GAP Inc.: Q2 FY2026 earnings call

What management said about Q2 FY2026, from the documents filed with the SEC on 27 August 2026: press release. Guidance figures: 3 raised, 5 lowered, 2 new, 3 kept. The quarter’s numbers.

Read the filing

Key takeaways

• Net sales fell 2%, comparables down 1%: Net sales were $3.7 billion, down 2%, with comparable sales down 1%. Gap brand sales rose while Old Navy and Athleta sales declined. Source
• Adjusted operating margin was 7.1%: Excluding the net IEEPA tariff recovery, adjusted operating income was $259 million and adjusted operating margin was 7.1%. Source
• Gap comparable sales up 10%: Gap net sales were $844 million, up 9%. Comparable sales rose 10%, with management citing big ideas and culturally relevant storytelling. Source
• $417 million tariff adjustment to costs: The company recorded a $417 million adjustment to cost of goods sold. It reflects about $512 million of IEEPA refunds, less about $95 million of vendor appreciation commitments, and $5 million of interest income. Source
• Old Navy traffic slowed unexpectedly: Management attributed Old Navy's comparable sales decline to expected pressure in the women's seasonal assortment and to an unanticipated slowdown in traffic. Source
• Returns of $726 million year to date: Year-to-date shareholder returns were $726 million: $601 million of repurchases and $125 million of dividends. The quarterly dividend is $0.175 per share, up 6%. Source

“While top-line results in the second quarter were modestly below expectations, continued operational and financial rigor contributed to gross margin strength resulting in the Company exceeding profit expectations,”

Richard Dickson, President and Chief Executive Officer

Guidance

What changed from last quarter

• Guidance lowered: Full-year net sales growth range narrowed to 1% to 1.5%, from 1% to 2%. Source
• Guidance lowered: Old Navy full-year comparable sales expectation moved to flat to down 1%, from flat to up 1%. Source
• Guidance lowered: Gap brand full-year comparable sales expectation moved to high-single to low double-digit growth, from up high-single digits. Source
• Guidance raised: Adjusted operating margin range moved to about 7.4% to 7.6%, from about 7.3% to 7.5%. Source
• Guidance raised: Adjusted diluted EPS range moved to $2.35 to $2.45, from $2.30 to $2.40. Source
• Guidance raised: Reported diluted EPS range moved to $3.77 to $3.87, from $2.83 to $2.93 in the prior release. Source
• Guidance lowered: Expected net tariff relief for the year reduced to approximately $15 million, from approximately $80 million in the prior release. Source
• New: Tariff rate assumption updated after the July Section 301 announcement, to roughly 10% incremental from July 24 through August. Source
• New: Michael Francis named as next President and CEO of Old Navy, succeeding Haio Barbeito. Source

Results and growth drivers

• Net sales fell 2%, comparables down 1%: Net sales were $3.7 billion, down 2%, with comparable sales down 1%. Gap brand sales rose while Old Navy and Athleta sales declined. Source
• Operating income rose to $676 million: Reported operating income was $676 million, an operating margin of 18.5%. The figure includes the net IEEPA tariff recovery. Source
• Adjusted operating margin was 7.1%: Excluding the net IEEPA tariff recovery, adjusted operating income was $259 million and adjusted operating margin was 7.1%. Source
• Diluted EPS $1.38, adjusted $0.52: Net income was $501 million and diluted EPS $1.38. Adjusted diluted EPS, excluding the tariff recovery and related interest income, was $0.52. Source

Brand and product results

• Gap comparable sales up 10%: Gap net sales were $844 million, up 9%. Comparable sales rose 10%, with management citing big ideas and culturally relevant storytelling. Source
• Gap growth in denim, fleece, kids: Management named denim, fleece, and kids and baby as the destination categories behind Gap brand performance. Source
• Old Navy net sales down 4%: Old Navy net sales were $2.1 billion, down 4%, and comparable sales also fell 4%. Source
• Banana Republic comparables up 3%: Banana Republic net sales were $478 million, up 1%. Management said performance was balanced across men's and women's. Source
• Athleta sales and comparables down 12%: Athleta net sales were $264 million, down 12%, with comparable sales down 12%. Management said the brand remains focused on disciplined execution to rebuild it profitably. Source

“We have work to do at Old Navy, but we have a clear understanding of the factors that impacted performance and are taking targeted actions that are already driving improved results.”

Richard Dickson, President and Chief Executive Officer

Regional and store mix

• U.S. sales down, Canada and other regions lower: U.S. net sales were $3,223 million against $3,285 million a year earlier. Canada was $286 million against $288 million; other regions $142 million against $152 million. Source
• Store sales down 3%: Store sales decreased 3% against last year. Company-operated stores were 2,471 at quarter end, from 2,474 at January 31, 2026. Source
• About 1,000 franchise stores: Franchise partners operated about 1,000 stores as of August 1, 2026, alongside 2,471 company-operated stores. Source

Margins, costs and tariffs

• Reported gross margin 52.8%: Reported gross margin rose 1,160 basis points to 52.8%, including 1,140 basis points of net benefit from the expected IEEPA tariff recovery. Source
• Adjusted gross margin 41.4%: Excluding the tariff recovery, adjusted gross margin was 41.4%, up 20 basis points versus last year. Source
• Merchandise margin up 80 basis points: Adjusted for the recovery, merchandise margin rose 80 basis points, including tariff mitigation. Higher promotional activity at Old Navy partly offset the gain. Source
• Occupancy costs deleveraged 60 basis points: Rent, occupancy, and depreciation as a percent of sales deleveraged 60 basis points against last year. Source
• Operating expense 34.3% of sales: Operating expense was $1.3 billion, or 34.3% of net sales, on a reported basis. Source
• $417 million tariff adjustment to costs: The company recorded a $417 million adjustment to cost of goods sold. It reflects about $512 million of IEEPA refunds, less about $95 million of vendor appreciation commitments, and $5 million of interest income. Source

“We remain focused on disciplined execution and performing while we transform in order to win in the second half,”

Richard Dickson, President and Chief Executive Officer

Demand, traffic and inventory

• Old Navy traffic slowed unexpectedly: Management attributed Old Navy's comparable sales decline to expected pressure in the women's seasonal assortment and to an unanticipated slowdown in traffic. Source
• Online sales 35% of net sales: Online sales fell 1% and made up 35% of total net sales, compared with 38% in the first quarter. Source
• Ending inventory flat at $2.3 billion: Ending inventory was $2.3 billion, flat against last year. First-quarter ending inventory was $2.1 billion. Source

Cash, capital and shareholder returns

• Cash and short-term investments $2.5 billion: Cash, cash equivalents and short-term investments were $2.5 billion, up 2% from a year earlier. Source
• Free cash flow $261 million year to date: Year-to-date operating cash flow was $550 million. The period includes a $313 million pre-tax legal-settlement gain and a $50 million charitable contribution made in the first quarter. Source
• Repurchases of $601 million year to date: The $200 million ASR completed with 8.3 million shares in total. The company also bought 9.3 million shares in the open market for $200 million in the quarter, leaving $399 million of authorization. Source
• Returns of $726 million year to date: Year-to-date shareholder returns were $726 million: $601 million of repurchases and $125 million of dividends. The quarterly dividend is $0.175 per share, up 6%. Source
• Capital expenditures $289 million: Capital expenditures were $289 million year to date, against $181 million a year earlier. Source

Coming up, as management said on 27 August 2026

• Third-quarter dividend approved: The board approved a third-quarter fiscal 2026 dividend of $0.175 per share. Source
• Remaining IEEPA refunds due in third quarter: Remaining refunds and related interest income are expected in the third quarter; the adjusted figures exclude them. Source
• Tariff relief weighted to fourth quarter: Management expects tariff relief to be concentrated in the fourth quarter, based on the timing of receipts. Source

Figures management reported

Risks management discussed

• Demand: Old Navy comparable sales are expected to remain under pressure in the women's seasonal assortment. Source
• External: Management noted potential uncertainty from energy prices and U.S. tariffs in the coming months. Source
• Operational: Higher promotional activity at Old Navy partly offset the merchandise margin gain. Source
• Financial: Rent, occupancy, and depreciation deleveraged against sales, adding cost pressure to margins. Source

Earlier plans management reported on

• Missed: Management said second-quarter top-line results were modestly below its expectations. Source
• Ahead: Management said gross margin strength led the company to exceed its profit expectations. Source
• Not stated: The first-quarter release said Athleta would launch a reimagined assortment in the second half; the second-quarter release does not restate the timing.

Other quarters

• Q1 FY2026 earnings call
• Q4 FY2025 earnings call
• Q3 FY2025 earnings call
• Q2 FY2025 results

Summarised with AI from the documents the company filed with the SEC. Every point is checked against the filing before it is shown: management’s own words word for word, figures against the line or table row they come from. A point that fails the check is left out. Source opens the filing at that line.