By Neil J Kanatt
(Reuters) -Gap on Thursday reported comparable sales below Wall Street estimates as customers pulled back on discretionary spending, and it said U.S. tariffs would squeeze its margins in the current quarter.
Shares of the company were down about 2% in extended trading.
Inflationary prices and uncertainty arising from the Trump administration’s trade policy have curbed consumer spending, challenging CEO Richard Dickson’s turnaround efforts to revitalize its brands.
For the quarter ended August 2, Gap’s comparable sales rose 1%, missing estimates of 2.26% growth, while net sales rose slightly to $3.73 billion, almost in line with analysts’ estimates, according to data compiled by LSEG.
In the quarter, net sales in its cheaper Old Navy and namesake Gap brands ticked up 1% each. But sales fell in its pricier brands Banana Republic and Athleta. Sales in the athleisure brand continued their decline, falling 11%.
“Dickson has delivered on his promise to reinvigorate the Gap brand, though it remains to be seen if or how he can do the same for Athleta, where sales continue to decline,” said Sky Canaves, analyst at EMarketer.
Gap, like rivals including American Eagle and Levi Strauss, has pushed its denim line with a new viral “Better in Denim” campaign featuring the global girl group KATSEYE to bump up sales.
The campaign comes weeks after American Eagle’s “Great Jeans” denim campaign with actress Sydney Sweeney.
The company now expects annual operating margin to be between 6.7% and 7%, compared with 7.4% in 2024.
The forecast includes a tariff impact in the range of 100 to 110 basis points, which translates to a hit of $150 million to $175 million.
Canaves said the company’s profit margins could deteriorate as the year progresses.
“Tariff impacts, combined with a heavily promotional environment during the holidays, squeeze margins further.”
In May, Gap announced $250 million to $300 million in tariff-related costs and aimed to mitigate more than half of that amount while working to reduce exposure to countries struck with high tariffs on imports to the United States.
(Reporting by Neil J Kanatt in Bengaluru; Editing by Maju Samuel)
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