Gap Inc. Cuts Sales Outlook After Q1 Miss, Shares Drop 17%
Gap Inc. NYSE: GAP delivered a mixed first-quarter report Thursday after the bell, slightly missing Wall Street’s earnings and revenue expectations for the second consecutive quarter while lowering its full-year sales outlook due to weaker-than-expected performance at its Old Navy brand.
Although the company, which is in the midst of a multiyear turnaround, raised its full-year earnings guidance, investors seemed more concerned about the slowing top-line growth, sending shares down about 17% following the report.
Gap’s Q1 Results Reflect Uneven Brand Performance
Gap reported adjusted diluted earnings per share (EPS) of 38 cents, down from 51 cents a year ago and a penny below Wall Street’s expectations. Revenue rose to $3.5 billion, up 1% year over year, but fell roughly $28 million short of analyst estimates.
GAP Today
- 52-Week Range
- $18.68
▼
$29.36
- Dividend Yield
- 3.31%
- P/E Ratio
- 8.32
- Price Target
- $28.71
Comparable sales (comps) increased 2%, marking the retailer’s ninth consecutive quarter of positive comp growth, while gross margin of 40.5% exceeded the company’s guidance.
On the earnings call, CEO Richard Dickson acknowledged that performance was uneven across the company’s portfolio during the quarter.
“Overall, at the company level, the quarter was in line with our expectations. However, results at the brand level were more varied, reflecting both the different stages of their transformation and some brand-specific dynamics,” Dickson said.
Three of Gap’s four brands posted positive year-over-year comps. Gap’s namesake brand remained a standout performer, with comps rising 10% and extending its streak of positive comps to 10 consecutive quarters. Banana Republic also continued to gain traction, posting 2% comps growth and marking its fourth straight quarter of positive comps.
Old Navy, the company’s largest brand, posted 1% comps growth but fell short of expectations due to a weaker-than-expected customer response to its seasonal dress assortment. Athleta remained a sore spot, with comps declining 11% as the brand continued working through legacy inventory and broader turnaround efforts.
Lower Sales Outlook Overshadows Higher EPS Guidance
The weaker-than-expected performance at Old Navy prompted the company to lower its sales guidance, though it raised its EPS forecast to reflect favorable interest income, tax, and share-count assumptions.
Net sales are now expected to be up 1% to 2% year over year, down from the company’s earlier guidance of 2% to 3%. Meanwhile, the company raised its adjusted EPS outlook to $2.30 to $2.40 per share, up from its earlier estimate of $2.20 to $2.35 per share.
The company also expects roughly $80 million in net tariff relief, though it is reserving about half to offset the potential impact of higher fuel costs and the remainder to respond to changes in the promotional and competitive environment.
Gap also issued guidance for the second quarter, expecting net sales to be flat to down 1% over the previous year, with gross margin flat to down 50 basis points.
Gap’s Volatile Year Continues Following Earnings Report
Investors were clearly disappointed with the report, sending shares sharply lower. The move added to what has already been a bumpy year for the stock as investors reacted to developments related to the retailer’s turnaround efforts.
The Gap, Inc. (GAP) Price Chart for Saturday, May, 30, 2026
Despite the volatile backdrop, investors responded positively to improving results across much of Gap’s portfolio early in the year, sending shares to a 52-week high above $29 on Jan. 9. However, the stock tumbled more than 14% following the company’s fourth-quarter earnings report in early March after results came in just shy of expectations.
The stock has struggled to regain momentum since then. Ahead of Thursday’s report, shares were trading just under $25. Following the sell-off, they are now trading below $21. Over the last three months, shares have fallen roughly 25%, while the stock is down about 18% year to date.
Analysts Remain Optimistic Despite the Pullback
Wall Street has remained largely optimistic on Gap, though analyst sentiment has been somewhat mixed in recent months, and at least three analysts lowered their price target following the latest earnings report.
The stock carries a Moderate Buy consensus rating. Among the 18 analysts covering the company, 12 rate the stock a Buy, while six have Hold ratings. The average 12-month price target is just under $29, implying more than 35% upside from recent trading levels.
The recent pullback has also lowered Gap’s valuation. Shares currently trade at about 10X earnings, below the broader retail industry average P/E ratio of around 17X. The stock’s price-to-sales ratio of less than 0.5 is also well below the industry average of approximately 1.1.
Gap trades at a lower earnings multiple than American Eagle Outfitters Inc. NYSE: AEO, which carries a P/E ratio of around 14X, though above Abercrombie & Fitch Co.’s NYSE: ANF multiple of roughly 7X. On a price-to-sales basis, Gap trades slightly above American Eagle and modestly below Abercrombie, which just reported strong Q1 earnings.
Gap’s latest quarter offered evidence that its turnaround remains on track, particularly at the namesake Gap brand. However, as it was a second consecutive earnings and revenue miss, combined with a lower sales forecast, the positives were overshadowed. Going forward, investors will be watching whether the challenges at Old Navy prove temporary while monitoring signs that Athleta’s turnaround efforts are gaining traction.
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