Gap Inc (GAP1) Q2 2026 Earnings Report

The call conveyed a cautiously optimistic tone: strong operational and margin performance (led by Gap and Banana Republic), disciplined capital allocation and an improved full-year EPS and margin outlook are offset by notable top-line weakness at Old Navy and Athleta, a modest overall revenue contraction in the quarter and some expense/leverage pressures. Management outlined concrete corrective actions for underperforming brands and reported early signs of improvement at Old Navy, supporting confidence in the second half.

The company narrowed its fiscal 2026 revenue outlook to net sales growth of 1.0%–1.5% (comps roughly in line) while raising profitability targets: adjusted gross margin now expected to be up slightly year‑over‑year, adjusted operating margin 7.4%–7.6% (vs 7.3% last year) and adjusted EPS $2.35–$2.45 (up 10%–15%), with adjusted interest income ~ $20M (skewed to Q4) and an expected tax rate of 25%–26%. By brand, full‑year comps are guided to Old Navy flat to down 1%, Gap high‑single to low‑double digit growth, Banana Republic low single digits and Athleta roughly in line with its challenged first half. Third quarter guidance: net sales +1.5%–2.5% (comps ~50 bps below net sales), Q3 gross margin +25–75 bps vs last year’s 42.4% (with ~150 bps tariff benefit, ~60 bps ROD deleverage); full‑year ROD deleverage ~50 bps. Other metrics: ~$650M capex, $150M targeted cost savings, $600M repurchased YTD (26M shares) with ~$400M remaining, weighted average shares ~367M, cash ~$2.5B, YTD operating cash $550M and free cash flow $261M.