Gap flags hit from tariffs, forecasts annual adjusted profit below estimates

Core Viewpoint - Gap has warned about the pressure and uncertainty from U.S. import tariffs, forecasting annual adjusted profit below Wall Street estimates, leading to a 7% drop in its shares during extended trading [1]. Group 1: Financial Impact and Forecasts - Gap's annual targets do not consider the recent Supreme Court ruling on tariffs and the temporary duties imposed by the previous U.S. administration [2]. - The company anticipates a 200-basis-point impact on its current-quarter gross margins due to U.S. import tariffs [2]. - Gap expects annual adjusted earnings of approximately $2.20 to $2.35 per share, which is below analysts' average estimate of $2.32 [4]. Group 2: Market Conditions and Competitors - U.S. trade policy uncertainty is identified as the primary factor affecting the apparel sector, with concerns about companies' ability to absorb or pass on tariff costs [3]. - Competitors such as American Eagle and Abercrombie & Fitch have also reported similar tariff pressures impacting their margins and plans for the year [3]. Group 3: Sales Performance and Strategic Actions - Gap's same-store sales increased by 3% during the holiday quarter, falling short of the expected 3.08% rise, as consumers, particularly from lower-income households, sought discounts [5]. - The company is investing heavily in advertising to attract shoppers, with capital expenditure projected at about $650 million for the full year, up from $470 million reported in 2025 [5]. - Sales at Athleta, a Gap brand, have declined for five consecutive quarters as it attempts to revitalize its market presence [6].