Market Overview - Major U.S. stock indices opened lower, with the Dow Jones down 0.23%, Nasdaq down 0.67%, and S&P 500 down 0.43% [1] - Large tech stocks mostly declined, with Nvidia down over 2%, Google down over 1%, and Amazon, Apple, and Meta showing slight declines, while Tesla and Microsoft experienced minor gains [3] Individual Stock Performance - Apple shares decreased by 0.59% to $198.780, while pre-market trading showed a slight decline of 0.31% [4] - Tesla shares increased by 0.44% to $360.025, but pre-market trading indicated a drop of 0.80% [4] - Meta's stock fell by 0.25% to $643.450, with a pre-market decline of 0.16% [4] - Amazon shares dropped by 0.82% to $204.020, with a pre-market decline of 0.39% [4] - Nvidia shares fell by 2.85% to $135.230, with a pre-market decline of 0.28% [4] - Google shares decreased by 1.20% to $169.790 [4] Sector-Specific News - Apparel retail giant GAP saw a significant drop of over 20% in its stock price, warning that tariffs would erode its annual operating profit [5] - The Nasdaq Golden Dragon China Index fell by 2.67%, with major Chinese stocks like Alibaba, Xpeng Motors, and NIO dropping over 3% [6] Commodity Market - Spot gold prices decreased by 0.73% [8] - International oil prices fell, with both Brent and WTI crude oil dropping over 1% [10] Economic Indicators - The U.S. Census Bureau reported a dramatic 19.8% month-over-month decline in April's goods imports, the largest drop on record, bringing the total to $2760.97 billion [13] - The trade deficit narrowed to $876 billion in April, significantly better than the market expectation of $1430 billion [13] - The core PCE price index rose by 2.5% year-over-year, matching expectations and marking the smallest increase in over four years [13][14]

Core Viewpoint - Gap Inc's stock has dropped significantly by 19.7% to $22.49 following a disappointing current-quarter guidance, which forecasts flat sales, failing to meet Wall Street's growth expectations [1] Group 1: Financial Performance - Despite the weak outlook, Gap reported a strong first quarter, beating earnings and revenue estimates with earnings of 51 cents per share on revenue of $3.46 billion [2] - Executives indicated that proposed tariff hikes by President Trump could result in a cost impact of $250 million to $300 million, although mitigation efforts may reduce this to $100 million to $150 million [2] Group 2: Analyst Reactions - At least four analysts have lowered their price targets for Gap, with Jefferies and UBS adjusting their targets to $26 and $17 from $29, respectively [3] - The current 12-month consensus target price still reflects a 22.6% premium over the current stock levels [3] Group 3: Stock Performance - The recent selloff has erased year-to-date gains, with the stock now down 4.4% and on track for a fifth consecutive daily loss, marking the worst weekly performance since 2021 [4] - The $22 level is acting as support, but the stock is likely to close below its 20-day moving average [4] Group 4: Options Market Activity - Options traders have reacted quickly, with over 32,000 calls and 30,000 puts traded, which is 14 times the average intraday volume [5] - The most active option is the weekly 5/30 22.50-strike put, with new positions being opened and set to expire at today's close [5]

Core Insights - Gap reported revenue of $3.46 billion for the quarter ended April 2025, reflecting a 2.2% increase year-over-year and a surprise of +1.33% over the Zacks Consensus Estimate of $3.42 billion [1] - Earnings per share (EPS) for the quarter was $0.51, up from $0.41 in the same quarter last year, with an EPS surprise of +15.91% compared to the consensus estimate of $0.44 [1] Financial Performance - Comparable store sales increased by 2% year-over-year, surpassing the five-analyst average estimate of 1.5% [4] - Comparable store sales for Gap specifically rose by 5%, exceeding the five-analyst average estimate of 3.6% [4] - Comparable store sales for Old Navy increased by 3%, compared to the five-analyst average estimate of 1.4% [4] Store Metrics - The total number of company-operated stores was 2,496, slightly below the average estimate of 2,501 by four analysts [4] - Old Navy North America had 1,246 store locations, compared to the average estimate of 1,251 [4] - The total number of Banana Republic stores was 413, compared to the average estimate of 418 [4] Square Footage and Sales - The square footage for Banana Republic North America was 3.1 million square feet, slightly below the three-analyst average estimate of 3.13 million square feet [4] - Total square footage across all stores was 29.9 million square feet, exceeding the average estimate of 29.48 million square feet [4] - Net sales for Gap Global totaled $724 million, surpassing the average estimate of $700.37 million and representing a +5.1% year-over-year change [4] - Net sales for Banana Republic Global were $428 million, below the average estimate of $437.44 million, reflecting a -2.7% year-over-year change [4] - Net sales for Old Navy Global reached $1.98 billion, exceeding the average estimate of $1.93 billion and representing a +3.4% year-over-year change [4] Stock Performance - Gap's shares have returned +29% over the past month, significantly outperforming the Zacks S&P 500 composite's +6.7% change [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3]

Group 1 - The conference call is regarding Gap, Inc.'s First Quarter 2025 earnings [1] - Whitney Notaro, Head of Investor Relations, is hosting the call [1] - The call includes forward-looking statements that may differ from actual results due to various risks [2][3] Group 2 - The company emphasizes the availability of cautionary statements in their latest earnings release and annual report [2] - The financial measures discussed may not align with generally accepted accounting principles [3]

Core Insights - Gap reported quarterly earnings of $0.51 per share, exceeding the Zacks Consensus Estimate of $0.44 per share, and showing an increase from $0.41 per share a year ago, representing an earnings surprise of 15.91% [1] - The company achieved revenues of $3.46 billion for the quarter ended April 2025, surpassing the Zacks Consensus Estimate by 1.33% and up from $3.39 billion year-over-year [2] - Gap shares have increased approximately 19.5% since the beginning of the year, significantly outperforming the S&P 500's gain of 0.1% [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.59 on revenues of $3.75 billion, while the estimate for the current fiscal year is $2.32 on revenues of $15.3 billion [7] - The estimate revisions trend for Gap is mixed, leading to a Zacks Rank 3 (Hold), indicating expected performance in line with the market in the near future [6] Industry Context - The Retail - Apparel and Shoes industry, to which Gap belongs, is currently ranked in the bottom 37% of over 250 Zacks industries, suggesting potential challenges ahead [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact investor sentiment and stock performance [5]

Financial Data and Key Metrics Changes - Gap Inc. reported a 2% increase in net sales year over year, reaching $3.5 billion, with comparable sales also up 2% [36][38] - Earnings per share (EPS) grew by 24% to $0.51 compared to the previous year [11][35] - Gross margin improved by 60 basis points to 41.8%, while operating margin increased by 140 basis points to 7.5% [39][35] Business Line Data and Key Metrics Changes - Old Navy's net sales rose by 3% to $2 billion, with comparable sales also up 3%, marking its ninth consecutive quarter of market share gains [37][10] - Gap brand saw a 5% increase in net sales to $724 million, achieving a 5% increase in comparable sales, continuing its positive trend for six consecutive quarters [37][18] - Banana Republic's net sales decreased by 3% to $428 million, with comparable sales remaining flat [38][22] - Athleta's net sales fell by 6% to $308 million, with comparable sales down 8% [38][25] Market Data and Key Metrics Changes - Gap Inc. maintained its position as the number one apparel e-commerce business in the US, reflecting increased e-commerce penetration [6] - Old Navy gained market share across all income cohorts, while Gap gained share in the top and middle cohorts [5][10] Company Strategy and Development Direction - The company is focused on brand reinvigoration, with strategic priorities including financial and operational rigor, driving relevance and revenue, and strengthening the platform [9][26] - Plans to diversify sourcing to mitigate tariff impacts, with a goal for no single country to account for more than 25% of sourcing by 2026 [7][8] - Continued investment in technology and innovation to enhance customer experience and operational efficiency [27][26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's ability to navigate a dynamic environment, citing a strong financial foundation and disciplined operations [9][30] - The company reaffirmed its fiscal 2025 outlook, expecting net sales growth of 1% to 2% and operating income growth of 8% to 10%, excluding tariff impacts [36][43] - Management acknowledged potential headwinds from tariffs, estimating a net impact of $100 million to $150 million on operating income for fiscal 2025 [46][47] Other Important Information - The company returned approximately $131 million to shareholders in Q1 through dividends and share repurchases [35][41] - The company ended the quarter with a strong cash balance of approximately $2.2 billion, reflecting effective expense management [35][40] Q&A Session Summary Question: Inquiry about tariff mitigation strategies - Management confirmed that strategies are in place to mitigate over half of the anticipated tariff impact, with ongoing efforts to diversify sourcing [55][56] Question: Discussion on Gap brand's pricing strategy - Management emphasized maintaining the overall value proposition for consumers and does not expect meaningful price impacts at this time [70][71] Question: Inquiry about Banana Republic and Athleta's performance - Management highlighted ongoing progress in Banana Republic and the need for further work in Athleta to improve product appeal and marketing effectiveness [96][97]

Financial Data and Key Metrics Changes - Comparable sales increased by 2% in Q1 2025, with Old Navy's comps up 3% and Gap's comps up 5% [9][36] - Earnings per share (EPS) rose to $0.51, a 24% increase compared to the previous year [10][39] - Operating margin improved by 140 basis points to 7.5% [33][38] - Gross margin expanded by 60 basis points to 41.8% [33][38] - Cash balance at the end of the quarter was approximately $2,200,000,000, reflecting a 28% increase year over year [34][39] Business Line Data and Key Metrics Changes - Old Navy's net sales were $2,000,000,000, up 3% year over year, with consistent performance in active and denim categories [36] - Gap's net sales reached $724,000,000, also up 5% year over year, marking its sixth consecutive quarter of positive comps [36] - Banana Republic's net sales decreased by 3% to $428,000,000, with comparable sales flat [37] - Athleta's net sales fell by 6% to $308,000,000, with comparable sales down 8% [37] Market Data and Key Metrics Changes - Gap Inc. ranked as the number one apparel e-commerce business in the U.S., with e-commerce penetration increasing year over year [5] - Old Navy gained market share in both top and bottom income cohorts, while Gap gained share in top and middle cohorts [4] Company Strategy and Development Direction - The company is focused on brand reinvigoration, with clear strategic priorities aimed at long-term growth [5][8] - Plans to diversify sourcing to mitigate tariff impacts, with China expected to account for less than 3% of sourcing by the end of 2025 [6][7] - Investments in technology and supply chain improvements are prioritized to enhance operational efficiency and customer experience [25][26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about navigating a dynamic environment while maintaining a strong financial foundation [8][29] - The company reaffirmed its fiscal 2025 outlook, expecting net sales growth of 1% to 2% and operating income growth of 8% to 10%, excluding tariff impacts [35][41] - Management acknowledged potential headwinds from tariffs but emphasized ongoing efforts to mitigate these impacts [32][46] Other Important Information - The company returned approximately $131,000,000 to shareholders in Q1 through dividends and share repurchases [33][39] - Capital expenditures for the quarter were $83,000,000, with a full-year expectation of $600,000,000 [39][47] Q&A Session Summary Question: Inquiry about tariff mitigation strategies - Management confirmed strategies are in place to mitigate over half of the anticipated tariff impact, with ongoing diversification of sourcing [51][53] Question: Discussion on Gap brand's full-price selling and customer acquisition - Management highlighted successful campaigns and collaborations driving full-price sell-through and attracting new customers across generations [62][64] Question: Inquiry about Banana Republic and Athleta's performance - Management noted Banana Republic's flat comp and ongoing progress, while emphasizing the need for further work on Athleta to improve product appeal [96][97]

Financial Performance - Net sales reached $35 billion, a 2% increase year-over-year, with comparable sales also up by 2%[13] - Gross margin expanded by 60 bps compared to the previous year, reaching 418%[13][14] - Operating margin improved by 140 bps year-over-year to 75%[13][14] - Earnings per share (EPS) increased by 24% to $051, compared to $041 in the previous year[13] Brand Performance - Old Navy Global comparable sales increased by 3%[66] - Gap Global comparable sales increased by 5%[66] - Banana Republic Global comparable sales were flat at 0%[66] - Athleta Global comparable sales decreased by 8%[66] Financial Position - Cash, cash equivalents, and short-term investments totaled $22 billion, up 28% year-over-year[34] - Inventory increased by 7% year-over-year due to earlier receipts and faster transit times[34] - Capital expenditures for the quarter were $83 million[34] Capital Allocation - The company is targeting approximately $600 million in capital expenditures for fiscal year 2025[37] - $61 million was returned to shareholders in dividends during the quarter[39] - 4 million shares were repurchased for $70 million in the first quarter[39] Fiscal Year 2025 Outlook - Net sales are projected to grow by 1% to 2% year-over-year[43] - Operating income is expected to grow by approximately 8% to 10% year-over-year, excluding potential tariff impacts[43][44]

Exhibit 99.1 Gap Inc. Reports First Quarter Fiscal 2025 Results Net sales increased 2% versus last year with comparable sales up 2% 9th consecutive quarter of market share gains Operating margin of 7.5% improved 140 basis points versus last year Cash, cash equivalents and short-term investments of $2.2 billion up 28% versus last year SAN FRANCISCO – May 29, 2025 – Gap Inc. (NYSE: GAP), the largest specialty apparel company in the U.S. with a portfolio of brands including Old Navy, Gap, Banana Republic, and ...

Core Insights - Gap Inc. reported a 2% increase in net sales year-over-year, marking the 9th consecutive quarter of market share gains [1][2] - The operating margin improved by 140 basis points to 7.5%, with a gross margin of 41.8% reflecting a 60 basis point increase [1][6] - Cash, cash equivalents, and short-term investments rose by 28% to $2.2 billion compared to the previous year [1][6] Financial Results - For the first quarter of fiscal 2025, net sales reached $3.5 billion, with comparable sales also up 2% [6] - Online sales increased by 6%, accounting for 39% of total net sales [6] - Operating income was reported at $260 million, with net income of $193 million and diluted earnings per share of $0.51 [6][28] Brand Performance - Old Navy's net sales were $2.0 billion, up 3%, with comparable sales also increasing by 3% [8] - Gap's net sales increased by 5% to $724 million, achieving positive comparable sales for the 6th consecutive quarter [9] - Banana Republic's net sales decreased by 3% to $428 million, while Athleta's net sales fell by 6% to $308 million [10][11] Balance Sheet and Cash Flow - The company ended the quarter with cash and cash equivalents of $2.0 billion, reflecting a 28% increase from the prior year [6][29] - Free cash flow was negative $223 million, primarily due to capital expenditures and seasonal factors [6][31] - Capital expenditures for the quarter totaled $83 million [6] Fiscal 2025 Outlook - The company anticipates net sales growth of 1% to 2% for the full fiscal year, with operating income expected to grow by 8% to 10% [12][13] - The effective tax rate is projected to be approximately 26% [13] - The company plans to close approximately 35 stores during the fiscal year [13] Store Count and Locations - As of May 3, 2025, Gap Inc. operated approximately 3,500 store locations across over 35 countries, with 2,496 being company-operated [6][35] - The total number of company-operated stores decreased by 10 during the quarter [35]