The Gap Inc (GAP) Q2 2026 earnings summary

Executive summary

• Net sales for Q2 FY2025 were $3.7 billion, flat year-over-year, with positive comparable sales for the sixth consecutive quarter and strong online growth.

• Operating margin reached 7.8%, and diluted EPS rose 6% to $0.57, with net income at $216 million.

• Cash, cash equivalents, and short-term investments totaled $2.4 billion, up 13% year-over-year.

• $144 million was returned to shareholders through dividends and share repurchases.

• Transformation and brand reinvigoration efforts have improved financial rigor and resilience.

Financial highlights

• Gross margin for Q2 was 41.2%, down 140 basis points year-over-year, mainly due to lapping prior year credit card benefits and tariffs.

• Operating expenses were 33.4% of net sales, down 130 basis points year-over-year.

• Free cash flow for the quarter was $127 million; capital expenditures for the quarter were $181 million.

• Ending inventory increased 9% year-over-year, mainly due to accelerated receipts and higher tariff costs.

• Net cash from operating activities was $308 million in Q2.

Outlook and guidance

• Fiscal 2025 net sales expected to increase 1-2% year-over-year, with operating margin guided to 6.7%-7%, including a 100-110 basis point tariff impact.

• Gross margin expected to deleverage by 70-90 basis points for the year due to tariffs.

• Q3 2025 net sales projected to grow 1.5%-2.5% year-over-year.

• FY25 capital expenditures targeted at $500-$550 million; about 35 net store closures expected.

• No further operating income declines expected from tariffs in 2026; mitigation efforts are underway.