AEO, Williams-Sonoma Inc. WSM and Boot Barn Holdings Inc. BOOT.
American Eagle is a speciality retailer of casual apparel, accessories and footwear for men and women aged 15-25 years. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for American Eagle’s fiscal 2026 sales and earnings indicates growth of 2.6% and 13.3%, respectively, from the year-ago reported numbers. AEO has a trailing four-quarter earnings surprise of 37.6%, on average.
Williams-Sonoma is a multichannel specialty retailer of premium-quality home products. It carries a Zacks Rank #2 (Buy) at present.
The Zacks Consensus Estimate for Williams-Sonoma’s fiscal 2025 sales indicates growth of 1.9% from the previous year’s reported figure, while the estimate for earnings suggests a year-over-year decline of 1%. WSM has a trailing four-quarter average earnings surprise of 8.6%.
Boot Barn operates as a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories. It currently carries a Zacks Rank of 2.
The Zacks Consensus Estimate for Boot Barn’s current fiscal-year sales and earnings indicates growth of 17.6% and 26%, respectively, from the year-ago reported numbers. BOOT has a trailing four-quarter earnings surprise of 4.9%, on average.
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This article originally published on Zacks Investment Research (zacks.com).
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