Gap Inc. (GAP) Stock Plunges 13% on Q4 Earnings Disappointment and Old Navy Weakness

TLDR

Table of Contents

GAP shares plunged up to 13% following disappointing Q4 results
Earnings per share of $0.45 fell short of the $0.46 Wall Street forecast
Old Navy delivered only 3% comparable sales growth versus 4.3% expectations; Athleta declined 11%
Gross profit margin contracted to 38.1%, impacted by approximately 200 basis points from tariff pressures
Fiscal 2026 outlook calling for 2–3% top-line expansion matched but didn’t exceed analyst projections

On March 5, 2026, Gap Inc. unveiled its fourth-quarter and complete fiscal 2025 financial performance. The report delivered a combination of hits and misses that Wall Street punished swiftly.

$GAP (Gap) #earnings are out: pic.twitter.com/CAvz9ahhuJ

— The Earnings Correspondent (@earnings_guy) March 5, 2026

The retailer posted earnings per share of $0.45, falling a penny short of the $0.46 consensus forecast. Top-line revenue reached $4.24 billion, meeting Street expectations — though meeting targets without exceeding them left investors wanting more.

Bottom-line profit tumbled to $171 million during the fourth quarter, a significant decline from $206 million reported in the comparable year-ago period. This deterioration in profitability raises important questions.

The Gap, Inc., GAP

Gross profit margin registered at 38.1%, representing an 80 basis point contraction from the prior year. Tariff-related expenses played a substantial role in this compression, slashing merchandise margin by approximately 200 basis points.

January’s unprecedented winter weather events created additional headwinds. At the height of the storms, approximately 800 Gap locations were forced to shutter temporarily. CFO Katrina O’Connell noted that business recovered rapidly following improved weather conditions — but the quarterly impact had already materialized.

Old Navy, the company’s flagship brand representing the lion’s share of revenue, delivered comparable sales expansion of only 3%. Wall Street had anticipated 4.3% growth. When your largest brand underperforms expectations, investors notice.

Athleta’s struggles persisted throughout the period. The athletic wear brand saw comparable sales plunge 10% in Q4, with full-year comps declining 9%. Net sales for Athleta contracted 11% during the quarter to $354 million. Leadership emphasized its commitment to “rebuilding the brand for the long term.”

Gap Brand and Banana Republic Step Up

The quarterly report wasn’t entirely gloomy. The namesake Gap brand demonstrated impressive momentum, with comparable sales climbing 7% — surpassing the 4.6% analyst consensus.

Banana Republic also contributed positively, delivering 4% comp growth and achieving its third straight quarter of positive comparable sales performance.

For the complete fiscal year, Gap Inc. generated net sales of $15.4 billion, representing 2% growth, while recording its eighth consecutive quarter of positive comparable sales. Operating profit totaled $1.1 billion, translating to a 7.3% operating margin.

The retailer closed the year holding $3 billion in cash reserves and produced $1.3 billion in operating cash flow. Additionally, the board authorized a fresh $1 billion stock buyback program.

Guidance Lands Flat

For fiscal 2026, management projected revenue growth between 2% and 3% with adjusted earnings per share ranging from $2.20 to $2.35 — both metrics landing squarely in line with analyst forecasts.

This failed to energize the investment community. Following two years of consistent improvement under CEO Richard Dickson’s leadership, shareholders were anticipating guidance that would justify continued optimism. In-line projections didn’t provide that catalyst.

An additional consideration: the fiscal 2026 forecast incorporated tariff rates existing before February 20, 2026. Management acknowledged it’s premature to incorporate more recent tariff modifications — a prudent stance, but one that renders the outlook potentially conservative.

Capital spending for fiscal 2026 is projected to increase to $650 million, up from $470 million in 2025. The board also declared a Q1 2026 dividend of $0.175 per share, representing approximately 6% growth from the Q4 2025 payout.

First-quarter gross margin is anticipated to contract 150 to 200 basis points year-over-year, incorporating an estimated 200 basis point tariff headwind.

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