Gap Earnings Show Athleta Drag, Buyback Plan

Gap Inc. reported mixed fourth-quarter earnings on March 5, 2026, as Athleta’s ongoing sales decline weighed on profits while Old Navy, Gap, and Banana Republic posted comparable sales gains. Management emphasized a long-term rebuild for Athleta and authorized a fresh $1 billion share buyback.

Fourth-Quarter Results and Brand Performance

Gap Inc. said in a press release on March 5, 2026, that fourth-quarter net sales rose 2% year-over-year to $4.2 billion, with comparable sales up 3% for the eighth consecutive quarter. Diluted earnings per share (EPS) matched consensus at $0.45. Operating income totaled $229 million, a 5.4% margin, while net income was $171 million. Gross margin narrowed 80 basis points to 38.1%, and merchandise margin slipped 90 basis points, partly due to a roughly 200-basis-point net tariff impact.

By brand, Old Navy posted net sales of $2.3 billion, up 3% with comparable sales also up 3%. The Gap brand recorded $1.1 billion in net sales, up 8% with comps rising 7%. Banana Republic’s net sales increased 1% to $549 million, with comps up 4%. Athleta’s net sales fell 11% to $354 million, with comparable sales down 10%, highlighting the brand’s continued weakness.

Online sales accounted for 42% of total revenue, rising 5% year-over-year. The company operates about 3,500 stores across 35 countries, including 2,474 company-operated locations. Historic winter storms forced approximately 800 temporary store closures, which affected results.

Fiscal 2026 Outlook and Capital Returns

For the full fiscal year, Gap Inc. reported net sales of $15.4 billion, up 2% from the prior year, with comparable sales rising 3%. Gross margin declined 50 basis points to 40.8%, with merchandise margin down 80 basis points partly due to a 120-basis-point net tariff impact. Operating income reached $1.1 billion, a 7.3% margin that exceeded the company’s outlook. Net income was $816 million, with diluted EPS of $2.13. Operating cash flow totaled $1.3 billion, free cash flow was $823 million, and cash and equivalents stood at $3.0 billion.

Gap’s fiscal 2026 guidance calls for net sales growth of 2% to 3%, with gross margin expected to be flat to slightly higher than last year’s figure. Adjusted operating expenses are projected to remain roughly flat at 33.5% of sales, resulting in an adjusted operating margin between 7.3% and 7.5%. Adjusted diluted EPS is forecast at $2.20 to $2.35. The company expects net interest income of $10 million to $15 million, an effective tax rate near 27%, capital expenditures around $650 million, and net store closures to be roughly flat.

For the first quarter, Gap anticipates net sales growth of 1% to 2%, with gross margin declining 150 to 200 basis points, including a roughly 200-basis-point tariff headwind. Management expects continued comparable sales growth at Old Navy, Gap, and Banana Republic, while projecting negative mid-to-high single-digit sales declines for Athleta in the first half. The quarter includes a $313 million net gain from a legal settlement, offset by a $50 million charitable pledge. The company also plans to accelerate new store formats for the Gap brand.

The board authorized a $1 billion share repurchase and set the first-quarter dividend at $0.175 per share, a 6% increase from a year earlier. Chief Executive Richard Dickson said, "We remain focused on rebuilding the brand for the long term." The buyback and dividend increase, combined with the company’s cash-flow profile, position fiscal 2026 as a period of measured growth and shareholder returns while Athleta undergoes a longer-term rebuild.