Gap(GPS) - 2026 Q2 - Quarterly Report

Forward-Looking Statements The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially[5][6] - Key risk factors include changes in U.S. trade policy and tariffs, macroeconomic conditions, ability to gauge apparel trends, inventory management, digital system failures, global sourcing disruptions, and evolving regulatory landscapes[6][7] Where You Can Find More Information Gap Inc. discloses material financial and operational information via its Investor Relations website, press releases, SEC filings, public conference calls, webcasts, and social media channels (LinkedIn, Instagram) - Gap Inc. discloses material financial and operational information via its Investor Relations website, press releases, SEC filings, public conference calls, webcasts, and social media channels (LinkedIn, Instagram)[11] PART I - FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements and accompanying notes, covering balance sheets, income, equity, cash flows, and detailed accounting policies Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific fiscal period ends | Metric | August 2, 2025 ($M) | February 1, 2025 ($M) | August 3, 2024 ($M) | | :-------------------------- | :-------------------- | :-------------------- | :-------------------- | | Cash and cash equivalents | 2,194 | 2,335 | 1,900 | | Merchandise inventory | 2,294 | 2,067 | 2,107 | | Total current assets | 5,377 | 5,203 | 4,809 | | Total assets | 12,146 | 11,885 | 11,509 | | Accounts payable | 1,656 | 1,488 | 1,522 | | Total current liabilities | 3,197 | 3,256 | 3,224 | | Long-term debt | 1,491 | 1,490 | 1,489 | | Total stockholders' equity | 3,433 | 3,264 | 2,901 | Condensed Consolidated Statements of Operations This section presents the company's financial performance over specific periods, detailing net sales, costs, gross profit, operating income, and net income | Metric | 13 Weeks Ended Aug 2, 2025 ($M) | 13 Weeks Ended Aug 3, 2024 ($M) | 26 Weeks Ended Aug 2, 2025 ($M) | 26 Weeks Ended Aug 3, 2024 ($M) | | :-------------------------------- | :------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | | Net sales | 3,725 | 3,720 | 7,188 | 7,108 | | Cost of goods sold and occupancy | 2,189 | 2,137 | 4,204 | 4,128 | | Gross profit | 1,536 | 1,583 | 2,984 | 2,980 | | Operating expenses | 1,244 | 1,290 | 2,432 | 2,482 | | Operating income | 292 | 293 | 552 | 498 | | Net income | 216 | 206 | 409 | 364 | | Earnings per share - diluted | 0.57 | 0.54 | 1.07 | 0.95 | Condensed Consolidated Statements of Comprehensive Income This section reports net income and other comprehensive income components, providing a complete view of changes in equity from non-owner sources | Metric | 13 Weeks Ended Aug 2, 2025 ($M) | 13 Weeks Ended Aug 3, 2024 ($M) | 26 Weeks Ended Aug 2, 2025 ($M) | 26 Weeks Ended Aug 3, 2024 ($M) | | :-------------------------------- | :------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | | Net income | 216 | 206 | 409 | 364 | | Other comprehensive income (loss) | 1 | 4 | (19) | 8 | | Comprehensive income | 217 | 210 | 390 | 372 | Condensed Consolidated Statements of Stockholders' Equity This section details changes in stockholders' equity, including net income, share repurchases, and dividends paid over the reporting period | Metric | Balance as of Feb 1, 2025 ($M) | Net Income (26 Weeks) ($M) | Repurchases (26 Weeks) ($M) | Dividends Paid (26 Weeks) ($M) | Balance as of Aug 2, 2025 ($M) | | :-------------------------------- | :----------------------------- | :------------------------- | :-------------------------- | :----------------------------- | :----------------------------- | | Total Stockholders' Equity | 3,264 | 409 | (152) | (123) | 3,433 | - Common stock dividends declared and paid for the 26 weeks ended August 2, 2025, were $0.33 per share, totaling $123 million, compared to $0.30 per share ($112 million) for the same period in 2024[21] Condensed Consolidated Statements of Cash Flows This section summarizes cash inflows and outflows from operating, investing, and financing activities, showing the net change in cash | Cash Flow Activity | 26 Weeks Ended Aug 2, 2025 ($M) | 26 Weeks Ended Aug 3, 2024 ($M) | | :-------------------------------- | :------------------------------ | :------------------------------ | | Net cash provided by operating activities | 308 | 579 | | Net cash used for investing activities | (164) | (425) | | Net cash used for financing activities | (292) | (124) | | Net increase (decrease) in cash | (143) | 28 | | Cash, cash equivalents, and restricted cash at end of period | 2,222 | 1,929 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, clarifying accounting policies and specific financial items Note 1. Accounting Policies This note outlines the basis of presentation, management estimates, restricted cash reconciliation, and assessment of new accounting pronouncements - The preparation of financial statements requires management to make significant estimates and assumptions, particularly for inventory valuation, income taxes, sales return and bad debt allowances, deferred revenue, and impairment of long-lived assets[27] | Metric | August 2, 2025 ($M) | February 1, 2025 ($M) | August 3, 2024 ($M) | | :---------------------------------------------------------------- | :-------------------- | :-------------------- | :-------------------- | | Cash and cash equivalents, per Condensed Consolidated Balance Sheets | 2,194 | 2,335 | 1,900 | | Restricted cash included in other long-term assets | 28 | 30 | 29 | | Total cash, cash equivalents, and restricted cash | 2,222 | 2,365 | 1,929 | - The Company is assessing the impact of new accounting pronouncements: ASU No. 2023-09 (Improvements to Income Tax Disclosures) effective for annual periods after December 15, 2024, and ASU No. 2024-03 (Disaggregation of Income Statement Expenses) effective for fiscal years after December 15, 2026[31][32] Note 2. Revenue This note disaggregates net sales by channel, brand, and region, and explains deferred revenue recognition from gift cards, licensing, and loyalty programs | Channel | 13 Weeks Ended Aug 2, 2025 ($M) | 13 Weeks Ended Aug 3, 2024 ($M) | 26 Weeks Ended Aug 2, 2025 ($M) | 26 Weeks Ended Aug 3, 2024 ($M) | | :-------------------- | :------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | | 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 | | Brand/Region (13 Weeks Ended Aug 2, 2025) | Old Navy Global ($M) | Gap Global ($M) | Banana Republic Global ($M) | Athleta Global ($M) | Other ($M) | Total ($M) | | :---------------------------------------- | :------------------- | :-------------- | :-------------------------- | :------------------ | :--------- | :--------- | | U.S. | 1,978 | 581 | 408 | 290 | 28 | 3,285 | | Canada | 157 | 76 | 46 | 9 | — | 288 | | Other regions | 15 | 115 | 21 | 1 | — | 152 | | Total | 2,150 | 772 | 475 | 300 | 28 | 3,725 | | Brand/Region (26 Weeks Ended Aug 2, 2025) | Old Navy Global ($M) | Gap Global ($M) | Banana Republic Global ($M) | Athleta Global ($M) | Other ($M) | Total ($M) | | :---------------------------------------- | :------------------- | :-------------- | :-------------------------- | :------------------ | :--------- | :--------- | | U.S. | 3,804 | 1,126 | 781 | 589 | 50 | 6,350 | | Canada | 297 | 137 | 81 | 17 | — | 532 | | Other regions | 30 | 233 | 41 | 2 | — | 306 | | Total | 4,131 | 1,496 | 903 | 608 | 50 | 7,188 | - For the 26 weeks ended August 2, 2025, the opening balance of deferred revenue was $273 million, with $137 million recognized as revenue during the period, resulting in a closing balance of $248 million[38] Note 3. Income Taxes This note details effective income tax rates, attributing changes to prior year reserve adjustments and shifts in jurisdictional earnings, and addresses the OBBBA impact | Period | Effective Income Tax Rate | | :------------------------------ | :------------------------ | | 13 Weeks Ended August 2, 2025 | 27.0% | | 13 Weeks Ended August 3, 2024 | 30.4% | | 26 Weeks Ended August 2, 2025 | 26.8% | | 26 Weeks Ended August 3, 2024 | 27.8% | - The decrease in the effective tax rate for both periods is primarily due to prior year increases to certain income tax reserves and changes in the amount and mix of jurisdictional earnings[42][43] - The One Big Beautiful Bill Act of 2025 (OBBBA), enacted on July 4, 2025, changes U.S. income tax law, but its impact was not material to the Condensed Consolidated Financial Statements for the second quarter of fiscal 2025[44][45] Note 4. Debt and Credit Facilities This note details the company's long-term debt, including Senior Notes due 2029 and 2031, and its $2.2 billion Asset-Based Revolving Credit Agreement | Debt Instrument | August 2, 2025 ($M) | February 1, 2025 ($M) | August 3, 2024 ($M) | | :---------------- | :-------------------- | :-------------------- | :-------------------- | | 2029 Notes | 750 | 750 | 750 | | 2031 Notes | 750 | 750 | 750 | | Less: Unamortized debt issuance costs | (9) | (10) | (11) | | Total long-term debt | 1,491 | 1,490 | 1,489 | - The company has a $2.2 billion ABL Facility expiring in July 2027, which bears interest based on SOFR plus a margin. There were no borrowings under this facility as of August 2, 2025, February 1, 2025, or August 3, 2024[49][50] Note 5. Fair Value Measurements This note describes the methodology for measuring financial assets and liabilities at fair value using a three-level hierarchy, detailing various financial instruments | Category | August 2, 2025 ($M) | February 1, 2025 ($M) | August 3, 2024 ($M) | | :-------------------------- | :-------------------- | :-------------------- | :-------------------- | | Assets: | | | | | Cash equivalents | 235 | 310 | 9 | | Short-term investments | 238 | 253 | 246 | | Derivative financial instruments | 9 | 33 | 16 | | Deferred compensation plan assets | 42 | 36 | 40 | | Other assets | 3 | 3 | 4 | | Total Assets | 527 | 635 | 315 | | Liabilities: | | | | | Derivative financial instruments | 6 | — | 3 | - No material realized or unrealized gains or losses or impairment charges were recorded for short-term investments or long-lived assets during the 13 and 26 weeks ended August 2, 2025, or August 3, 2024[54][58] Note 6. Derivative Financial Instruments This note details the company's use of foreign exchange forward contracts to manage currency risk for merchandise purchases and intercompany balances - The company uses foreign exchange forward contracts to hedge a portion of merchandise purchases for foreign operations and certain intercompany transactions, primarily against the Canadian dollar, Japanese yen, British pound, New Taiwan dollar, and Euro[60] | Category | August 2, 2025 ($M) | February 1, 2025 ($M) | August 3, 2024 ($M) | | :------------------------------------ | :-------------------- | :-------------------- | :-------------------- | | Derivatives designated as cash flow hedges | 527 | 363 | 457 | | Derivatives not designated as hedging instruments | 422 | 419 | 410 | | Total Notional Amount | 949 | 782 | 867 | | Fair Value Position | August 2, 2025 ($M) | February 1, 2025 ($M) | August 3, 2024 ($M) | | :------------------------------------ | :-------------------- | :-------------------- | :-------------------- | | Total derivatives in an asset position | 9 | 33 | 16 | | Total derivatives in a liability position | 6 | — | 3 | Note 7. Share Repurchases This note details common stock repurchase activity for the 13 and 26 weeks ended August 2, 2025, and remaining authorization under the February 2019 program | Metric | 13 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 2, 2025 | | :------------------------------------ | :------------------------- | :------------------------- | | Number of shares repurchased (millions) | 3 | 7 | | Total cost ($M) | 82 | 152 | | Average per share cost | $23.67 | $21.41 | - As of August 2, 2025, $249 million remained under the $1.0 billion share repurchase authorization approved in February 2019[70] Note 8. Earnings Per Share This note presents the weighted-average number of shares used for basic and diluted earnings per share calculations, including common stock equivalents | Shares (millions) | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :------------------------------------ | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Weighted-average number of shares - basic | 373 | 376 | 374 | 375 | | Common stock equivalents | 6 | 7 | 7 | 8 | | Weighted-average number of shares - diluted | 379 | 383 | 381 | 383 | Note 9. Commitments and Contingencies This note discusses contractual indemnification obligations and various legal proceedings, concluding no material losses are expected - The company is a party to various contractual agreements with indemnification obligations and is subject to numerous legal proceedings, but does not believe the outcome of any current action would have a material effect on its Condensed Consolidated Financial Statements[73][75] Note 10. Segment Information This note identifies operating segments aggregated into one reportable segment due to similar characteristics, presenting segment profit and significant expenses - The company's operating segments (Old Navy Global, Gap Global, Banana Republic Global, and Athleta Global) are aggregated into one reportable segment due to similar qualitative and economic characteristics[76] | Metric | 13 Weeks Ended Aug 2, 2025 ($M) | 13 Weeks Ended Aug 3, 2024 ($M) | 26 Weeks Ended Aug 2, 2025 ($M) | 26 Weeks Ended Aug 3, 2024 ($M) | | :-------------------- | :------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | | Net sales | 3,725 | 3,720 | 7,188 | 7,108 | | Cost of goods sold | 1,725 | 1,668 | 3,279 | 3,189 | | Occupancy expenses | 464 | 469 | 925 | 939 | | Operating expenses | 1,244 | 1,290 | 2,432 | 2,482 | | Operating income | 292 | 293 | 552 | 498 | Note 11. Divestitures This note updates on the transition of Gap China operations to Baozun Inc., which closed in January 2023, and the decision not to proceed with Gap Taiwan operations - The Gap China transaction with Baozun Inc. to operate Gap Greater China stores and website as a franchise partner closed on January 31, 2023[80] - The parties decided not to proceed with the transition of Gap's operations in Taiwan, which will continue to operate as usual[80] Note 12. Supply Chain Finance Program This note describes the voluntary supply chain finance program, allowing suppliers to sell receivables to financial institutions, and reports outstanding obligations - The company's voluntary supply chain finance (SCF) program allows suppliers to sell their receivables to participating financial institutions, without impacting the company's payment terms[81] | Metric | August 2, 2025 ($M) | February 1, 2025 ($M) | August 3, 2024 ($M) | | :-------------------------- | :-------------------- | :-------------------- | :-------------------- | | Outstanding obligations under SCF program | 392 | 387 | 412 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Gap Inc.'s financial condition and results, including business overview, performance analysis, liquidity, and strategic priorities OUR BUSINESS Gap Inc. operates a portfolio of iconic apparel brands through various channels, leveraging omni-channel capabilities to enhance customer experience - Gap Inc. operates as a house of iconic brands (Old Navy, Gap, Banana Republic, Athleta) offering apparel, accessories, and personal care products through company-operated stores, franchise stores, websites, and third-party arrangements[84] - The company leverages omni-channel capabilities, including buy online pick-up in store, order-in-store, and ship-from-store, to enhance the customer shopping experience[84] OVERVIEW This section summarizes key financial performance metrics for Q2 fiscal 2025, outlines strategic priorities, and discusses macroeconomic factors impacting the retail environment | Metric | Q2 Fiscal 2025 | Q2 Fiscal 2024 | Change | | :-------------------------- | :------------- | :------------- | :----- | | Net sales | Flat | | | | Store & franchise sales | Decreased 1% | | | | Online sales | Increased 3% | | | | Gross profit | $1.54B | $1.58B | Down | | Gross margin | 41.2% | 42.6% | Down | | Operating income | $292M | $293M | Flat | | Effective income tax rate | 27.0% | 30.4% | Down | | Net income | $216M | $206M | Up | | Diluted EPS | $0.57 | $0.54 | Up | | Merchandise inventory (YoY) | Increased 9% | | | - Strategic priorities include maintaining financial and operational rigor, reinvigorating brands, strengthening the operating platform with a digital-first mindset, attracting and retaining talent, and integrating sustainability[86] - Macroeconomic factors, including global geopolitical instability, inflationary pressures, foreign currency fluctuations, and changes in trade policy and tariffs, continue to create a complex and challenging retail environment, potentially impacting gross margins[85][87] RESULTS OF OPERATIONS This section provides a detailed analysis of the company's financial performance, examining net sales, comparable sales, cost of goods sold, operating expenses, and income taxes Net Sales Net sales for Q2 fiscal 2025 were flat year-over-year, with online sales growth offsetting a decrease in store and franchise sales - Net sales for the second quarter of fiscal 2025 were $3,725 million, flat compared to $3,720 million in the second quarter of fiscal 2024[17][97] - Online sales increased 3% in Q2 fiscal 2025, while store and franchise sales decreased 1% compared to Q2 fiscal 2024[86] - Net sales for the first half of fiscal 2025 increased $80 million, or 1%, to $7,188 million, primarily driven by an increase in online sales[17][97] Comparable Sales ("Comp Sales") Comparable sales for The Gap, Inc. increased 1% in Q2 fiscal 2025 and 2% in H1 fiscal 2025, with Athleta Global experiencing a 9% decline | 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 % | — % | 2 % | 1 % | | Athleta Global | (9)% | (4)% | (9)% | — % | | The Gap, Inc. | 1 % | 3 % | 2 % | 3 % | | Brand (North America) | Feb 1, 2025 Store Locations | Net Opened/(Closed) (26 Weeks) | Aug 2, 2025 Store Locations | Square Footage (Aug 2, 2025, in millions) | | :---------------------- | :-------------------------- | :----------------------------- | :-------------------------- | :---------------------------------------- | | Old Navy | 1,249 | (9) | 1,240 | 19.6 | | Gap | 453 | — | 453 | 4.8 | | Banana Republic | 380 | (9) | 371 | 3.1 | | Athleta | 260 | (5) | 255 | 1.0 | | Company-operated stores total | 2,506 | (20) | 2,486 | 29.7 | Cost of Goods Sold and Occupancy Expenses Gross profit for Q2 fiscal 2025 decreased to $1.54 billion, with gross margin declining to 41.2%, primarily due to prior year credit card income and Athleta promotions | Metric | 13 Weeks Ended Aug 2, 2025 ($M) | 13 Weeks Ended Aug 3, 2024 ($M) | 26 Weeks Ended Aug 2, 2025 ($M) | 26 Weeks Ended Aug 3, 2024 ($M) | | :-------------------------------- | :------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | | Cost of goods sold and occupancy | 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 % | - Cost of goods sold increased 1.5 percentage points as a percentage of net sales in Q2 fiscal 2025, primarily due to incremental income from the credit card agreement in Q2 fiscal 2024. The estimated impact of tariff increases was minimal[101] - Occupancy expenses decreased 0.1 percentage points as a percentage of net sales in Q2 fiscal 2025, driven by an increase in online sales without a corresponding increase in occupancy expenses[101] Operating Expenses Operating expenses decreased by $46 million in Q2 fiscal 2025 and $50 million in H1 fiscal 2025, primarily due to lower performance-based compensation | Metric | 13 Weeks Ended Aug 2, 2025 ($M) | 13 Weeks Ended Aug 3, 2024 ($M) | 26 Weeks Ended Aug 2, 2025 ($M) | 26 Weeks Ended Aug 3, 2024 ($M) | | :-------------------- | :------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | | Operating expenses | 1,244 | 1,290 | 2,432 | 2,482 | | Operating margin | 7.8 % | 7.9 % | 7.7 % | 7.0 % | - The decrease in operating expenses was primarily due to a decrease in performance-based compensation[102] Interest Expense Interest expense remained stable at $23 million for Q2 fiscal 2025 and $46 million for H1 fiscal 2025, mainly from Senior Notes and tax-related interest | Metric | 13 Weeks Ended Aug 2, 2025 ($M) | 13 Weeks Ended Aug 3, 2024 ($M) | 26 Weeks Ended Aug 2, 2025 ($M) | 26 Weeks Ended Aug 3, 2024 ($M) | | :-------------------- | :------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | | Interest expense | 23 | 24 | 46 | 45 | Interest Income Interest income was flat at $27 million for Q2 fiscal 2025 and increased slightly to $53 million for H1 fiscal 2025, driven by higher cash balances | Metric | 13 Weeks Ended Aug 2, 2025 ($M) | 13 Weeks Ended Aug 3, 2024 ($M) | 26 Weeks Ended Aug 2, 2025 ($M) | 26 Weeks Ended Aug 3, 2024 ($M) | | :-------------------- | :------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | | Interest income | (27) | (27) | (53) | (51) | Income Taxes The effective income tax rate decreased in Q2 and H1 fiscal 2025 due to prior year reserve adjustments and jurisdictional earnings mix, with no material OBBBA impact | Metric | 13 Weeks Ended Aug 2, 2025 ($M) | 13 Weeks Ended Aug 3, 2024 ($M) | 26 Weeks Ended Aug 2, 2025 ($M) | 26 Weeks Ended Aug 3, 2024 ($M) | | :-------------------- | :------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | | Income tax expense | 80 | 90 | 150 | 140 | | Effective tax rate | 27.0 % | 30.4 % | 26.8 % | 27.8 % | - The decrease in the effective tax rate is primarily due to prior year increases to certain income tax reserves and changes in the amount and mix of jurisdictional earnings[105][106] - The impact of the OBBBA tax legislation, enacted on July 4, 2025, was not material to the Condensed Consolidated Financial Statements for the second quarter of fiscal 2025[107][108] LIQUIDITY AND CAPITAL RESOURCES This section analyzes the company's cash flows from operating, investing, and financing activities, free cash flow, dividend policy, and share repurchases Cash Flows from Operating Activities Net cash provided by operating activities decreased by $271 million in H1 fiscal 2025, primarily due to higher performance-based compensation payments and inventory changes - Net cash provided by operating activities decreased by $271 million during the first half of fiscal 2025 compared with the first half of fiscal 2024[112] - This decrease was primarily driven by a $156 million decrease related to accrued expenses and other current liabilities (due to higher payments for fiscal 2024 performance-based compensation) and a $96 million decrease related to merchandise inventory[114] Cash Flows from Investing Activities Net cash used for investing activities decreased by $261 million in H1 fiscal 2025, mainly due to fewer net purchases of short-term investments - Net cash used for investing activities decreased by $261 million during the first half of fiscal 2025 compared with the first half of fiscal 2024[112] - The decrease was primarily due to $260 million fewer net purchases of short-term investments[112] Cash Flows from Financing Activities Net cash used for financing activities increased by $168 million in H1 fiscal 2025, primarily due to $152 million in common stock repurchases - Net cash used for financing activities increased by $168 million during the first half of fiscal 2025 compared with the first half of fiscal 2024[113] - This increase was primarily due to $152 million in repurchases of common stock during the first half of fiscal 2025, compared with no repurchases during the first half of fiscal 2024[113] Free Cash Flow Free cash flow, a non-GAAP measure, decreased to $127 million for H1 fiscal 2025, reflecting changes in operating cash flows and capital expenditures | Metric | 26 Weeks Ended Aug 2, 2025 ($M) | 26 Weeks Ended Aug 3, 2024 ($M) | | :-------------------------------- | :------------------------------ | :------------------------------ | | Net cash provided by operating activities | 308 | 579 | | Less: Purchases of property and equipment | (181) | (182) | | Free cash flow | 127 | 397 | Dividend Policy The Board of Directors authorized a dividend of $0.165 per share for Q3 fiscal 2025, consistent with the dividend paid in Q2 fiscal 2025 - The company paid a dividend of $0.165 per share during the second quarter of fiscal 2025[118] - In August 2025, the Board authorized a dividend of $0.165 per share for the third quarter of fiscal 2025[118] Share Repurchases This section refers to Note 7 for detailed information regarding the company's share repurchase activities - Information about the company's share repurchases is detailed in Note 7 of the Notes to Condensed Consolidated Financial Statements[119] Summary Disclosures about Contractual Cash Obligations and Commercial Commitments No material changes to contractual obligations and commercial commitments have occurred since the Annual Report on Form 10-K for the fiscal year ended February 1, 2025 - No material changes to contractual obligations and commercial commitments have occurred since the Annual Report on Form 10-K for the fiscal year ended February 1, 2025, other than those in the normal course of business[120] Critical Accounting Policies and Estimates This section confirms no significant changes to the company's critical accounting policies and estimates since the Annual Report on Form 10-K for the fiscal year ended February 1, 2025 - There have been no significant changes to the company's critical accounting policies and estimates since the Annual Report on Form 10-K for the fiscal year ended February 1, 2025[121] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk profile has not significantly changed since the Annual Report on Form 10-K as of February 1, 2025, with further details available in the notes to the financial statements - The company's market risk profile has not significantly changed since the Annual Report on Form 10-K for the fiscal year ended February 1, 2025[122] Item 4. Controls and Procedures This section reports on the effectiveness of disclosure controls and procedures and confirms no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period - 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 Quarterly Report on Form 10-Q[123] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during Q2 fiscal 2025 that would materially affect its effectiveness - There was no change in the company's internal control over financial reporting during the second quarter of fiscal 2025 that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting[124] PART II - OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity security sales, other disclosures, and a list of exhibits Item 1. Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business, but does not expect any material financial impact - The company is subject to various legal proceedings, including commercial, intellectual property, customer, employment, securities, and data privacy claims, but does not believe the outcome of any current action would have a material effect on its financial results[125][126] Item 1A. Risk Factors This section updates risks related to trade matters, tariffs, and their potential impact on supply chain, costs, sales, and profitability, noting policy uncertainty - Changes in U.S. trade policy and tariffs have increased merchandise costs and may negatively impact future gross margins. Imports from Vietnam are subject to a 20% tariff, Indonesia 19%, and China an additional 20%[128][129] - In fiscal 2024, approximately 27% and 19% of merchandise, by dollar value, was purchased from factories in Vietnam and Indonesia, respectively, while less than 10% was from China[130] - Geopolitical and financial instability, labor strikes, work stoppages, boycotts, or port congestion in sourcing countries could disrupt the supply chain, increase costs, and adversely affect business[133] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details common stock repurchase activity for the 13 weeks ended August 2, 2025, and the remaining authorization under the February 2019 program | Period | Total Number of Shares Purchased | Average Price Paid Per Share Including Commissions | Maximum Number (or approximate dollar amount) of Shares that May Yet be Purchased Under the Plans or Programs | | :---------------------- | :------------------------------- | :----------------------------------------------- | :---------------------------------------------------------------------------------------------------- | | Month 1 (May 4 - May 31) | 1,122,800 | $27.82 | $300 million | | Month 2 (June 1 - July 5) | 1,283,791 | $21.64 | $272 million | | Month 3 (July 6 - August 2) | 1,027,900 | $21.67 | $249 million | | 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, which has no expiration date[136] Item 5. Other Information This section discloses Rule 10b5-1 trading arrangements adopted by several Section 16 officers for selling common stock and unexercised stock options - Julie Gruber (Chief Legal and Compliance Officer), Mark Breitbard (President and CEO of Gap brand), Katrina O'Connell (Chief Financial Officer), and Sarah Gilligan (Chief Supply Chain and Transformation Officer) adopted Rule 10b5-1 trading plans in June and July 2025[137][138][139][140] - These plans are intended to satisfy the affirmative defense of Rule 10b5-1(c) for selling common stock, including shares from unexercised stock options, with termination dates ranging from April 2026 to December 2026[137][138][139][140] Item 6. Exhibits This section lists all exhibits filed as part of this Quarterly Report on Form 10-Q, including corporate documents, compensation plans, and certifications - Exhibits include the Restated Certificate of Incorporation, Amended and Restated Bylaws, Senior Executive Severance Plan, various Deferred Restricted Stock Unit and Performance Share Award Agreements, and Rule 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350 certifications from the CEO and CFO[142] - The report also includes Inline XBRL formatted financial statements and the Cover Page Interactive Data File[142] SIGNATURES This section confirms the report was signed on August 29, 2025, by the President and CEO, and the Executive Vice President and CFO - The report was signed on August 29, 2025, by Richard Dickson, President and Chief Executive Officer, and Katrina O'Connell, Executive Vice President and Chief Financial Officer[146]