Gap Inc. trimmed its full-year sales forecast on Thursday after its largest brand, Old Navy, posted weaker-than-expected comparable sales growth due to merchandising failures in women's seasonal wear, even as the retailer raised its annual earnings guidance on the back of favorable tax rates, interest income, and anticipated tariff relief.
The company now projects fiscal 2026 net sales growth of 1% to 2%, down from its earlier outlook of 2% to 3%. The revised forecast follows Old Navy's comparable sales rising only 1% in the first quarter ended May 2, against analyst expectations of 3% growth.
Because Old Navy accounts for nearly 60% of Gap's total revenue, its underperformance dragged on the company's overall results, according to CNBC.
CEO Richard Dickson attributed the Old Navy shortfall to internal execution failures rather than broader consumer weakness. "Seasonal categories have gotten off to a weaker start, in particular dresses, and, bluntly, we have not had the right fashion and value equation for that category," Dickson said on the earnings call. He added that trends have begun to improve after the company sharpened its price points and strengthened its messaging.
Despite the sales downgrade, Gap raised its full-year adjusted earnings-per-share guidance to $2.30–$2.40, up from a prior range of $2.20–$2.35, Financial Content reported.
CFO Katrina O'Connell credited the improvement to a more favorable effective tax rate of approximately 25%, net interest income of around $25 million, and roughly $80 million in expected tariff relief.
Gap's first-quarter net sales reached $3.50 billion, up 1% year over year but slightly below the Wall Street consensus of $3.53 billion. Gross margin came in at 40.5%, while net income surged to $339 million, or $0.90 per diluted share, compared to $193 million, or $0.49 per share, a year ago, though those figures include a one-time legal settlement benefit. Adjusted diluted EPS of $0.38 was in line with analyst estimates.
The Gap brand was the standout, with comparable sales up 10% for its tenth consecutive positive quarter. Athleta remained a drag, with net sales falling 12% to $270 million and comparable sales down 11%, and executives called 2026 a "rebuild year" for the brand. Gap's stock fell roughly 15% in after-hours trading following the release, as per Yahoo Finance.
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