The Gap (GAP) Q2 2026 Earnings Call August 28, 2025 05:00 PM ET Company ParticipantsWhitney Notaro - VP & Head - IRRichard Dickson - CEO, President & DirectorKatrina O’Connell - EVP & CFOAlex Straton - MD - Equity ResearchMarni Shapiro - Managing PartnerBrooke Roach - VP - Equity ResearchLorraine Hutchinson - Managing DirectorDana Telsey - CEO & Chief Research OfficerConference Call ParticipantsMatt Boss - Equity Research AnalystIke Boruchow - MD & Senior Analyst - Retailing, Specialty Softlines & E-commerc ...

Financial Data and Key Metrics Changes - The company reported a gross margin expansion of 360 basis points to 41.2% in Q2 compared to the same period two years ago [6] - Earnings per share (EPS) increased by 6% to $0.57, up from $0.54 last year [30] - Operating margin for the quarter was 7.8%, down 10 basis points compared to last year [36] - Net sales were flat year over year at $3.7 billion, with comparable sales up 1% [30][31] Business Line Data and Key Metrics Changes - Old Navy's net sales were $2.2 billion, up 1% with comparable sales increasing by 2% [31] - Gap brand net sales reached $772 million, up 1% with comparable sales up 4% [33] - Banana Republic's net sales were $475 million, down 1% year over year, but comparable sales increased by 4% [33] - Athleta's net sales decreased by 11% to $300 million, with comparable sales down 9% [34] Market Data and Key Metrics Changes - The company experienced a 1% increase in comparable sales across its three largest brands: Old Navy, Gap, and Banana Republic [9] - Athleta faced challenges, indicating a need for a brand reset to align with customer expectations [22] Company Strategy and Development Direction - The company is focused on four strategic priorities: maintaining financial and operational rigor, reinvigorating brands, strengthening the platform, and energizing culture [5][8] - The brand reinvigoration playbook is driving growth, particularly in key categories like denim and activewear [10][12] - The company is investing in technology to enhance efficiency and customer experience [25][26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the brand's ability to navigate a dynamic environment and achieve sustainable growth [5][8] - The company anticipates a net sales growth of 1% to 2% for fiscal 2025, despite headwinds from tariffs [30][39] - Management noted that the impact of tariffs is expected to be approximately 100 to 110 basis points on operating margin [41] Other Important Information - The company ended the quarter with cash and short-term investments of $2.4 billion, a 13% increase from last year [37] - The company returned approximately $144 million to shareholders through share repurchases and dividends [30] Q&A Session Summary Question: Concerns about lowered EBIT and EPS guidance despite strong Q2 performance - Management acknowledged the solid Q2 results but updated guidance due to headwinds from trade policies, specifically tariffs impacting operating margin [50][51] Question: Changes in merchandising and marketing at Old Navy - Management confirmed that improvements in merchandising and marketing have contributed to Old Navy's strong performance, without increased spending [58] Question: Confidence in Gap brand's performance during the holiday season - Management expressed confidence in Gap's consistent execution and positive comp growth, supported by strong marketing campaigns [66][68] Question: Drivers of revenue acceleration in Q3 forecast - Management highlighted the focus on brand reinvigoration and category leadership as key drivers for expected growth in Q3 [70][72] Question: Pricing strategy and its impact on mitigating tariff pressures - Management stated that pricing strategies are being used to maintain value while mitigating tariff impacts, with a balanced approach to pricing across brands [80][84]