In this articleGAPFollow your favorite stocksCREATE FREE ACCOUNTPeople walk past the entrance of a Gap store in Paris, France, July 1, 2021. Sarah Meyssonnier | ReutersGap stock fell in extended trading on Thursday after the company warned tariffs will impact its profits moving forward.When Gap last reported results in May, it said it expected tariffs to cost between $100 million and $150 million on a net basis, but on Thursday, it said those costs are now going to be between $150 million and $175 million. Its full-year operating margin is expected to be between 6.7% and 7%, down from 7.4% in the previous fiscal year, reflecting a tariff impact between 1 percentage point and 1.10 percentage points.In its current quarter, its expecting its gross margin to be down between 1.5 and 1.7 percentage points, driven by tariff costs.Beyond tariffs, the specialty apparel company behind Old Navy, Athleta, Banana Republic and its namesake banner delivered mixed results in its fiscal second quarter. Here’s how Gap performed in the quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:Earnings per share: 57 cents vs. 55 cents expectedRevenue: $3.73 billion vs. $3.74 billion expectedThe company’s reported net income for the three-month period that ended Aug. 2 was $216 million, or 57 cents per share, compared with $206 million, or 54 cents per share, a year earlier. Sales rose to $3.73 billion, up slightly from $3.72 billion a year earlier. Sales came in lower than expected and so did comparable sales. During the quarter, comparable sales rose 1%, weaker than the 1.9% rise that analysts had expected, according to StreetAccount.While Gap, Banana Republic and Old Navy all saw comparable sales rise during the quarter, Athleta dragged down the company’s overall performance with comps down 9%. “Clearly, Athleta is a powerful brand in the active space, being the number five brand in the space, but we’re disappointed in the quarter. We have moved away, if you will, from really distinctive performance roots,” CEO Richard Dickson told CNBC in an interview. “We’ve paid a lot of attention, trying to court a new customer, and ultimately didn’t have enough offerings for our core customer. As we balance that out, we’ve been very transparent to say it’s a year of reset for us.” Last month, Gap announced that Maggie Gauger, a longtime veteran of Nike, had been tapped as Athleta’s next CEO — the third top executive hired to helm the brand in the last two years. The company reaffirmed its fiscal 2025 net sales growth outlook and is continuing to expect revenue to grow between 1% and 2%, in line with estimates of 1.6%, according to LSEG. For the current quarter, Gap is expecting sales to grow between 1.5% and 2.5%, better than the 2% that analysts had estimated, according to LSEG.To offset the impact of tariffs, Gap is doing what other companies are doing: working with its suppliers, adjusting its sourcing, diversifying its supply chain and taking targeted price increases where appropriate. Notably, the company said it doesn’t expect the annualization of tariffs to cause any further declines in operating income in 2026. “As it relates to pricing, we’re making targeted adjustments with pricing, as we always do. There isn’t anything that we’ve done that is substantially different,” Dickson said. “We focus on making sure that we’re presenting to our consumer the right value proposition, and ultimately want to make even more sure that we’re sustaining the momentum and market share gains that our playbook has been performing.” Just over two years into Dickson’s tenure as Gap’s CEO, the …
