Gap Cuts Sales Forecast, Raises EPS Outlook
Gap cuts sales forecast and raises EPS guidance after mixed quarterly results, with Old Navy weakness and margin recovery reshaping investor positioning.
KEY TAKEAWAYS
- Gap cut FY net-sales growth guidance by 1 percentage point to roughly 1.0%-2.0% year over year.
- Old Navy assortments reduced traffic and conversion and were cited as the primary driver of the sales cut.
- Company raised full-year EPS outlook on margin recovery, cost discipline, and $464 million in shareholder returns.
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Gap Inc. cut its full-year sales forecast and raised its earnings-per-share (EPS) guidance on May 28, 2026, after reporting mixed first-quarter results. The company cited weaker traffic at Old Navy and pressured U.S. discretionary spending as reasons for the sales downgrade, even as gross margins improved.
Quarter Results and Guidance
For the quarter ended May 2, 2026, Gap reported net sales up about 1.0% year over year, with comparable sales rising roughly 2.0%, marking the ninth consecutive quarter of positive comparable sales. Gross margin reached approximately 40.5%, exceeding prior outlooks. The company attributed ongoing margin recovery to lower discounting, improved product costing, and normalized freight costs.
Gap returned about $464 million to shareholders in the quarter through share repurchases and dividends. Despite trimming its full-year net sales growth forecast by one percentage point to a range of roughly 1.0% to 2.0%, the company raised its full-year EPS guidance. The EPS outlook reflects stronger margin performance, merchandising and sourcing gains, disciplined inventory management, SG&A expense control, and the impact of share buybacks.
Management described fiscal 2026 as another year of margin recovery from recent lows, supported by lower promotional intensity and supply chain efficiencies. The company plans to balance shareholder returns with reinvestment in brand initiatives and store and technology projects.
Old Navy and Consumer Trends
Old Navy, Gap’s largest banner, was the main drag on results. Management said spring and summer assortments failed to resonate with core shoppers, reducing traffic and conversion rates. This merchandising misstep primarily affected Old Navy’s price-sensitive customer base and led to the lowered sales outlook.
The company also cited macroeconomic uncertainty and pressured U.S. discretionary spending, noting that budget-conscious consumers are pulling back on nonessential apparel purchases and increasingly favor value and versatility. In contrast, Gap, Banana Republic, and Athleta performed closer to expectations, contributing to market-share gains and improved profitability.
Gap faces a near-term tradeoff between earnings leverage from margin recovery and capital returns and slower top-line growth driven by Old Navy’s challenges. Management’s task will be to sustain revenue growth by addressing assortment and traffic issues at Old Navy while maintaining cost and inventory discipline that supports the EPS outlook.
