Gap (GAP) looks to be defying conventional wisdom on tariffs.
The company on Thursday bucked the trend of ugly retailer earnings this week, beating profit estimates and signaling a respectable year ahead. Gap’s full-year outlook was generally in line with consensus forecasts despite tariff impacts in the key sourcing region of China.
“We’re all dealing with tariffs,” Gap CEO Richard Dickson told me on Yahoo Finance (video above). “We’re monitoring the developments of tariffs on an hourly basis. We source less than 10% of our product from China and less than 1% of our product comes from Canada and Mexico combined. So our guidance contemplates what we know today regarding the tariff policy.”
Gap sees a “small” negative impact on its margins based on tariffs as they stand today.
Read more: What Trump’s tariffs mean for the economy and your wallet
Added Dickson, “When we look at our supply chain as we all are, we’ve strengthened it over the last several years, and we’re going to continue to diversify our product manufacturing footprint and ensure that we’re agile and we respond accordingly.”
The company appears to be benefiting from a sticky turnaround at the Gap division, led by better marketing campaigns. Styles have also improved under noted designer Zac Posen, who was appointed creative director of Gap and chief creative officer of Old Navy in February 2024.
Old Navy looks to be getting its house in order as it follows a similar playbook to Gap.
“Our market share performance is showing us that we are doing what’s right,” Dickson said.
Gap stock popped 17% in premarket trading on Friday as investors digested the big earnings beat and non-dire guidance.
“Huge [earnings print],” one source that covers Gap told me by email.
Listen: Why Walmart is clobbering rivals
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Net sales: -3% year over year to $4.1 billion, vs. $4.07 billion estimate
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Comparable sales:
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Old Navy: +3% compared to +2% last year, vs. +1.74% estimate
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Banana Republic: +4% compared to -4% last year, vs. -1.24% estimate
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Gap: +7% compared to +4% last year, vs. +1.67% estimate
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Athleta: -2% compared to -10% last year, vs. +4.6% estimate
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Gross margin: 38.9% compared to 38.9% last year, vs. 38.1% estimate
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Diluted earnings per share: $0.54 vs. $0.38 estimate
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No post-holiday inventory bulge: Inventory levels rose 3.6% from the prior year.
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Trend watch: The company’s same-store sales rose in all four quarters of 2024.
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Flush with cash: The company’s total cash position surged 38% year over year to $2.6 billion.
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Guidance:
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2025
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Net sales: +1% to +2% (consensus: +2%)
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Operating income: +8% to +10% (consensus: +2%)
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Tariffs: assumes “small” margin impact from tariffs
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Q1 2025
