Gap’s revival continues, led by a surge at its namesake brand, but rising US tariffs are beginning to erode margins.
Gap delivered its best underlying sales growth in nearly a decade, defying a sluggish US apparel market. Comparable sales rose 5% in the fiscal third quarter—well above forecasts—driven by a 7% jump at the Gap brand after its viral “Better in Denim” campaign. The retailer also raised its full-year sales and margin outlook, signalling confidence heading into the holidays.
Revenue rose 3% to $3.94 billion, slightly ahead of expectations, while earnings per share came in at 62 cents. But net income fell 14% year-on-year to $236 million as tariffs and higher costs dented profitability. Gross margin slipped to 42.4%, though it still exceeded analyst estimates.
The broader picture is mixed. Old Navy posted 6% comparable growth, and Banana Republic notched its second consecutive quarter of gains. Athleta, however, remains the weak link, with revenue and comps down 11% amid what management calls a “reset year”.
For a sector grappling with weak discretionary spending and elevated prices, Gap’s performance stands out. Management argues its diversified brand portfolio is helping it win shoppers across income groups—an advantage as rivals warn of soft demand. Yet tariffs are emerging as a significant constraint: the company expects full-year operating margins to be around 7.2%, with duties shaving off more than one percentage point.
The challenge now is sustaining momentum while managing cost pressures. Gap’s turnaround—anchored in sharper product, cleaner assortments and stronger marketing—has delivered seven consecutive quarters of comp growth. Whether that run can survive a harsher trade environment will define its progress in 2026.
