Gap Inc. (NYSE: GAP) Beats Q2 Profit Estimates Despite Lower Revenue

• Earnings Beat: Gap Inc. (NYSE: GAP) reported adjusted EPS of $0.52, exceeding analyst estimates of approximately $0.48–$0.50.
• Revenue Miss and Brand Weakness: Quarterly revenue declined 2% to $3.65 billion, below the approximately $3.69 billion consensus estimate, as weakness at Old Navy and Athleta offset growth at Gap and Banana Republic.
• Higher Profit Outlook: Gap raised its full-year adjusted EPS forecast to $2.35–$2.45, supported by stronger margins and momentum at its namesake brand. However, it narrowed its sales-growth outlook to 1%–1.5% from 1%–2%.

Gap Inc. (NYSE: GAP) is a global apparel retailer whose portfolio includes Old Navy, Gap, Banana Republic, and Athleta. On August 27, 2026, the company reported results for its second quarter of fiscal 2026, which ended August 1.

Gap reported adjusted diluted EPS of $0.52, exceeding analyst estimates that ranged from approximately $0.48 to $0.50. The result was down from $0.57 per share in the corresponding quarter last year.

On a GAAP basis, diluted EPS was considerably higher at $1.38, compared with $0.57 a year earlier. The difference primarily reflected a net benefit associated with the expected recovery of tariffs imposed under the International Emergency Economic Powers Act. Gap excluded this tariff-recovery benefit and related interest income from its adjusted results.

Quarterly revenue declined 2% year over year to approximately $3.65 billion, missing the consensus estimate of about $3.69 billion. Companywide comparable sales decreased 1%.

Performance varied significantly across the company’s brands. Comparable sales at the namesake Gap brand increased 10%, while Banana Republic posted 3% growth. By contrast, Old Navy’s comparable sales declined 4%, reflecting weakness in women’s seasonal products and an unexpected slowdown in customer traffic. Athleta’s comparable sales fell 12%.

Following these results, Gap narrowed its fiscal 2026 sales-growth outlook to 1%–1.5% from 1%–2%. The revised forecast assumes Old Navy’s full-year comparable sales will range from flat to down 1%, compared with the previous expectation of flat to up 1%.

Despite its softer sales outlook, Gap raised its full-year adjusted EPS forecast to $2.35–$2.45 from $2.30–$2.40. The company also increased its adjusted operating-margin outlook to approximately 7.4%–7.6%, compared with its previous forecast of 7.3%–7.5%.

Gap’s adjusted gross margin was 41.4%, an increase of 20 basis points from the previous year. Excluding the tariff-recovery benefit, merchandise margin expanded by 80 basis points, supported by higher average selling prices and tariff-mitigation efforts. These improvements were partially offset by greater promotional activity at Old Navy.

To address Old Navy’s performance, Gap appointed retail veteran Michael Francis as the brand’s president and chief executive officer, effective November 2, 2026. He will succeed Haio Barbeito. Investors responded positively to the earnings beat, higher profit forecast, and leadership change, sending Gap shares sharply higher following the announcement.

Based on updated market data, Gap trades at a trailing P/E ratio of approximately 7.3 and a price-to-sales ratio of approximately 0.49. Its current ratio is approximately 1.82. Debt-to-equity figures vary depending on whether lease liabilities are included; one commonly cited calculation places the ratio near 1.45.