Gap Tops Earnings Estimates, Aims to Double American Cotton Use in 2026

The company’s first-quarter performance was led by its Gap and Old Navy labels, with Old Navy traffic up 10.2 percent in April.

A Gap shopper in San Francisco on Dec. 14, 2010. Justin Sullivan/Getty Images

Gap Inc. reported first-quarter results that beat market estimates as it continued to gain market share, thanks to the popularity of its Gap and Old Navy brands. In addition, the company anticipates a slight shortfall due to tariffs, as it plans to invest more in the United States and double its vendor sourcing of American-grown cotton in 2026.

On May 29, the San Francisco-based specialty apparel company, with a portfolio of brands including Old Navy, Gap, Banana Republic, and Athleta, reported net sales of $3.5 billion for the first quarter of fiscal year 2025, which ended May 3. This marked a 2 percent increase from the same period in fiscal 2024, slightly beating the Zacks consensus estimates.

Earnings per share were $0.51, up from $0.42 a year earlier, beating market estimates by 15.91 percent.

Gap’s earnings beat came despite a tough retail environment that made financial results highly unpredictable. For example, many retailers saw a sales decline in February.

According to Placer.ai data, overall visits to Gap banners fell 3.8 percent in February compared with the same month the previous year, with an average of 4.2 percent fewer visits per location.

“The company’s performance appears to have been impacted by a particularly challenging February, when the absence of a leap year day and severe weather effects led to a 10.2 percent drop in overall visits and an 11.0 percent decrease in average visits per venue compared to February 2024,” Shira Petrack, content manager at Placer.ai, said in an article analyzing store traffic among retailers.

However, Gap’s performance improved significantly in April, led by Gap and Old Navy labels, with Old Navy traffic jumping 10.2 percent as retail conditions normalized.

Management welcomed the company’s earnings beat and market share gains.

“Gap Inc. delivered strong first quarter results, exceeding financial expectations and gaining market share for the ninth consecutive quarter,” said president and CEO Richard Dickson in a statement.

He highlighted that comparable sales, or same-store sales, grew for the fifth consecutive quarter, led by Gap and Old Navy, which delivered solid growth across all income groups—Old Navy gained share among both the top and bottom groups, while Gap grew share among the top and middle cohorts.

Higher growth from these brands helped drive expansion in gross margin and operating margin for the quarter, which increased by 60 and 140 basis points, respectively.

Dickson said these results provide further proof that the company’s strategy is working.

“In this highly dynamic environment, we are optimistic yet realistic and remain focused on controlling the controllables as we build our company for long-term growth,” he said.

During the company’s earnings call, Dickson provided further details about its long-term growth strategy, including bringing more innovation, style, and value to the active category with the launch of the Studio Smooth collection.

Adding to the company’s efforts to bring more style to its products is Old Navy’s first major active campaign in years, titled “New Moves,” which has received a positive response.

“This is another great proof point that great style at great value wins across the family,” added Dickson. “During the quarter, Old Navy grew share in denim ranking No. 4 in the category.”

In addition, the company is investing heavily in technology that enhances the customer experience, with the rollout of AI-powered Radio Frequency Identification technology, which automatically identifies and tracks tags attached to objects, bringing smarter operations and sharper service to its stores.

Meanwhile, management anticipates that tariffs will have a minimal impact on its bottom line, as it has already diversified its sourcing, demonstrating the agility and resilience of its supply chain.

Most countries account for less than 10 percent of the company’s sourcing in 2024, including China, which was once the top sourcing country. Management said that by the end of 2025, China’s share will fall to less than 3 percent.

As part of the company’s diversification strategy, management said investing in the United States is a top business priority, with plans to double vendor sourcing of American-grown cotton by 2026.

The United States accounts for 90 percent of the company’s sales and is home to more than 65,000 employees.

“Today, we are much better equipped to handle complex headwinds because we have a stronger financial foundation, and we are operating with greater discipline, growing brand momentum, and improved platform capabilities,” Dickson said.