The Gap, Inc. (GAP Quick QuoteGAP - Free Report) reported second-quarter fiscal 2025 results, wherein the bottom line surpassed the Zacks Consensus Estimate and grew year over year. Meanwhile, revenues missed the Zacks Consensus Estimate by a slight margin and were flat year over year.

Quarterly results benefited from stronger profitability and steady sales momentum, supported by positive comparable sales across Old Navy, Gap and Banana Republic. The company’s reinvigoration playbook continued to drive brand relevance and consumer engagement, even as Athleta remained in reset mode. Disciplined cost management, sharper storytelling and category leadership in areas like denim and activewear further reinforced Gap’s transformation progress and positioned the business for long-term sustainable growth.

GAP posted second-quarter earnings of 57 cents per share, which surpassed the Zacks Consensus Estimate of 55 cents and jumped 5.6% from the prior-year quarter’s figure.

The Gap, Inc. Price, Consensus and EPS Surprise

The Gap, Inc. price-consensus-eps-surprise-chart | The Gap, Inc. Quote

Net sales of $3.73 billion came in slightly below the consensus estimate of $3.74 million and were in line with prior-year figures. Comparable sales (comps) rose 1% year over year. The company saw sturdy results at Old Navy, momentum at Gap and progress at Banana Republic. Online sales rose 3% year over year, accounting for 34% of the total sales. Store sales declined 1% year over year.

Shares of this Zacks Rank #5 (Strong Sell) company have lost 2.9% in the past three months against the industry’s 4.1% growth.

GAP Stock's Price Performance

Image Source: Zacks Investment Research

GAP’s Brand-Wise Sales & Comps Performance

Old Navy: Net sales at Old Navy Global edged up 1% year over year to $2.2 billion. Comps rose 2% year over year. This marked the brand’s tenth straight quarter of market share gains, thus strengthening its leadership position as the major specialty apparel brand and retailer in the United States. Sales for Old Navy Global beat our model’s estimate of $2.1 billion.

Gap Global: Net sales rose 1% year over year to $772 million, while comps increased 4%, highlighting the seventh straight quarter of positive comps. The company’s brand-reinvigoration efforts aided the performance. Our model estimates sales for Gap Global to be $784.2 million.

Banana Republic: Net sales dropped 1% year over year to $475 million, while comps rose 4% year over year. Sales lagged our estimate of $492.5 million. The company’s focus on reestablishing the brand and improving fundamentals aided results.

Athleta: Net sales dropped 11% year over year to $300 million and comps also dipped 9%. Net sales were below our estimate of $346.6 million. Although the brand had a tough quarter, the company continues to reset the brand as well as boost product and marketing.

GAP’s Margins & Costs

The gross margin of 41.2% rose 140 basis points (bps) year over year. Meanwhile, we estimated the adjusted gross margin to be 41.8%.

The merchandise margin declined 150 basis points (bps), mainly due to the absence of the prior-year benefit from incremental sales tied to the company’s credit card revenue-sharing agreement. Rent, occupancy and depreciation, as a percentage of sales, leveraged 10 bps year over year.

Further, the operating margin of 7.8% fell 10 bps in the reported quarter from last year’s adjusted operating margin. Our model anticipated an adjusted operating margin of 7.4%.

Operating expenses were $1.2 billion, down 3.6% year over year.

GAP’s Financial Health Snapshot

Gap ended the fiscal second quarter with cash and cash equivalents of $2.4 billion, up 13% from the year-ago period. As of Aug. 2, 2025, it had a total stockholders’ equity of $3.4 billion and a long-term debt of $1.5 billion.

At the end of the fiscal second quarter, merchandise inventory was up 9% year over year to $2.3 million.

As of Aug. 2, 2025, the company reported net cash from operating activities of $308 million, with free cash flow of $127 million, underscoring its disciplined approach to business management. Capital expenditures for the same period totaled $181 million. GAP paid cash dividends of $62 million and repurchased shares of $82 million in the 26 weeks ended Aug. 2, 2025. It had roughly $371 million available in its share repurchase authorization. The company’s board has approved a third-quarter fiscal 2025 dividend of 16.50 cents per share. For fiscal 2025, capital expenditure is expected to be $500-$550 million.

As of Aug. 2, 2025, Gap had around 3,500 stores in more than 35 countries, of which 2,486 were company-operated. Net store closures for fiscal 2025 are likely to be about 35.

What to Expect From GAP in Q3 & FY25?

Management expects the company to continue operating in a highly dynamic landscape for fiscal 2025. GAP’s outlook assumes a relatively stable macroeconomic backdrop but recognizes potential uncertainties stemming from consumer behavior as well as global economic and geopolitical factors.

For fiscal 2025, management continues to project sales growth of 1-2% from the $15.1 billion recorded in fiscal 2024. This assumes continued strength at Old Navy, Gap, and Banana Republic and a long recovery at Athleta.

The company forecasts gross margin to deleverage by approximately 70 to 90 basis points year over year, primarily driven by an estimated annual net tariff impact of 100 to 110 basis points. Regarding SG&A, Gap continues to expect slight leverage for the full year, with roughly $150 million in cost savings likely to be accomplished in fiscal 2025. Part of the cost savings will be reinvested in future growth.

For fiscal 2025, operating income is projected to rise 6-7% from the prior year’s figure of $1.11 billion, excluding any tariff impacts. Management presently estimates a net impact of around $150-$175 million to the operating margin in the current fiscal year based on the existing tariff policy. The effective tax rate is estimated to be roughly 27%. Net interest income is expected to be nearly $15 million compared with $25 million recorded in fiscal 2024.

For the fiscal third quarter, net sales are projected to increase 1.5% to 2.5% year over year, supported by strong performance so far, especially at Old Navy and Gap, where back-to-school demand is performing well. Gross margin is anticipated to decline by roughly 150 to 170 basis points year over year, primarily due to an estimated net tariff impact of about 200 basis points, which outweighs the underlying margin growth in the business. Finally, because some investments moved from Q2 into Q3, the management expects SG&A expenses to rise slightly compared to last year in the third quarter.

Key Picks

Some top-ranked stocks are Levi Strauss & Co. (LEVI Quick QuoteLEVI - Free Report) , Genesco Inc. (GCO Quick QuoteGCO - Free Report) and Torrid Holdings (CURV Quick QuoteCURV - Free Report) .

Levi designs and markets jeans, casual wear and related accessories for men, women and children. It flaunts a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Levi’s current fiscal-year earnings indicates growth of 4% from the year-ago actual. LEVI delivered a trailing four-quarter average earnings surprise of 25.9%.

Genesco operates as a retailer and wholesaler of footwear, apparel and accessories, and presently carries a Zacks Rank of 2 (Buy). GCO delivered a trailing four-quarter earnings surprise of 28.1%, on average.

The Zacks Consensus Estimate for Genesco’s current fiscal-year earnings and sales indicates growth of 65.9% and 1.5%, respectively, from the year-ago period’s reported figures.

Torrid Holdings currently carries a Zacks Rank #2. The Zacks Consensus Estimate for Torrid Holdings’ 2025 sales and EPS indicates a decrease of 5.6% and 6.7%, respectively, from the year-ago period’s levels. CURV delivered a trailing negative four-quarter average earnings surprise of 10.5%.