Gap (GAP 0.61%), the well-known apparel retailer behind the Old Navy, Gap, Banana Republic, and Athleta brands, posted its second quarter fiscal 2025 results on Thursday, Aug. 28. The company reported flat revenue at $3.7 billion. Earnings per share came in at $0.57, outpacing the $0.55 consensus. Comparable sales, which measure sales at stores open at least a year, rose 1%, extending a string of positive results. Gross margins (GAAP) and operating profits (GAAP) slipped, with pressures from higher tariffs and last year’s one-time revenue boost falling away.
Overall, the quarter matched forecasts, with GAAP profits a bit higher than Wall Street expected, but growth was modest and margins tightened.
| Metric | Q2 2025 | Q2 2024 | Y/Y Change |
|---|---|---|---|
| EPS | $0.57 | $0.54 | 6% |
| Revenue | $3.7 billion | $3.72 billion | (0%) |
| Gross margin | 41.2% | 42.6% | (1.4 pp) |
| Operating margin | 7.8% | 7.8% | 0.0 pp |
| Free cash flow (26 weeks) | $127 million | $397 million | (68%) |
| Cash, cash equivalents & short-term investments | $2.4 billion | $2.1 billion | 14% |
Source: Gap. Note: Fiscal 2025 second quarter ended on Aug. 2, 2025, and fiscal 2024 second quarter ended on Aug. 3, 2024.
Gap’s Business and Key Focus Areas
Gap operates four major apparel brands: Old Navy, Gap, Banana Republic, and Athleta. Each targets a different segment of the clothing market, from value and casual basics to athletic wear and modern business fashion. The company relies on both brick-and-mortar stores and online platforms, aiming to offer a seamless shopping experience across channels.
Recently, Gap has focused on strengthening its brand identity for each label, improving the efficiency of its supply chain, and investing in technology and digital sales capabilities. Management considers brand relevance, omni-channel retail strength, supply chain adaptability, and inventory discipline as key to success. Sustainability and talent development remain priorities, with ongoing work to foster a responsible and inclusive business culture.
Quarterly Highlights: Financial and Operational Review
GAAP net sales held steady year over year at $3.7 billion, closely aligning with company guidance and analyst forecasts. Comparable sales increased 1%, compared to a 3% increase in the same quarter last year. Sales at Old Navy, the company's largest brand, ticked up 1% and comparable sales rose 2%. The Gap brand also delivered 1% higher sales, with comps up 4%, shrugging off the maturity headwinds typical among legacy brands. Banana Republic’s revenue dipped 1%, but comparable sales moved to a positive 4%, suggesting signs of stabilization in the brand’s repositioning efforts.
In contrast, Athleta, the company’s athletics and lifestyle brand, remains a weak spot. Sales sank 11%, and comparable sales dropped 9%. The segment continues to undergo a strategic reset, with management stating that further improvements will "take time." Store sales overall declined 1%, while online sales increased 3%, now accounting for 34% of total revenue, highlighting the ongoing shift toward digital retailing.
Profitability was affected by cost and margin pressures. Operating income was $292 million, flat from the prior year. The operating margin edged down to 7.8%. Gross margin, which is the share of revenue left after paying for goods sold, narrowed by 1.4 percentage points year over year to 41.2% (GAAP). Management attributed this to a combination of higher input costs from increased tariffs, and the absence of a positive impact from a previous year’s credit card partner agreement. Merchandise margin, which isolates the profitability of actual product sold, also decreased by 1.5 percentage points year over year. Rent, occupancy, and depreciation costs were slightly improved as a percentage of sales, providing a modest offset.
Inventory levels climbed 9% to $2.3 billion. This increase stemmed from faster receipts and higher costs per item due to tariffs, rather than excess inventory. Nonetheless, With sales pacing flat, elevated inventory levels could pose a risk of future markdowns if consumer demand softens. Free cash flow (non-GAAP) slowed dramatically to $127 million for the first half (26 weeks) of FY2025, reflecting a drop from $397 million in the same period of FY2024. The company’s cash position improved, with $2.4 billion available in cash and short‑term investments at quarter-end, up 13% year over year.
Gap continued to return capital to shareholders, distributing $62 million in dividends and repurchasing $82 million in stock. The quarterly dividend was $0.165 per share. The company ended the quarter with 2,486 company-operated stores, down by 20 for the year to date, as it continued to optimize its store footprint. Franchise stores held steady at approximately 1,000 locations worldwide as of August 2.
Brand and Channel Performance in Detail
Old Navy remains Gap’s largest and most consistent brand. Its product mix focuses on family casual apparel, activewear, and denim. Comparable sales increased by 2%, offsetting some softness elsewhere, though the year-over-year growth rate slowed from recent quarters. Strategic efforts to reinvigorate the brand and focus on active and denim categories are ongoing.
The Gap brand, known for its modern essentials and collaborations, posted a 4% comparable sales increase, delivering its seventh consecutive quarter with positive comps. Marketing initiatives and new partnerships helped drive renewed relevance, which management described as part of a systematic brand “reinvigoration playbook.”
Banana Republic, which aims for modern business and elevated casual wear, reported a 1% drop in total sales but a 4% comp sales increase, suggesting better performance at well-established locations. Ongoing brand repositioning, with a focus on storytelling and marketing, may be starting to have a positive effect, though leadership continues to watch this segment closely.
Athleta, specializing in performance-driven women’s apparel and lifestyle products, struggled as its “reset” continues. With a double-digit sales decline and comparable sales down 9%, further improvements are expected to take time. Management has flagged the need to bolster both product and marketing efforts for this segment. Elsewhere, online sales remain a bright spot, up 3% from a year prior and now accounting for 34% of total revenue. Physical store closures continue, a legacy of ongoing store optimization and an attempt to focus on more productive square footage.
Looking Forward: Management Guidance and Key Watchpoints
Management reaffirmed its financial outlook for fiscal 2025. It expects overall net sales to grow 1%–2% and forecasts a full-year operating margin in the range of 6.7%–7%, lowered from last year due to an expected 1.0–1.1 percentage point negative impact from tariffs. Leadership projected net sales to rise by 1.5%–2.5% year over year in Q3 FY2025 and guides for a notable decrease in gross margin from the prior year, driven largely by increased tariff costs and timing of certain investments.
Investors should watch for developments related to inventory management, margin trends as tariff impacts lift costs, and the pacing of the Athleta turnaround. Digital sales growth and continued omni-channel investments also remain key themes as the apparel market continues to evolve.
Revenue and net income are presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
