10-Q · May 29, 2026
Gap Inc. reported solid Q1 FY2026 results with net sales of $3.5 billion, a 1% increase year-over-year, and diluted EPS of $0.90, exceeding expectations substantially. However, concerns arose from a lowered sales…
Earnings analysis · 10-Q
GAP earnings analysis
Filed August 28, 2026 · Our reading of the company's report
The latest report
Gap’s Q2 results showed a sharp improvement in reported profitability, with revenue down 2% to $3.651 billion but gross margin rising to 52.8% and operating margin to 18.5%. However, approximately $417 million of net…
Read full summary
Gap’s Q2 results showed a sharp improvement in reported profitability, with revenue down 2% to $3.651 billion but gross margin rising to 52.8% and operating margin to 18.5%. However, approximately $417 million of net IEEPA tariff recoveries materially inflated gross profit and diluted EPS of $1.38, while Old Navy and Athleta comparable sales fell 4% and 12%, respectively. Liquidity was strong, with $2.10 billion of cash, $382 million of short-term investments, and no ABL borrowings, while first-half free cash flow increased to $261 million. The 10-Q reports no material changes to the risk factors in the January 31, 2026 Form 10-K.
Gross and operating margin
How much of each revenue dollar the business keeps.
One point per quarterly or annual filing. Both margins are shares of that report's revenue.
From revenue to operating profit
Where each $100 of revenue went in this report.
Cost of sales, operating expenses, and what remained. Figures are rounded to whole dollars.
How we read each report
Our analysis across the last few reports.
Our model's reading of each filing, not the share price or the market's reaction. Annual and quarterly reports each occupy one position.
Reported figures
- Earnings per share
- $1.38
- Segment
- Old Navy Global: comparable sales decreased 4% in Q2 and 1% in the first half.
- Segment
- Gap Global: comparable sales increased 10% in Q2 and 10% in the first half.
- Segment
- Banana Republic Global: comparable sales increased 3% in Q2 and 2% in the first half.
- Segment
- Athleta Global: comparable sales decreased 12% in Q2 and 11% in the first half.
What stood out
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Revenue declined 2% year over year
Q2 net sales decreased $74 million, or 2%, year over year, to $3.651 billion. The decline was primarily driven by lower sales at Old Navy Global and Athleta Global, partly offset by Gap Global.
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Tariff recovery drove margin surge
Gross profit increased to $1.929 billion from $1.536 billion, while gross margin expanded to 52.8% from 41.2%, an 11.6-point improvement. Approximately $417 million of net IEEPA tariff recoveries drove 11.4 points of the gross-margin benefit.
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Operating leverage improved sharply
Operating income rose to $676 million from $292 million, and operating margin expanded to 18.5% from 7.8%. Operating expenses increased $9 million, or 0.9 percentage points of sales, due primarily to strategic investments.
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Reported EPS more than doubled
Reported diluted EPS increased to $1.38 from $0.57, and net income rose to $501 million from $216 million. The quarter included approximately $417 million of net IEEPA tariff recoveries, making reported earnings substantially nonrecurring in nature.
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Gap strength offset by weak brands
Brand performance diverged: Gap Global comparable sales rose 10%, while Old Navy Global fell 4% and Athleta Global fell 12%; Banana Republic Global increased 3%. Total company comparable sales decreased 1% in Q2.
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Free cash flow improved despite higher capex
First-half operating cash flow increased to $550 million from $308 million, and free cash flow rose to $261 million from $127 million. Purchases of property and equipment increased to $289 million from $181 million, up $108 million year over year.
What to watch
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One-time tariff benefit distorts margins
The $417 million net IEEPA tariff recovery included in Q2 gross profit may not recur. Management states that gross margins in Q2 and the first half may not be indicative of the remainder of fiscal 2026 because tariff rates and refund processing remain uncertain.
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Old Navy and Athleta weakened
Old Navy Global comparable sales decreased 4% and Athleta Global comparable sales decreased 12% in Q2, while total company comparable sales decreased 1%. The weakness at two major brands creates execution and recovery risk.
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Tariff refund collection remains uncertain
The company received approximately $95 million of tariff refunds, with the remaining $417 million recorded in other current assets. Management is still assessing the timing and extent of additional recoveries, creating balance-sheet and cash-realization uncertainty.
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Higher capex and buybacks use cash
Capital spending increased by $108 million year over year to $289 million in the first half, while the company repurchased $449 million more stock than in the prior-year period. Higher investment and shareholder returns could reduce financial flexibility if operating performance deteriorates.
Management's outlook
The 10-Q does not provide quantitative guidance. The previously disclosed outlook was in the August 27, 2026 earnings release: adjusted full-year EPS of $2.35-$2.45, reported diluted EPS of $3.77-$3.87, full-year net sales growth of 1%-1.5%, and Q3 sales growth of 1.5%-2.5%.
Earlier filings 4
10-K · March 17, 2026
Gap Inc. presents itself as a house of differentiated brands (Old Navy, Gap, Banana Republic, Athleta) executing an omni‑channel strategy with shared supply‑chain and digital investments (including AI and a rebranded…
10-Q · August 29, 2025
Gap Inc. reported essentially flat quarterly net sales of $3,725 million for the 13 weeks ended August 2, 2025 (vs $3,720 million a year ago) with diluted EPS of $0.57 (vs $0.54 a year ago). Gross profit compressed to…
10-Q · May 30, 2025
Gap Inc. reported 13-week net sales of $3,463,000,000 (up $75,000,000 or 2.2% vs the 13 weeks ended May 4, 2024) and diluted EPS of $0.51 (vs $0.41 a year ago). Gross margin improved to 41.8% and operating income rose…
This is our reading of a public filing, not the filing itself. Analysis can contain errors; check the source document for full context.