Gap says tariffs will cost hundreds of millions but doesn't expect 'meaningful' price increases

Core Viewpoint - Gap is anticipating that new tariffs will significantly impact its business, estimating costs between $250 million to $300 million if tariffs remain in effect, leading to a more than 15% drop in shares after earnings announcement [1][3] Financial Performance - For the fiscal first quarter, Gap reported a net income of $193 million (51 cents per share), an increase from $158 million (41 cents per share) a year earlier [4][9] - Sales rose to $3.46 billion, up approximately 2% from $3.39 billion a year earlier [4] - Comparable sales grew 2%, aligning with expectations of 1.8% [8] Guidance and Expectations - Gap's full-year sales growth is expected to be between 1% and 2%, slightly below the consensus expectation of 1.3% [5] - The company anticipates flat sales for the current quarter, compared to expectations of 0.2% growth [5] - Gross margin is projected at 41.8%, lower than the expected 42.5% [5] Supply Chain Strategy - To mitigate tariff impacts, Gap plans to diversify its supply chain and reduce exposure to China, aiming to limit the cost impact to $100 million to $150 million [2] - Currently, Gap manufactures less than 10% of its products in China, with expectations to reduce this to less than 3% by year-end [6] Brand Performance - Old Navy, Gap's largest brand, achieved sales of $2 billion, up 3% year-over-year, exceeding expectations [8][10] - The Gap brand saw sales of $724 million, up 5% compared to last year, also surpassing expectations [10] - Banana Republic experienced a 3% decline in sales to $428 million, while Athleta's sales fell 6% to $308 million, indicating challenges in these brands [10]