Core Insights - Gap Inc. has integrated Klarna's payment options into its U.S. brands, enhancing customer payment flexibility [1][2] - Klarna offers two payment methods: Pay in Full for immediate payment and Pay in 4 for splitting costs into four interest-free installments [2][3] - The adoption of buy now, pay later (BNPL) options is significant among U.S. consumers, with a notable impact on purchasing behavior [3][4] Company Developments - Gap Inc. aims to provide customers with more choices and control over their payment methods across its brands [3] - Klarna's Chief Commercial Officer highlighted the importance of offering flexible payment options to enhance the shopping experience [3] Market Trends - The adoption rate of active BNPL accounts varies significantly by age, with nearly 25% among consumers aged 25-35 and just over 5% among those aged 65 and older [4] - A significant portion of consumers (43%) indicated they would not make a purchase without BNPL options, while 42% would opt for cheaper alternatives [4] Klarna's IPO Performance - Klarna's shares rose 15% on its IPO day, reflecting strong market interest in BNPL services [5] - The company priced its IPO at $40, with shares opening at approximately $52 and peaking near $57 before settling around $45.82 [5] - Klarna reported serving 111 million active consumers and 790,000 merchants across 26 countries prior to its IPO [5]

Group 1 - A challenging macroeconomic environment is emerging for investors as the Q2 earnings season concludes, particularly affecting consumer-facing companies in the retail sector [1] - Retail companies have been issuing warnings about their performance since the beginning of the year, indicating potential struggles ahead [1] Group 2 - Gary Alexander, with extensive experience in technology and investment, has been actively contributing insights on industry trends since 2017 [1]

Financial Data and Key Metrics Changes - The company reported significant margin expansion of 700 basis points from 2022 to 2024, achieving historical highs in its current margin profile [12] - Earnings per share (EPS) growth was the strongest in six years, indicating improved financial performance [13] - The balance sheet is strong, with total assets reported at $2.4 billion, reflecting a significant increase [13] Business Line Data and Key Metrics Changes - The company has achieved six consecutive quarters of comparable sales growth, indicating a positive trend in performance [11][33] - The flagship brand Gap has been reinvigorated with successful marketing campaigns, contributing to the overall growth [28][30] - Old Navy is positioned as the number one specialty apparel retailer in the country, with a strong focus on the active category [40] Market Data and Key Metrics Changes - The company is focusing on three strategic categories: active, denim, and kids and baby, which are expected to drive future growth [17][46] - The beauty and accessories categories are identified as high-potential areas for growth, with plans to invest and expand in these segments [51][56] Company Strategy and Development Direction - The company aims to become a high-performing house of iconic brands, focusing on brand reinvigoration and operational rigor [6][10] - The transformation journey includes a phased approach, moving from fixing fundamentals to building momentum and accelerating growth [14][50] - The company is enhancing the consumer experience through new store formats and improved merchandising strategies [59][63] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to continue comping the comp, driven by the execution of their playbook and brand relevance [21][23] - The company is optimistic about its market share leadership across categories and the potential for further growth in e-commerce [68][69] - Management emphasized the importance of consistency and accountability in delivering on promises to consumers and investors [15][70] Other Important Information - The company has closed over 350 underperforming stores as part of its fleet rationalization strategy, positioning itself for future growth [60] - The company is actively testing and rolling out new store formats that enhance the shopping experience and align with brand narratives [62][64] Q&A Session Summary Question: What opportunities can fuel continued growth in the business? - Management highlighted the importance of executing the playbook consistently to drive relevance and emotional connectivity with consumers [15][21] Question: What is the approach and strategy for category leadership? - The company is focusing on specific categories like active, denim, and kids and baby, where it believes it has a rightful place to win [17][39] Question: What are the high potential categories for long-term growth? - Management identified beauty and accessories as key areas for investment and growth, leveraging existing brand recognition [51][56]

Financial Data and Key Metrics Changes - The company reported significant margin expansion of 700 basis points from 2022 to 2024, achieving historical highs in its current margin profile [12] - Earnings per share (EPS) growth was the strongest in six years, indicating improved financial performance [13] - The balance sheet is strong, with total assets reported at $2.4 billion, reflecting a significant increase [13] Business Line Data and Key Metrics Changes - The company has experienced six consecutive quarters of comparable sales growth, outperforming the market [11] - The flagship brand Gap has been reinvigorated, with successful campaigns driving relevance and emotional connectivity with consumers [30][31] - Old Navy is recognized as the number one specialty apparel retailer in the country, with a strong performance in the active category [41] Market Data and Key Metrics Changes - The company is focusing on three strategic categories: active, denim, and kids and baby, which are expected to drive growth [17] - The beauty and accessories categories are identified as high-potential areas for future growth, with the beauty market expected to surpass $100 billion in 2025 [54][56] Company Strategy and Development Direction - The company aims to become a high-performing house of iconic brands, focusing on brand reinvigoration and operational rigor [6][10] - The transformation journey includes a phased approach: fixing fundamentals, building momentum, and accelerating growth [14][53] - The company is enhancing the consumer experience through new store formats and improved merchandising strategies [62][66] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to continue comping the comp, driven by the execution of their playbook [22][24] - The company is optimistic about its market share leadership across categories and the potential for further growth in e-commerce [71][72] - Management emphasized the importance of consistency and accountability in achieving their strategic goals [15][73] Other Important Information - The company has closed over 350 underperforming stores as part of its fleet rationalization strategy, positioning itself for future growth [61][62] - The company is actively investing in its omni-channel experience to enhance consumer engagement [18][19] Q&A Session Summary Question: What opportunities can fuel continued growth in the business? - Management highlighted the importance of executing the playbook consistently to drive relevance and emotional connectivity with consumers [15][16] Question: What gives confidence that brands can continue to comp the comp going forward? - Management stated that relentless repetition and focus within the playbook framework provide confidence for future growth [22][24] Question: Talk about the approach and strategy for category leadership. - Management discussed the strategic focus on active, denim, and kids and baby categories, emphasizing innovation and consumer engagement [40][44][47] Question: What high-potential categories can drive long-term growth? - Management identified beauty and accessories as key areas for growth, supported by consumer insights and market trends [53][56]

Group 1: Hong Kong Stocks Performance - BYD Electronics (00285) rose over 7%, reporting a nearly 14% year-on-year increase in net profit for the first half of 2025, with positive progress in AI data center business [1] - Beihai Kangcheng-B (01228) surged over 11%, achieving profitability in the first half of the year and recently forming a strategic partnership with Baiyang Pharmaceutical [1] - MicroPort Medical (00853) increased over 11%, with a reported loss of $46.602 million for the first half of 2025, a 51.9% reduction in loss year-on-year [1] - Bank of China Hong Kong (02388) rose over 6%, reporting a net profit of HKD 22.12 billion for the first half of 2025, with an increase in net trading income year-on-year [1] - UBTECH (09880) increased over 4%, announcing a strategic partnership agreement worth $1 billion with international investment firm Infini Capital [1] - Gold stocks performed well, with China Silver Group (00815) up over 8%, Zhaojin Mining (01818) up over 7%, Shandong Gold (01787) up over 6%, Chifeng Jilong Gold (06693) up over 6%, and Zijin Mining (02899) up over 6%, driven by rising gold prices due to increased interest rate cut expectations [1] Group 2: Chinese Companies' Financial Results - China Communications Construction (01800) fell over 5%, reporting a 16.9% year-on-year decrease in net profit for the first half of 2025 and not declaring an interim dividend [2] - Evergrande Property (06666) declined over 3%, with a 5.6% year-on-year drop in net profit for the first half of the year, with management expressing pessimism about economic benefits from Evergrande Group [2] - Zoomlion Heavy Industry (01157) rose over 2%, reporting a more than 20% year-on-year increase in net profit for the first half of 2025, with institutions optimistic about export growth in the second half [2] - Midea Group (00300) increased over 2%, reporting a 25.04% year-on-year increase in net profit for the first half of 2025 and proposing an interim dividend of HKD 5 per 10 shares [2] Group 3: US Stocks Performance - Autodesk (ADSK.US) rose 9.09%, reporting a 17% year-on-year revenue increase for the second fiscal quarter and raising its full-year revenue and adjusted EPS guidance [3] - Gap (GAP.US) increased 1.52%, with revenue slightly below market expectations for the second fiscal quarter, and management indicated that tariffs may pressure annual gross margins [3] - Marvell Technology (MRVL.US) fell 18.60%, reporting record revenue of $2.01 billion for the second quarter, a 58% year-on-year increase, but provided a Q3 revenue guidance slightly below expectations [3] - Alibaba (BABA.US) surged 12.90%, with a market value increase of $36.7 billion overnight, reporting an 18% year-on-year decline in Non-GAAP net profit, but strong resilience in core business [3] - Ambarella (AMBA.US) rose 16.78%, providing strong guidance for Q3 revenue, expected to be between $100 million and $108 million, reflecting continued growth in edge AI demand [3] - IREN Ltd (IREN.US) increased 14.93%, exceeding expectations in its fourth-quarter earnings report and announcing a priority partnership with NVIDIA [3] Group 4: Other Notable Stocks - Dell Technologies (DELL.US) fell 8.88%, reporting that its infrastructure division's operating profit margin was below expectations [4] - Affirm Holdings (AFRM.US) rose 10.59%, reporting better-than-expected revenue and profit for the fourth fiscal quarter [4] - TryHard Holdings (THH.US) declined 9.80%, issuing 1.5 million shares at $4 each, at the lower end of the pricing range [5] - GrowHub (TGHL.US) increased 1.48%, issuing 3.8 million shares at $4 each, also at the lower end of the pre-set pricing range [5]

Group 1 - The U.S. consumers are facing a new wave of price increases as companies from food giants to hardware chains warn that tariff costs are being passed on to retail prices [1][2] - Major retailers like Walmart, Target, and Best Buy have indicated that tariff-related price hikes are gradually reflected in the costs of grocery items, home goods, and electronics [1] - J.M. Smucker warned of a 22% drop in coffee profits due to tariffs, leading to further price increases [1] - Hormel Foods noted a sharp rise in commodity input costs after its quarterly performance fell short of expectations, resulting in a 12% drop in its stock price [1] - A recent ruling by a federal appeals court deemed most of Trump's global import tariffs unconstitutional, adding uncertainty to future costs for retailers and consumers [1] Group 2 - The former CEO of Gap expressed that the current situation is beyond control, indicating that businesses cannot determine the relationship between product costs, retail pricing, and profit margins [2] - Retail executives warned that more price increases are imminent as new inventory is procured at higher costs [2] - Walmart's CEO mentioned that the company is trying to maintain low prices as long as possible, but costs are expected to continue rising into the third and fourth quarters [2] - The economic pressure is forcing retailers to weigh how much cost can be absorbed and how much will inevitably be passed on to consumers [2] - A consumer confidence survey showed a nearly 6% decline in August compared to July, with inflation expectations rising from 4.5% to 4.8% [2] Group 3 - Consumer behavior in the U.S. is changing, with households across income levels becoming more selective about where and how they spend [3] - Whirlpool's CEO noted that consumers are starting to purchase lower-end products, while Procter & Gamble observed a slight downgrade in brand preferences [3] - The concept of "alternative consumption" is emerging, where consumers opt for cost-effective substitutes rather than purely downgrading [3] - Retailers like TJX, Ross, and Marshall's are benefiting as consumers seek lower-priced brand items [3]

Core Insights - Retailers, including Gap, Inc., are facing challenges due to changing consumer preferences and unpredictable weather affecting seasonal sales [1] - Gap reported second-quarter revenue of $3.73 billion and EPS of 57 cents, exceeding the consensus estimate of 55 cents [1] - The company anticipates third-quarter revenue between $3.86 billion and $3.90 billion, slightly below estimates of $3.91 billion [2] Financial Performance - Same-store sales for the quarter increased by approximately 1%, with Gap and Old Navy showing growth of 4% and 2% respectively, while Athleta declined by 9% [4] - The company expects third-quarter same-store sales to potentially reach high single digits, significantly above the previous outlook of around 3% [6] Strategic Initiatives - Gap is focusing on enhancing marketing and merchandising efforts across its brands, aiming for low- to mid-single-digit sales growth and operating-margin expansion towards 8%-10% [6] - The company has closed approximately 800 stores since before the pandemic, which has contributed to a sub-1% revenue growth [7] Analyst Insights - JPMorgan analyst Matthew R. Boss has reiterated an Overweight rating on Gap, raising the price target from $29 to $32 [3] - Boss estimates that capital allocation could generate around $650 million in annual net free cash flow, supporting buybacks that could increase EPS by approximately 4% and lead to a total shareholder return profile in the mid- to high-teens [7] Stock Performance - Gap shares were trading at $21.94, up 1.22%, within a 52-week range of $16.98 to $29.29 [8]

[PART I - FINANCIAL INFORMATION](index=8&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the company's interim period [Item 1. Financial Statements](index=8&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for The Gap, Inc., including the Balance Sheets, Statements of Operations, Comprehensive Income, Stockholders' Equity, and Cash Flows, along with accompanying notes [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific dates Condensed Consolidated Balance Sheets (Selected Data) | Metric ($ in millions) | August 2, 2025 | February 1, 2025 | August 3, 2024 | | :--------------------- | :------------- | :--------------- | :------------- | | Cash and cash equivalents | $2,194 | $2,335 | $1,900 | | Merchandise inventory | $2,294 | $2,067 | $2,107 | | Total current assets | $5,377 | $5,203 | $4,809 | | Total assets | $12,146 | $11,885 | $11,509 | | Total current liabilities | $3,197 | $3,256 | $3,224 | | Long-term debt | $1,491 | $1,490 | $1,489 | | Total stockholders' equity | $3,433 | $3,264 | $2,901 | - Merchandise inventory increased by **9% to $2,294 million** as of August 2, 2025, compared to $2,107 million as of August 3, 2024[15](index=15&type=chunk)[86](index=86&type=chunk) [Condensed Consolidated Statements of Operations](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines the company's financial performance over specific periods, detailing net sales, gross profit, operating income, and net income Condensed Consolidated Statements of Operations (Selected Data) | Metric ($ in millions) | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Net sales | $3,725 | $3,720 | $7,188 | $7,108 | | Gross profit | $1,536 | $1,583 | $2,984 | $2,980 | | Operating income | $292 | $293 | $552 | $498 | | Net income | $216 | $206 | $409 | $364 | | Diluted EPS | $0.57 | $0.54 | $1.07 | $0.95 | - Net sales for the 13 weeks ended August 2, 2025, were **flat at $3,725 million** compared to the prior year, while net income increased to **$216 million** from $206 million[17](index=17&type=chunk)[86](index=86&type=chunk) - For the 26 weeks ended August 2, 2025, net sales increased **1% to $7,188 million**, and net income rose to **$409 million** from $364 million in the prior year[17](index=17&type=chunk)[97](index=97&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents the company's comprehensive income, including net income and other comprehensive income (loss) components Condensed Consolidated Statements of Comprehensive Income (Selected Data) | Metric ($ in millions) | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Net income | $216 | $206 | $409 | $364 | | Other comprehensive income (loss), net of tax | $1 | $4 | $(19) | $8 | | Comprehensive income | $217 | $210 | $390 | $372 | - Other comprehensive income (loss) for the 26 weeks ended August 2, 2025, was a **loss of $19 million**, primarily due to changes in fair value of derivative financial instruments[18](index=18&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details changes in the company's equity, including net income, share repurchases, and dividends Condensed Consolidated Statements of Stockholders' Equity (Selected Data) | Metric ($ in millions) | August 2, 2025 | May 3, 2025 | August 3, 2024 | May 4, 2024 | | :--------------------- | :------------- | :---------- | :------------- | :---------- | | Total stockholders' equity | $3,433 | $3,321 | $2,901 | $2,707 | | Net income | $216 | | $206 | | | Repurchases and retirement of common stock | $(82) | | — | | | Common stock dividends declared and paid | $(62) | | $(56) | | - Total stockholders' equity increased to **$3,433 million** as of August 2, 2025, from $3,264 million as of February 1, 2025[15](index=15&type=chunk)[21](index=21&type=chunk) - The company repurchased **$152 million of common stock** during the 26 weeks ended August 2, 2025, compared to no repurchases in the prior year period[21](index=21&type=chunk)[23](index=23&type=chunk)[113](index=113&type=chunk) - Cash dividends paid amounted to **$123 million** for the 26 weeks ended August 2, 2025, up from $112 million in the prior year period[21](index=21&type=chunk)[23](index=23&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=13&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (Selected Data) | Metric ($ in millions) | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | | Net cash provided by operating activities | $308 | $579 | | Net cash used for investing activities | $(164) | $(425) | | Net cash used for financing activities | $(292) | $(124) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $(143) | $28 | | Cash, cash equivalents, and restricted cash at end of period | $2,222 | $1,929 | - Net cash provided by operating activities decreased by **$271 million to $308 million** for the first half of fiscal 2025, primarily due to higher payments for performance-based compensation and increased merchandise inventory[23](index=23&type=chunk)[112](index=112&type=chunk)[114](index=114&type=chunk) - Net cash used for investing activities decreased by **$261 million to $164 million**, mainly due to $260 million fewer net purchases of short-term investments[23](index=23&type=chunk)[112](index=112&type=chunk) - Net cash used for financing activities increased by **$168 million to $292 million**, driven by $152 million in common stock repurchases[23](index=23&type=chunk)[113](index=113&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements [Note 1. Accounting Policies](index=14&type=section&id=Note%201.%20Accounting%20Policies) This note outlines the significant accounting policies and estimates used in preparing the financial statements - The financial statements are unaudited and prepared in accordance with SEC rules and U.S. GAAP, with certain disclosures omitted as permitted for interim statements[25](index=25&type=chunk)[26](index=26&type=chunk) - Significant accounting judgments include estimates for inventory valuation, income taxes, sales return and bad debt allowances, deferred revenue, and impairment of long-lived assets[27](index=27&type=chunk) - The company is assessing the impact of new accounting pronouncements: ASU No. 2023-09 (Improvements to Income Tax Disclosures) and ASU No. 2024-03 (Disaggregation of Income Statement Expenses), effective for fiscal years beginning after December 15, 2024, and December 15, 2026, respectively[31](index=31&type=chunk)[32](index=32&type=chunk) [Note 2. Revenue](index=15&type=section&id=Note%202.%20Revenue) This note disaggregates net sales by channel and brand, and details deferred revenue components Net Sales Disaggregated by Channel ($ in millions) | Channel | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :---------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Store and franchise sales | $2,440 | $2,476 | $4,547 | $4,582 | | Online sales | $1,285 | $1,244 | $2,641 | $2,526 | | Total net sales | $3,725 | $3,720 | $7,188 | $7,108 | Net Sales Disaggregated by Brand (13 Weeks Ended Aug 2, 2025, $ in millions) | Brand | U.S. | Canada | Other regions | Total | | :-------------------- | :--- | :----- | :------------ | :---- | | Old Navy Global | $1,978 | $157 | $15 | $2,150 | | Gap Global | $581 | $76 | $115 | $772 | | Banana Republic Global | $408 | $46 | $21 | $475 | | Athleta Global | $290 | $9 | $1 | $300 | | Other | $28 | — | — | $28 |\ | Total | $3,285 | $288 | $152 | $3,725 | - Online sales increased by **3%** for the 13 weeks ended August 2, 2025, compared to the prior year, while store and franchise sales decreased by **1%**[33](index=33&type=chunk)[86](index=86&type=chunk) - Deferred revenue from gift cards, licensing, loyalty points, and credit card reimbursements had an opening balance of **$249 million** for the 13 weeks ended August 2, 2025, with **$84 million** recognized as revenue[38](index=38&type=chunk) [Note 3. Income Taxes](index=17&type=section&id=Note%203.%20Income%20Taxes) This note provides information on effective income tax rates and the impact of recent tax law changes Effective Income Tax Rates (%) | Period | August 2, 2025 | August 3, 2024 | | :----- | :------------- | :------------- | | 13 Weeks Ended | 27.0% | 30.4% | | 26 Weeks Ended | 26.8% | 27.8% | - The decrease in the effective tax rate for both the 13 and 26 weeks ended August 2, 2025, is primarily due to prior year increases to certain income tax reserves and changes in the mix of jurisdictional earnings[42](index=42&type=chunk)[43](index=43&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) - The recently enacted One Big Beautiful Bill Act of 2025 (OBBBA) in the U.S. changes income tax law, with certain provisions effective in fiscal 2025, but its impact was not material to the financial statements in Q2 FY25[44](index=44&type=chunk)[45](index=45&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) [Note 4. Debt and Credit Facilities](index=17&type=section&id=Note%204.%20Debt%20and%20Credit%20Facilities) This note details the company's long-term debt and available credit facilities Long-term Debt ($ in millions) | Debt Type | August 2, 2025 | February 1, 2025 | August 3, 2024 | | :------------------------ | :------------- | :--------------- | :------------- | | 2029 Notes (3.625%) | $750 | $750 | $750 | | 2031 Notes (3.875%) | $750 | $750 | $750 | | Less: Unamortized debt issuance costs | $(9) | $(10) | $(11) | | Total long-term debt | $1,491 | $1,490 | $1,489 | - The company has **$1.5 billion** in aggregate principal amount of Senior Notes (2029 Notes and 2031 Notes)[48](index=48&type=chunk) - A senior secured asset-based revolving credit agreement (ABL Facility) provides **$2.2 billion** in borrowing capacity, expiring in July 2027, with no borrowings outstanding as of August 2, 2025[49](index=49&type=chunk)[50](index=50&type=chunk) [Note 5. Fair Value Measurements](index=17&type=section&id=Note%205.%20Fair%20Value%20Measurements) This note describes the fair value hierarchy for financial assets and liabilities and related measurements Fair Value Measurements of Financial Assets and Liabilities (August 2, 2025, $ in millions) | Asset/Liability | Total Fair Value | Level 1 | Level 2 | Level 3 | | :------------------------------ | :--------------- | :------ | :------ | :------ | | **Assets:** | | | | | | Cash equivalents | $235 | $225 | $10 | — | | Short-term investments | $238 | $117 | $121 | — | | Derivative financial instruments | $9 | — | $9 | — | | Deferred compensation plan assets | $42 | $42 | — | — | | Other assets | $3 | — | — | $3 | | **Total Assets** | **$527** | **$384**| **$140**| **$3** | | **Liabilities:** | | | | | | Derivative financial instruments | $6 | — | $6 | — | - The company categorizes financial assets and liabilities measured at fair value using a three-level hierarchy, with most assets and liabilities falling into Level 1 (quoted prices in active markets) or Level 2 (significant other observable inputs)[51](index=51&type=chunk)[53](index=53&type=chunk) - No material impairment charges were recorded for long-lived assets, goodwill, or other indefinite-lived intangible assets during the 13 and 26 weeks ended August 2, 2025, or August 3, 2024[58](index=58&type=chunk)[59](index=59&type=chunk) [Note 6. Derivative Financial Instruments](index=20&type=section&id=Note%206.%20Derivative%20Financial%20Instruments) This note explains the company's use of derivative financial instruments to manage foreign currency risk - The company uses foreign exchange forward contracts to manage exposure to foreign currency exchange rate risk, hedging merchandise purchases and intercompany transactions[60](index=60&type=chunk) Outstanding Notional Amounts of Foreign Exchange Forward Contracts ($ in millions) | Type of Derivative | August 2, 2025 | February 1, 2025 | August 3, 2024 | | :--------------------------------- | :------------- | :--------------- | :------------- | | Designated as cash flow hedges | $527 | $363 | $457 | | Not designated as hedging instruments | $422 | $419 | $410 | | Total | $949 | $782 | $867 | - For the 26 weeks ended August 2, 2025, derivatives designated as cash flow hedges resulted in a **$5 million gain** recognized in cost of goods sold, while non-designated derivatives resulted in a **$20 million loss** in operating expenses[68](index=68&type=chunk) [Note 7. Share Repurchases](index=22&type=section&id=Note%207.%20Share%20Repurchases) This note provides details on the company's common stock repurchase activities and remaining authorization Share Repurchase Activity | Metric | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :----------------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Number of shares repurchased (millions) | 3 | — | 7 | — | | Total cost ($ in millions) | $82 | — | $152 | — | | Average per share cost | $23.67 | — | $21.41 | — | - The company repurchased **7 million shares for $152 million** during the first half of fiscal 2025. The February 2019 repurchase program has **$249 million remaining** as of August 2, 2025[69](index=69&type=chunk)[70](index=70&type=chunk) [Note 8. Earnings Per Share](index=22&type=section&id=Note%208.%20Earnings%20Per%20Share) This note outlines the calculation of basic and diluted earnings per share, including weighted-average shares Weighted-Average Number of Shares for EPS Calculation (shares in millions) | Metric | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :-------------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Weighted-average number of shares - basic | 373 | 376 | 374 | 375 | | Common stock equivalents | 6 | 7 | 7 | 8 | | Weighted-average number of shares - diluted | 379 | 383 | 381 | 383 | - Anti-dilutive shares related to stock options and other awards, totaling **2 million** for the 13 weeks and **2 million** for the 26 weeks ended August 2, 2025, were excluded from diluted EPS calculations[71](index=71&type=chunk) [Note 9. Commitments and Contingencies](index=23&type=section&id=Note%209.%20Commitments%20and%20Contingencies) This note describes the company's contractual obligations, indemnification agreements, and legal proceedings - The company is party to various contractual agreements with indemnification obligations, but historically has not made significant payments, and believes potential losses would not materially affect financial statements[73](index=73&type=chunk) - The company is subject to various legal proceedings and claims, including class action lawsuits, but the liability recorded for estimated losses was not material for any individual action or in total[74](index=74&type=chunk)[75](index=75&type=chunk) [Note 10. Segment Information](index=23&type=section&id=Note%2010.%20Segment%20Information) This note provides financial information for the company's operating segments, aggregated into one reportable segment - The company's operating segments include Old Navy Global, Gap Global, Banana Republic Global, and Athleta Global, which are aggregated into one reportable segment due to similar qualitative and economic characteristics[76](index=76&type=chunk) Segment Profit and Significant Expenses (13 Weeks Ended, $ in millions) | Metric | August 2, 2025 | August 3, 2024 | | :--------------------- | :------------- | :------------- | | Net sales | $3,725 | $3,720 | | Cost of goods sold | $1,725 | $1,668 | | Occupancy expenses | $464 | $469 | | Operating expenses | $1,244 | $1,290 | | Operating income | $292 | $293 | [Note 11. Divestitures](index=24&type=section&id=Note%2011.%20Divestitures) This note details the status of the transition of Gap China operations and the decision regarding Gap Taiwan operations - The transition of Gap China operations to Baozun Inc. closed on January 31, 2023. However, the parties decided not to proceed with the transition of Gap's operations in Taiwan, which will continue as usual[80](index=80&type=chunk) [Note 12. Supply Chain Finance Program](index=24&type=section&id=Note%2012.%20Supply%20Chain%20Finance%20Program) This note describes the company's supply chain finance program and outstanding obligations - The company's voluntary supply chain finance (SCF) program allows suppliers to sell receivables to financial institutions. Outstanding obligations under the SCF program were **$392 million** as of August 2, 2025, included in accounts payable[81](index=81&type=chunk)[82](index=82&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the second quarter and first half of fiscal 2025 - The Gap, Inc. operates a house of iconic brands (Old Navy, Gap, Banana Republic, Athleta) offering apparel, accessories, and personal care products through company-operated stores, online channels, and franchise agreements globally[84](index=84&type=chunk) - Strategic priorities include maintaining financial and operational rigor, reinvigorating brands, strengthening the operating platform with a digital-first mindset, energizing culture, and integrating sustainability[86](index=86&type=chunk) - Macroeconomic factors such as global geopolitical instability, inflationary pressures, foreign currency fluctuations, and changes in trade policy and tariffs continue to create a challenging retail environment, potentially impacting gross margins[85](index=85&type=chunk)[100](index=100&type=chunk) [OUR BUSINESS](index=25&type=section&id=OUR%20BUSINESS) This section describes The Gap, Inc.'s core business, iconic brands, product offerings, and sales channels - The Gap, Inc. is a house of iconic brands (Old Navy, Gap, Banana Republic, Athleta) offering apparel, accessories, and personal care products[84](index=84&type=chunk) - Products are available through company-operated and franchise stores, websites, and third-party arrangements, leveraging omni-channel capabilities like buy online pick-up in store and ship-from-store[84](index=84&type=chunk) - Most products are designed by the company and manufactured by independent global sources, with shared investments in supply chain and inventory management[84](index=84&type=chunk) [OVERVIEW](index=25&type=section&id=OVERVIEW) This section summarizes key financial results for Q2 fiscal 2025, strategic priorities, and the impact of macroeconomic factors Financial Results for Q2 Fiscal 2025 vs Q2 Fiscal 2024 ($ in millions) | Metric | Q2 FY25 | Q2 FY24 | Change | | :--------------------- | :------ | :------ | :----- | | Net sales | $3,725 | $3,720 | Flat | | Gross profit | $1,536 | $1,583 | Down | | Gross margin | 41.2% | 42.6% | Down | | Operating income | $292 | $293 | Flat | | Net income | $216 | $206 | Up | | Diluted EPS | $0.57 | $0.54 | Up | | Merchandise inventory (YoY) | +9% | | | - Online sales increased **3%** in Q2 FY25, while store and franchise sales decreased **1%** compared to Q2 FY24[86](index=86&type=chunk) - The company is focused on strategic priorities including financial rigor, brand reinvigoration, digital-first operating platform, talent attraction/retention, and sustainability integration[86](index=86&type=chunk) - Macroeconomic volatility, including trade policy changes and tariffs, is expected to continue impacting consumer behavior and potentially increasing merchandise costs and negatively affecting gross margins[85](index=85&type=chunk)[87](index=87&type=chunk) [RESULTS OF OPERATIONS](index=26&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial performance, including net sales, comparable sales, and various expense categories [Net Sales](index=28&type=section&id=Net%20Sales%20(from%20MD%26A)) This section analyzes the drivers of net sales changes for the quarter and first half of fiscal 2025 - Net sales increased by **$5 million** in Q2 fiscal 2025 compared to Q2 fiscal 2024, driven by an increase in Comparable Sales, partially offset by incremental income from the credit card agreement in the prior year[97](index=97&type=chunk) - For the first half of fiscal 2025, net sales increased **$80 million (1%)** compared to the first half of fiscal 2024, primarily due to an increase in online sales[97](index=97&type=chunk) [Comparable Sales ("Comp Sales")](index=26&type=section&id=Comparable%20Sales%20(%22Comp%20Sales%22)) This section presents comparable sales performance by global brand for the current and prior fiscal periods - Comparable Sales include Company-operated stores and online channel sales, excluding franchise and licensing business[89](index=89&type=chunk) Percentage Change in Comparable Sales by Global Brand (%) | Brand | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :-------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Old Navy Global | 2% | 5% | 2% | 4% | | Gap Global | 4% | 3% | 4% | 3% | | Banana Republic Global | 4% | 0% | 2% | 1% | | Athleta Global | (9)% | (4)% | (9)% | 0% | | The Gap, Inc. | 1% | 3% | 2% | 3% | - The Gap, Inc. reported a **1% increase** in comparable sales for the 13 weeks ended August 2, 2025, a decrease from 3% in the prior year[93](index=93&type=chunk) [Store Count and Square Footage](index=27&type=section&id=Store%20Count%20and%20Square%20Footage) This section provides details on the number of company-operated stores and total square footage by brand Company-Operated Store Count and Square Footage | Brand | Number of Store Locations (Feb 1, 2025) | Net Opened/(Closed) (26 Weeks) | Number of Store Locations (Aug 2, 2025) | Square Footage (Aug 2, 2025, in millions) | | :-------------------- | :------------------------------------ | :----------------------------- | :-------------------------------------- | :---------------------------------------- | | Old Navy North America | 1,249 | (9) | 1,240 | 19.6 | | Gap North America | 453 | — | 453 | 4.8 | | Gap Asia | 122 | 3 | 125 | 1.1 | | Banana Republic North America | 380 | (9) | 371 | 3.1 | | Banana Republic Asia | 42 | — | 42 | 0.1 | | Athleta North America | 260 | (5) | 255 | 1.0 | | **Company-operated stores total** | **2,506** | **(20)** | **2,486** | **29.7** | - The total number of company-operated stores decreased by **20 locations** during the 26 weeks ended August 2, 2025, resulting in **2,486 stores** and **29.7 million square feet**[94](index=94&type=chunk) - Approximately **1,000 franchise stores** were operated by the company's franchise partners as of August 2, 2025[95](index=95&type=chunk) [Cost of Goods Sold and Occupancy Expenses](index=28&type=section&id=Cost%20of%20Goods%20Sold%20and%20Occupancy%20Expenses) This section analyzes changes in cost of goods sold, occupancy expenses, and gross margin, including external factors Cost of Goods Sold and Occupancy Expenses ($ in millions) | Metric | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Cost of goods sold and occupancy expenses | $2,189 | $2,137 | $4,204 | $4,128 | | Gross profit | $1,536 | $1,583 | $2,984 | $2,980 | | Gross margin | 41.2% | 42.6% | 41.5% | 41.9% | - Gross margin decreased to **41.2%** in Q2 fiscal 2025 from 42.6% in Q2 fiscal 2024, primarily due to incremental income from the credit card agreement in the prior year[98](index=98&type=chunk)[101](index=101&type=chunk) - Occupancy expenses as a percentage of net sales decreased by **0.1 percentage points** in Q2 fiscal 2025, driven by increased online sales without a corresponding increase in expenses[101](index=101&type=chunk) - Uncertainty regarding U.S. trade policy and tariffs is expected to increase cost of goods sold and potentially negatively impact future gross margins[100](index=100&type=chunk) [Operating Expenses](index=29&type=section&id=Operating%20Expenses) This section discusses the changes in operating expenses and their impact on the company's financial performance Operating Expenses ($ in millions) | Metric | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Operating expenses | $1,244 | $1,290 | $2,432 | $2,482 | | Operating expenses as a percentage of net sales | 33.4% | 34.7% | 33.8% | 34.9% | - Operating expenses decreased by **$46 million (1.3 percentage points as a percentage of net sales)** in Q2 fiscal 2025 and **$50 million (1.1 percentage points)** in the first half of fiscal 2025, primarily due to a decrease in performance-based compensation[102](index=102&type=chunk) [Interest Expense](index=29&type=section&id=Interest%20Expense) This section details the components and trends of the company's interest expense Interest Expense ($ in millions) | Metric | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Interest expense | $23 | $24 | $46 | $45 | - Interest expense remained relatively stable, primarily consisting of interest on Senior Notes and tax-related interest[103](index=103&type=chunk) [Interest Income](index=29&type=section&id=Interest%20Income) This section outlines the sources and changes in the company's interest income Interest Income ($ in millions) | Metric | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Interest income | $(27) | $(27) | $(53) | $(51) | - Interest income was flat in Q2 fiscal 2025 and increased slightly in the first half of fiscal 2025, mainly due to higher cash balances partially offset by lower interest rates[104](index=104&type=chunk) [Income Taxes](index=29&type=section&id=Income%20Taxes%20(from%20MD%26A)) This section analyzes income tax expense and effective tax rates, including factors influencing changes Income Tax Expense and Effective Tax Rate ($ in millions, %) | Metric | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Income tax expense | $80 | $90 | $150 | $140 | | Effective tax rate | 27.0% | 30.4% | 26.8% | 27.8% | - The effective tax rate decreased for both periods, primarily due to prior year increases to income tax reserves and changes in jurisdictional earnings mix[105](index=105&type=chunk)[106](index=106&type=chunk) - The impact of the One Big Beautiful Bill Act of 2025 (OBBBA) on income tax law was not material to the financial statements in the second quarter of fiscal 2025[107](index=107&type=chunk)[108](index=108&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=30&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's sources and uses of cash, liquidity position, and capital management strategies - Primary liquidity sources include cash and cash equivalents (**$2.19 billion**), short-term investments (**$238 million**), and a **$2.2 billion** ABL Facility with no outstanding borrowings as of August 2, 2025[109](index=109&type=chunk) - The company believes existing liquidity and cash flows from operations are sufficient for business operations, capital expenditures, dividends, share repurchases, and other requirements for the next 12 months and beyond[111](index=111&type=chunk) - Seasonality and macroeconomic factors (geopolitical instability, inflation, foreign currency, interest rates, tariffs) can cause significant fluctuations in cash flows[110](index=110&type=chunk) [Cash Flows from Operating Activities](index=30&type=section&id=Cash%20Flows%20from%20Operating%20Activities) This section analyzes the changes in cash generated from the company's primary business operations - Net cash provided by operating activities decreased by **$271 million to $308 million** for the first half of fiscal 2025 compared to the prior year[23](index=23&type=chunk)[112](index=112&type=chunk) - The decrease was primarily due to a **$156 million decrease** related to accrued expenses (higher payments for FY24 performance-based compensation) and a **$96 million decrease** related to merchandise inventory (timing of receipts and higher costs)[114](index=114&type=chunk) [Cash Flows from Investing Activities](index=30&type=section&id=Cash%20Flows%20from%20Investing%20Activities) This section details the cash flows related to the acquisition and disposal of long-term assets and investments - Net cash used for investing activities decreased by **$261 million to $164 million** for the first half of fiscal 2025[23](index=23&type=chunk)[112](index=112&type=chunk) - This decrease was primarily driven by **$260 million fewer net purchases** of short-term investments[112](index=112&type=chunk) [Cash Flows from Financing Activities](index=30&type=section&id=Cash%20Flows%20from%20Financing%20Activities) This section outlines the cash flows related to debt, equity, and dividend transactions - Net cash used for financing activities increased by **$168 million to $292 million** for the first half of fiscal 2025[23](index=23&type=chunk)[113](index=113&type=chunk) - The increase was primarily due to **$152 million in common stock repurchases** during the first half of fiscal 2025, compared to no repurchases in the prior year period[113](index=113&type=chunk) [Free Cash Flow](index=31&type=section&id=Free%20Cash%20Flow) This section presents the calculation and analysis of free cash flow, a non-GAAP liquidity measure - Free cash flow is a non-GAAP financial measure representing cash available after capital expenditures, used internally as a driver of value creation[115](index=115&type=chunk) Free Cash Flow Reconciliation ($ in millions) | Metric | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | | Net cash provided by operating activities | $308 | $579 | | Less: Purchases of property and equipment | $(181) | $(182) | | Free cash flow | $127 | $397 | - Free cash flow decreased to **$127 million** for the first half of fiscal 2025 from $397 million in the prior year period[117](index=117&type=chunk) [Dividend Policy](index=31&type=section&id=Dividend%20Policy) This section describes the company's dividend policy and recent dividend declarations - The Board considers sustainability, operating performance, liquidity, and market conditions when determining dividends[118](index=118&type=chunk) - A dividend of **$0.165 per share** was paid in Q2 fiscal 2025, and the Board authorized another **$0.165 per share** for Q3 fiscal 2025[118](index=118&type=chunk) [Share Repurchases](index=31&type=section&id=Share%20Repurchases%20(from%20MD%26A)) This section refers to detailed information on the company's share repurchase program - Information on share repurchases is detailed in Note 7 of the Notes to Condensed Consolidated Financial Statements[119](index=119&type=chunk) [Summary Disclosures about Contractual Cash Obligations and Commercial Commitments](index=31&type=section&id=Summary%20Disclosures%20about%20Contractual%20Cash%20Obligations%20and%20Commercial%20Commitments) This section provides an update on the company's contractual obligations and commercial commitments - No material changes to contractual obligations and commercial commitments have occurred since the Annual Report on Form 10-K, other than those in the normal course of business[120](index=120&type=chunk) - Further details on commitments and contingencies are provided in Note 9[120](index=120&type=chunk) [Critical Accounting Policies and Estimates](index=31&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section confirms no significant changes to critical accounting policies and estimates since the last annual report - No significant changes to critical accounting policies and estimates have occurred since the Annual Report on Form 10-K for fiscal year ended February 1, 2025[121](index=121&type=chunk) - Details on accounting policies are available in Note 1 of the Notes to Condensed Consolidated Financial Statements[121](index=121&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk profile has not significantly changed since the disclosure in its Annual Report on Form 10-K as of February 1, 2025 - The market risk profile remains largely unchanged from the Annual Report on Form 10-K as of February 1, 2025[122](index=122&type=chunk) - Disclosures on debt and credit facilities, investments, and derivative financial instruments can be found in Notes 4, 5, and 6 of the Condensed Consolidated Financial Statements[122](index=122&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=31&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[123](index=123&type=chunk) [Changes in Internal Control over Financial Reporting](index=31&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) There were no material changes in internal control over financial reporting during the second quarter of fiscal 2025 - No material changes in the company's internal control over financial reporting occurred during the second quarter of fiscal 2025[124](index=124&type=chunk) [PART II - OTHER INFORMATION](index=32&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section provides additional information not included in the financial statements, covering legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, lawsuits, disputes, and claims arising in the ordinary course of business - The company is subject to various legal proceedings, including commercial, intellectual property, customer, employment, securities, and data privacy claims, some of which are class action lawsuits[125](index=125&type=chunk) - The company cannot predict the outcome of these actions but does not believe any current action would have a material effect on its financial results[126](index=126&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors related to business operations, specifically highlighting the impact of trade matters, tariffs, and supply chain disruptions - The risk factor concerning trade matters and tariffs has been updated, emphasizing the potential disruption to the supply chain and adverse effects on business, financial condition, and results of operations[127](index=127&type=chunk)[128](index=128&type=chunk) - Significant tariffs have been imposed on imported goods from various countries, including Vietnam (**20%**), Indonesia (**19%**), and China (additional **20%**), increasing merchandise costs[129](index=129&type=chunk) - In fiscal 2024, approximately **27%** and **19%** of merchandise was purchased from factories in Vietnam and Indonesia, respectively, while less than **10%** was from China[130](index=130&type=chunk) - The company continues to evaluate the impact of tariffs and implement mitigation strategies, but there is no assurance these strategies will be fully successful, and escalating trade tensions could worsen impacts[132](index=132&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 3,434,491 shares of common stock for a total cost of $82 million during the 13 weeks ended August 2, 2025 Common Stock Purchases (13 Weeks Ended August 2, 2025) | Period | Total Number of Shares Purchased | Average Price Paid Per Share Including Commissions ($) | | :-------------------- | :----------------------------- | :----------------------------------------------- | | Month 1 (May 4 - May 31) | 1,122,800 | $27.82 | | Month 2 (June 1 - July 5) | 1,283,791 | $21.64 | | Month 3 (July 6 - August 2) | 1,027,900 | $21.67 | | **Total** | **3,434,491** | **$23.67** | - As of August 2, 2025, **$249 million** remained under the **$1.0 billion** share repurchase authorization approved in February 2019[135](index=135&type=chunk)[136](index=136&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205.%20Other%20Information) Several directors and Section 16 officers adopted Rule 10b5-1 trading plans during the 13 weeks ended August 2, 2025 - Julie Gruber, Chief Legal and Compliance Officer, adopted a 10b5-1 trading plan on July 11, 2025, to sell up to **537,160 shares**[137](index=137&type=chunk) - Mark Breitbard, President and CEO of Gap brand, adopted a 10b5-1 trading plan on June 13, 2025, to sell up to **1,251,398 shares**[138](index=138&type=chunk) - Katrina O'Connell, Chief Financial Officer, adopted a 10b5-1 trading plan on June 12, 2025, to sell up to **442,529 shares**[139](index=139&type=chunk) - Sarah (Sally) Gilligan, Chief Supply Chain and Transformation Officer, adopted a 10b5-1 trading plan on June 6, 2025, to sell up to **303,882 shares**[140](index=140&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, executive compensation plans, certifications from the CEO and CFO, and XBRL formatted financial statements - Exhibits include the Restated Certificate of Incorporation, Amended and Restated Bylaws, Senior Executive Severance Plan, various stock award agreements, and certifications from the CEO and CFO (Sections 302 and 906 of Sarbanes-Oxley Act)[142](index=142&type=chunk) - The financial statements (Balance Sheets, Statements of Operations, Comprehensive Income, Stockholders' Equity, Cash Flows, and Notes) are provided in Inline XBRL format as Exhibit 101[142](index=142&type=chunk)

Core Insights - The Gap, Inc. reported second-quarter fiscal 2025 results with earnings surpassing estimates while revenues slightly missed expectations and remained flat year over year [1][3]. Financial Performance - Earnings per share for the second quarter were 57 cents, exceeding the Zacks Consensus Estimate of 55 cents and increasing by 5.6% from the previous year [3][10]. - Net sales totaled $3.73 billion, slightly below the consensus estimate of $3.74 billion, with comparable sales rising 1% year over year [4][10]. - Online sales increased by 3% year over year, making up 34% of total sales, while store sales declined by 1% [4][10]. Brand Performance - Old Navy's net sales rose 1% year over year to $2.2 billion, with comparable sales increasing by 2%, marking ten consecutive quarters of market share gains [8]. - Gap Global saw net sales increase by 1% year over year to $772 million, with comparable sales up 4% [9]. - Banana Republic's net sales decreased by 1% year over year to $475 million, while comparable sales rose by 4% [11]. - Athleta experienced a significant decline, with net sales dropping 11% year over year to $300 million and comparable sales down 9% [11]. Margins and Costs - The gross margin improved to 41.2%, up 140 basis points year over year, while the operating margin was 7.8%, down 10 basis points from the previous year [12][13]. - Operating expenses were reduced by 3.6% year over year, totaling $1.2 billion [13]. Financial Health - The company ended the quarter with cash and cash equivalents of $2.4 billion, a 13% increase from the previous year [14]. - Merchandise inventory rose by 9% year over year to $2.3 billion [14]. - Net cash from operating activities was reported at $308 million, with free cash flow of $127 million [15]. Future Outlook - For fiscal 2025, the company projects sales growth of 1-2% from the previous year's $15.1 billion, driven by Old Navy, Gap, and Banana Republic, while Athleta is expected to recover gradually [18]. - Management anticipates a gross margin decline of approximately 70 to 90 basis points year over year, primarily due to tariff impacts [19]. - Operating income is expected to rise by 6-7% from the prior year's $1.11 billion, excluding tariff impacts [20].

Financial Performance - Gap Inc reported second-quarter earnings of $0.57 per share, surpassing earnings estimates but falling short of revenue expectations at $3.73 billion [1] - The company is experiencing pressure from potential tariffs and weakness in its women's athletic wear subsidiary, Athleta, but steady performance from Banana Republic, Old Navy, and its namesake label is helping to manage costs [1] Stock Performance - Gap's shares have increased by 1.1% to $21.91 and are on track for their seventh win in eight sessions, marking a fourth consecutive weekly gain [2] - The stock is still recovering from a significant bear gap of 20.2% that occurred on May 30, and the 60-day moving average has shifted from resistance to support this week [2] Analyst Sentiment - Analysts are divided on Gap's outlook, with six out of 17 firms rating it a "buy" or better, while the rest recommend a "hold" [3] - Some firms, including Jefferies and Wells Fargo Securities, have issued bearish notes, while J.P. Morgan Securities and BofA Global Research have raised their price targets [3] Options Trading Activity - Options traders are showing a bearish sentiment today, with 14,000 puts traded, which is six times the typical volume for this time of day [4] - The weekly 8/29 21-strike put is a popular choice among traders, indicating new positions are being opened there [4]