Gap raises full year earnings outlook despite mixed brand performance

US specialty apparel company Gap Inc. has updated its full year guidance following its financial results for the first quarter ended May 2, 2026. The group reported a net sales increase of 1 percent to 3.50 billion dollars, while comparable sales rose 2 percent, marking the ninth consecutive quarter of positive growth.

Standout quarter for Gap brand

Performance across the portfolio was varied during the 13-week period. San Francisco-based Gap Inc. saw its namesake Gap brand deliver a 10 percent increase in both net sales and comparable sales, reaching 796 million dollars. The company noted this was one of the strongest performances for the brand in more than two decades, driven by culturally relevant storytelling in destination categories such as denim, fleece, and kidswear.

Old Navy, the largest brand in the portfolio by revenue, posted net sales of 2.00 billion dollars, up 1 percent compared to last year, with comparable sales also up 1 percent. Growth in denim, activewear, and kidswear was offset by weakness in women’s dresses. During an investor call, Gap Inc. president and chief executive officer Richard Dickson addressed the category challenges, noting that the group did not deliver the right fashion value equation for seasonal lines, with customer responses also weaker for swim and shorts.

Banana Republic net sales rose 1 percent to 431 million dollars, with comparable sales up 2 percent. Activewear brand Athleta continued its multi-quarter decline, with net sales dropping 12 percent to 270 million dollars and comparable sales down 11 percent. The brand is currently focused on rewriting its product assortment for the second half of the year.

Operating income and margin details

The company reported first-quarter operating income of 445 million dollars and an operating margin of 12.7 percent, while adjusted operating income stood at 182 million dollars, with an adjusted operating margin of 5.2 percent. Gross margin for the quarter was 40.5 percent, down 130 basis points compared to the prior year.

Store sales for the group increased 3 percent, while e-commerce sales decreased 2 percent, representing 38 percent of total net sales. Gap Inc. ended the period with 3,477 company-operated stores across approximately 35 countries.

Net income for the quarter reached 339 million dollars, or 0.90 dollars per diluted share. Adjusted net income was 145 million dollars, representing adjusted diluted earnings per share of 0.38 dollars.

Updated full year guidance

For fiscal year 2026, the company expects net sales to be up 1 percent to 2 percent year-over-year, compared to its prior outlook of flat to up slightly. The company raised its guidance for adjusted diluted earnings per share to a range of 2.30 dollars to 2.40 dollars, up from the previous forecast of 2.20 dollars to 2.35 dollars.

The full year outlook factors in a 50 basis point benefit to gross margin and operating margin from updated tariff assumptions under Section 122, translating to approximately 80 million dollars of net tariff relief.

For the second quarter of fiscal year 2026, the retailer expects net sales to be flat to down 1 percent year-over-year compared to 3.70 billion dollars in the prior year period. Gross margin is expected to be flat to down 50 basis points against last year's 41.2 percent.