Image source: The Motley Fool.

DATE

Thursday, May 28, 2026, at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Richard Dickson
• Chief Financial Officer — Katrina O'Connell

TAKEAWAYS

• Net Sales -- $3.5 billion, up 1%, with comparable sales rising 2%, constituting the ninth straight quarter of positive comps.
• Old Navy Sales -- Net sales of $2 billion increased 1%, with comparable sales up 1%, driven by growth in active, denim, and kids and baby, partially offset by underperformance in seasonal categories.
• Gap Brand Performance -- Net sales climbed 10% to $796 million, matching a 10% comp increase, as the brand marked its 10th consecutive positive comp quarter supported by strength in women’s, consistent men’s, and a rebound in kids and baby.
• Banana Republic Results -- Net sales reached $431 million, up 1%, with comparable sales up 2%, supported by balanced growth across men's and women's and strong performance in pants and sweaters.
• Athleta Results -- Net sales fell 12% to $270 million and comparable sales dropped 11%, weighed down by efforts to clear legacy inventory and lagging assortment transformation.
• Gross Margin -- 40.5%, declining 130 basis points, largely due to a 200 basis point tariff impact, yet exceeded guidance by 30 basis points.
• SG&A -- Adjusted SG&A was $1.2 billion (35.3% of sales), elevated due to timing of investments in loyalty, beauty, accessories, technology, and the fashiontainment platform.
• Operating Margin -- Reported margin was 12.7%; adjusted margin was 5.2%, down 32 basis points, mainly reflecting tariff effects.
• Earnings Per Share -- Reported EPS was $0.90; adjusted EPS was $0.38, compared to $0.51 last year, excluding a $300 million legal settlement and a $50 million charitable donation.
• Cash and Investments -- Ended the quarter at $2.6 billion, up 15% year over year.
• Capital Expenditures -- $135 million in the quarter, with full-year expectations of approximately $650 million, mainly for stores, technology, and supply chain.
• Dividends -- $63 million paid, up 6% to $0.175 per share; second-quarter dividend also set at $0.175 per share.
• Share Repurchases -- $400 million repurchased year to date (16 million shares), with $600 million authorization remaining.
• Inventory -- Flat in dollars year over year, with units down, reflecting discipline in management.
• 2026 Outlook -- Full-year net sales growth now expected at 1%-2%, with adjusted operating margin guided to 7.3%-7.5% and adjusted EPS raised to $2.30-$2.40, implying growth of 8%-12%.
• Tariffs Impact -- Expected ~$80 million or 50 basis points of net tariff relief this year, weighted to Q2 and Q3, serving mainly as a buffer for elevated fuel costs and potential pricing investments.
• Second-Quarter Guidance -- Net sales forecasted flat to down 1%, with Old Navy comps projected down low single digits; gross margin expected flat to down 50 basis points, and SG&A as a percentage of sales to deleverage 110-120 basis points.
• Brand Leadership Changes -- Michael Francis appointed Chief Customer Officer at Old Navy; Donald Kohler named President and CEO for Banana Republic.
• Beauty and Accessories Expansion -- Old Navy’s beauty rollout to the full fleet by year-end; Gap to relaunch fragrances and introduce a new accessories line in fall.
• Technology Initiatives -- Investments highlighted in a new loyalty platform (Encore), AI-powered merchandising and customer experience tools, and a partnership with Google's Gemini for AI shopping integration.

Need a quote from a Motley Fool analyst? Email [email protected]

RISKS

• Athleta Weakness -- Athleta net sales fell 12% and comparable sales declined 11%, with management labeling the result “disappointing” due to slower-than-expected relief from clearing legacy inventory.
• Old Navy Seasonal Product Underperformance -- CEO Dickson stated, “seasonal categories have gotten off to a weaker start in particular dresses. And bluntly, we have not had the right fashion and value equation for that category,” impacting Q1 and trending into Q2.
• Gross Margin Decline -- Gross margin decreased 130 basis points, with a 100 basis point drop in merchandise margin largely attributed to a 200 basis point tariff headwind.

SUMMARY

Gap (GAP 16.24%) reported solid topline growth with net sales up 1% and a 2% comp increase, continuing a trend of operational progress and sales consistency, especially in the Gap brand, which delivered a 10% comp gain. Adjusted earnings and margins contracted versus last year, reflecting continued tariff pressures and significant investment in growth initiatives, although free cash flow and cash reserves advanced. Technology and “fashiontainment” innovations, along with the rollout of beauty and accessories platforms, were highlighted as strategic pillars for upcoming quarters, positioning the company for long-term improvement. The company raised its adjusted EPS outlook to $2.30-$2.40 on stable operating margin guidance, while moderating full-year sales expectations due to Old Navy’s ongoing seasonal softness and Athleta’s extended rebuild phase.

• Management allocated approximately half of projected tariff relief as a buffer for high fuel costs and the other half to potential pricing initiatives, reserving any upside for future market changes.
• Gap’s “Sweats Like This” music video campaign achieved nearly 1.5 billion press and social media impressions, underlining a renewed brand momentum.
• Store remodels are scheduled to reach 25% of the North America specialty fleet by year-end, pointing to a focused investment in physical retail upgrades.
• First-quarter free cash flow was $78 million, reflecting disciplined inventory and working capital management despite margin compression.
• Athleta’s ongoing inventory clearance and muted expectations for improvement signal limited near-term upside, with management emphasizing foundational brand work over near-term sales gains.
• Old Navy’s marketing collaborations and back-to-school programs, coupled with a full fleet roll-out of beauty and sports licensing partnerships, are expected to drive improved performance as seasonal headwinds abate in the back half of the year.

INDUSTRY GLOSSARY

• ROD (Rent, Occupancy, and Depreciation): The combined accounting for store rent, occupancy expenses, and depreciation, affecting gross margin leverage as sales fluctuate.
• AUR (Average Unit Retail): The average selling price per item, used to measure product pricing effectiveness and promotional activity.
• IEPA (Interim Enforceable Presidential Action) regime: A regulatory tariff framework recently governing import duties, referenced in connection with inventory landed before updated tariff rulings.
• Fashiontainment platform: The Gap, Inc.’s internal term for marketing integration across fashion, music, sports, and entertainment to enhance brand relevance and customer engagement.

Full Conference Call Transcript

Richard Dickson; and Chief Financial Officer, Katrina O'Connell. With that, I will turn the call over to Richard.

Richard Dickson: Thanks, Whitney, and good afternoon, everyone. Before we discuss our results for the first quarter, let me begin with a moment of remembrance for our cofounder, Doris Fisher. Doris was a visionary, and an extraordinary human being whose brilliance quiet determination, and heart shaped everything from Gap Inc's indelible influence on fashion and retail to philanthropy to the San Francisco art scene. In Gap speak, she was a true original. And she worked tirelessly to ensure that Gap Inc. Always did more than sell clothes. Which inspires our purpose today. We bridge gaps to create a better world.

On behalf of everyone at Gap Inc, I would like to extend our deepest condolences to the Fisher family and ensure them that the legacy Doris and Don Fisher created in Gap Inc. Will endure. Now transitioning to our results. In the first quarter, we continued to execute on our strategic priorities, delivering progress across several key metrics. Comparable sales increased 2%, marking our 9th consecutive quarter of positive comps, as we once again grew sales across all income cohorts. As the value proposition of our brands continued to resonate, we gained market share, reflecting better product, better storytelling, and building brand relevance. And we outperformed our gross margin outlook reflecting continued rigor in execution.

Overall, at the company level, the quarter was in line with our expectations. However, results at the brand level were more varied, reflecting both the different stages of their transformation and some brand specific dynamics. As I reflect on the quarter, with 3 of our 4 brands once again delivering positive comps, with standout growth at the Gap brand. We continue to demonstrate progress. Yet we know some of our brands have greater potential. And we are taking action to unlock stronger performance which I will discuss in more detail.

In parallel, we are also investing more intentionally in our future, as we build category adjacencies like beauty and accessories, where we see a meaningful long term growth opportunity and capabilities such as our Fashiontainment platform and technology to amplify how we connect with customers and increase productivity. Lastly, we remain committed to being strong stewards of capital as we balance long term investments with increased capital returns to our shareholders this year. This reflects the growing strength of our balance sheet, and strong conviction in our long term potential. Katrina will share our updated guidance later during the call. Given the varied performance at the brand level, we are taking a moderated view of full year revenue growth.

At the same time, we are raising our outlook for earnings per share. Reflecting continued financial and operational rigor. While we are not starting out as strongly as we anticipated, we are still early in the year. The teams are motivated to drive better results and our goal will be to outperform. Turning now to our detailed first quarter results by brand. Let's start with Old Navy. Our largest brand and the No. 1 specialty apparel retailer in the country. In the first quarter, Old Navy once again grew, with comp sales increasing 1% on top of last year's 3% comp growth. As noted earlier, our strategic pursuit of key categories continued to deliver results.

Particularly across active, denim, and kids and baby. All of which posted growth versus last year. Old Navy maintained a top 3 rank in denim and kids and baby and gained share in denim specifically, reinforcing our leadership in these categories. We were also the only brand in the active category to maintain share within the top 5, reflecting the attractive value proposition we continue to deliver. We also had a number of compelling product announcements that tied into pop culture. With the launch of Old Navy's second designer collaboration featuring award winning Christopher John Rogers, and a special Devil Wears Prada collection capitalizing on growing buzz around the sequel.

Overall, results for Old Navy were primarily impacted by the women's dress business, wherein reviewing the season, we did not execute as effectively, and as a result, customers did not respond to our assortment the way that we had intended. Entering Q2, the seasonal women's dress business continues to underperform our expectations. With weakness visible across the broader seasonal product assortment as well. The team has worked swiftly to address these factors, refocusing our efforts on sharper price points and stronger customer messaging to drive conversion for the seasonal categories. Once these changes began to take hold in mid May, we saw some improvement. But we are carefully monitoring this and making continued adjustments.

While we are encouraged by the recent improvement, we also recognize that this level of performance does not reflect our full potential. There is a clear opportunity to do better. And we are working closely with the team to sharpen our focus and strengthen execution. As we look ahead into the second half of the year, we have several building blocks in place that give me confidence in our ability to deliver continued improvement. We are seeing strength in denim and active, and we expect these key strategic categories to build in prominence in the second half of the year.

We are also rolling beauty out to the full store fleet by year end, And following a successful winter pilot, we are launching a first of its kind partnership with Fanatics. The global leader in sports licensing. Separately, as we continue to focus on elevating how the brand shows up for our customers, we are excited to announce the appointment of Michael Francis, to the newly created role of chief customer officer for Old Navy. Michael is a highly respected brand builder in retail, best known for reshaping the brand experience and building culture shaping moments at Target and Walmart. 2 of the largest retailers in the country.

Throughout his career, he has consistently infused value apparel concepts with lifestyle aspiration, and emotional resonance. Redefining how customers engage with accessible fashion. Michael's appointment marks an important step forward as we position Old Navy for its next chapter of building stronger, more meaningful relationships with our customers. In this role, Michael will help sharpen our customer strategy, deepen emotional connection with our audiences, and bring even greater cohesion and consistency to how we show up across every touchpoint and every season. Now moving on to Gap. Gap delivered an exceptional quarter Comp sales increased 10% on top of a 5% comp last year.

This marks the brand's 10th consecutive quarter of positive comps as we continued to lean into our heritage, of big ideas and culturally relevant narratives to drive growth. As product storytelling and brand relevance continued to strengthen we expanded our customer file, reflecting growing engagement, across generations. And achieved our 3rd consecutive quarter of reduced discounting. As we continue to execute our reinvigoration playbook, it is incredibly encouraging to see its impact broadening across additional divisions and categories. At the division level, strength in women's and consistency in men's drove the brand's performance in the first quarter. Complemented by a notable return to growth in kids and baby, marking a meaningful milestone for the Gap brand.

We are encouraged to see our focused turnaround efforts in kids and baby take hold, as our amplification of destination categories through collections like My First Denim in Baby and Trendright fleece and denim offerings for kids builds resonance. By category, Denim remained a key driver of growth in the first quarter, as our focus on delivering trend right product drove another quarter of market share gains. In addition, we also saw strength in fleece, amplified by our Sweats Like This music video featuring Grammy nominated singer Young Miko.

The campaign significantly outperformed benchmark goals, generating nearly 1.5 billion press and social media impressions, and strongly resonated with Gen Z audiences with Gap trending on TikTok within 24 hours of launch. Founded in 1.97 thousand as a brand selling denim and records Gap has always lived at the intersection of fashion, music, and culture. That heritage came to life in a major way this quarter at Coachella, 1 of the world's largest and most influential music and cultural festivals. Through our iconic Hoodie House activation. The experience drove strong engagement, selling roughly 10 thousand custom hoodies and generating over 300 million social media and press impressions.

More importantly, it served as another powerful demonstration of Gap's cultural influence authenticity and growing relevance with a new generation of consumers. In the first quarter, we continued to reimagine Gap Classics with product collaborations shaped by the distinctive creative lens of Harlem's fashion row, Awake New York, and Victoria Beckham. With strong consumer response and engagement around the Victoria Beckham collection, we are excited about the momentum this multi season collaboration can build in the seasons ahead. Entering the second quarter, we are continuing the drumbeat of cultural relevance. Earlier this month, we were thrilled to dress Kendall Jenner in a custom Gap studio creation designed by Zac Posen at the Met Gala.

Showcasing the brand's highest expression of style and craftsmanship on 1 of the world's most iconic cultural stages. As we continue to deliver strong product and storytelling, elevating our customer experience remains paramount. With strong results from the 2025 remodel program, we plan to remodel about 30 stores this year, bringing approximately 25% of the North America specialty fleet into the new concept by year end. I am proud of the GAP team for the consistency creativity, and clarity with which they are executing the playbook.

With strength broadening across divisions and categories, continued expansion of our customer file, and a growing presence in key cultural moments, Gap is truly building momentum, and we look forward to continuing that in the quarters ahead. Moving on to Banana Republic. Banana Republic continued to make solid progress in the quarter. Comparable sales increased 2%, reflecting the brand's 4th consecutive quarter of positive comps. Men's and women's performed well reflecting more balanced growth across the business, with strength in key categories including pants, and sweaters. We continued to lean into Banana Republic's heritage as a storytelling brand through the lens of the modern explorer.

This came to life through a collaboration with the Explorers Club, featuring an archive reissue capsule reimagining some of our most iconic styles from the early decades through a contemporary lens. The collection has generated strong engagement and accolades across social conversations, reinforcing Banana Republic's distinct, brand positioning. As you know, I have been leading Banana Republic through its fix the fundamentals stage, as we conducted a search for the right leader. With the brand now delivering greater consistency last week, we announced the appointment of Donald Kohler, as the new president and CEO of Banana Republic.

Donald has an exceptional career journey spanning more than 3 decades with transformative leadership roles across iconic brands such as Calvin Klein, Tommy Hilfiger, Burberry, Ferragamo, and Diesel, and including more than a decade at our very own Gap brand. Now we are excited to welcome him back to our family. Donald's operational excellence, combined with his natural instincts for great design, impactful merchandising, and powerful storytelling positions him strongly to lead Banana Republic's next chapter. As I turn over the reins, I want to extend my personal thanks and gratitude to the team. They have done an outstanding job strengthening the brand over the past several years, and I am excited for what we can deliver with Donald's leadership.

Now, turning to Athleta. As we shared last quarter, 2026 is a rebuild year for Athleta. Since Maggie joined as the president in August of last year, the team has been taking steps to strengthen the brand's foundation restoring clarity to its brand purpose, repositioning talent, and re architecting product and creative plans to better reflect how customers live, shop, and engage with the active category today. As we continue to rebuild Athleta, we have been focused on clearing less productive legacy product. We made progress in the first quarter. However, this process is taking longer than anticipated and put pressure on sales leading to a disappointing result.

For the second quarter, we remain focused on clearing the inventory so that we can begin to transition towards a cleaner assortment that better represents our go forward aspirations for the brand in the fall. As we have worked to clear, we also have been introducing new product at a smaller scale and have seen encouraging results. In the first quarter, our launch of the Journey Travel Collection in targeted locations saw a positive customer response. Driving increased engagement and strong sell through. We also saw momentum in new leg shapes across key franchises like our Heritage Elation line.

These early reads are helping to inform our product direction and where we are choosing to lean in further in the coming quarters. While we recognize that it will take time for our actions to translate into an improved growth profile, Athleta remains an important brand in our portfolio, and we are focused on rebuilding it for long term growth. Now moving on to our investments. For beauty and accessories, we are approaching 2026 as a test and learn year, focused on deepening our customer engagement capturing insights, and leveraging our learnings to inform a confident build over time. In beauty, our efforts this year are centered on our 2 largest brands, Old Navy and Gap.

At Old Navy, as we have shared, we began piloting beauty in the third quarter of last year in 150 select stores, engaging with our customers through various product assortments, pricing strategies, and merchandising models to understand how best to meet them in their shopping journey. The pilot provided important learnings that we are applying as we roll beauty out to the rest of the fleet during the second half of this year. With a path to scaling the category in 2027 and beyond. At Gap, we are excited to relaunch fragrance this summer. Celebrating heritage like heaven and grass with a modern expression through refreshed packaging, updated formulations, and elevated storytelling.

This represents a step forward in rekindling Gap's iconic appeal and fragrance through a revitalized brand identity and product lineup. Moving to accessories. This year, our focus is on Gap, where we will be launching a collection in the fall that embodies the brand's spirit of individuality. I am energized by what I see in product, it is elevated and delivers great quality at a great price. We are excited to share the collection with our customers. Now onto our platform capabilities. Starting with our fashiontainment platform. We see a broad opportunity across our portfolio to amplify our presence in moments that matter by bringing together fashion with music, sports, and entertainment.

Sports in particular is an influential force shaping fashion and trends. Our exciting partnership with Fanatics is a great example of new ways we are tapping into this new arena, and we will continue to explore additional opportunities tied to major global sporting moments. In the first quarter, we also relaunched our loyalty program Encore, transitioning our house file of around 40 million customers from a traditional transaction based program to a broader customer engagement platform. Technology is another important capability we are investing in, We are a fashion company that is brand led, and intelligence powered.

The brands create the demand by executing on the reinvigoration playbook, intelligence, enabled by data and AI empowers our teams to make decisions that drive greater consistency and efficiency. The most important place this shows up in what we call product intelligence. How we design, how we buy, how we allocate, and how we replenish. We are leveraging technology and AI to help our teams make smarter, merchandising decisions, improve inventory productivity, and drive the right value equation for our customers. Another place this shows up is in the customer experience. Making it easier to find the right product feel confident in the fit, and discover what is new and relevant.

This includes extending discovery through new AI powered shopping partnerships, including our recently announced partnership with Google's Gemini. We are also deploying AI across our internal operations to drive the productivity that funds our investment agenda without expanding our cost structure. We look forward to sharing more details on our technology investments and platforms in the coming quarters. In closing, first quarter results speak to continued progress in our transformation. Yet we know we need to deliver at higher levels of growth and the teams are focused on executing to this.

At the same time, the fundamentals of our business remain strong, and the rigor we have instilled throughout the organization is enabling continued margin expansion, growing cash flow, and increased returns to shareholders this year. I want to thank our teams for their resilience and dedication to achieving the full potential of our portfolio. I will now hand the call over to Katrina to walk you through our financial results and 2026 outlook.

Katrina O'Connell: Thank you, Richard, and thanks everyone for joining us this afternoon. In the first quarter, we extended our track record of sustained revenue growth. Operational and financial rigor combined with our reinvigoration playbook drove our 9th consecutive quarter of positive comps. Reinforcing the strength and durability of our transformation. As Richard shared, this was a unique quarter for us as we navigated some variants in our brand performance. With Gap brand delivering standout growth, Old Navy coming in slightly short of our expectations, Banana Republic staying the course, and Athleta seeing a more challenging quarter. Against this backdrop, I am proud of how the teams managed the quarter, adapting as needed to deliver on our objectives.

We achieved our net sales goals exceeded our gross margin expectations, and continued to optimize our cost structure enabling us to build our brands in the quarter while simultaneously funding strategic investment in our long term growth accelerators and capabilities. We also deployed capital strategically investing back into the business while maximizing returns to our shareholders through a significant increase in share repurchases, complemented by a meaningful dividend increase. We are updating our outlook today to reflect slightly lower sales expectations for the year. Reflecting a moderated view of Old Navy. Our operating margin outlook remains unchanged. And despite the lower revenue projections, we are raising our earnings per share outlook, the details of which I will walk through shortly.

Before turning to the details of our results and outlook, I want to highlight that our first quarter and full year 2026 adjusted SG&A operating profit, and earnings per share metrics exclude a $300 million legal settlement net gain and concurrent $50 million charitable donation that occurred during the first quarter. On a reported basis, both are included across these metrics. Now on to our results. Net sales of $3.5 billion increased 1% year over year with comparable sales up 2%. As I previewed last quarter, the spread between net sales and comparable sales was largely a result of lapping revenue recognized last year related to the structure of our credit card agreement.

By brand, Old Navy's net sales of $2 billion increased 1% year over year. With comparable sales up 1%. Old Navy continued to win in strategic categories, including denim, active, and kids and baby. This was partially offset by a weaker customer response to our spring dress assortment. Gap had a stellar quarter. Net sales of $796 million increased 10% year over year, and comparable sales were up 10% as the brand continued to demonstrate culturally relevant storytelling in destination categories. Including denim, fleece, and kids and baby. Banana Republic's net sales of $431 million increased 1% year over year with comparable sales up 2%. The brand delivered its 4th consecutive quarter of positive comps.

With balanced growth across men's and women's fueled by continued elevation in merchandising and storytelling. Athleta's net sales of $270 million decreased 12% versus last year and comparable sales were down 11%. This was below our expectations as we work through legacy products while we look towards launching a stronger and more relevant assortment. Let's continue to the balance of the P&L. Gross margin of 40.5% declined 130 basis points versus last year. Coming in ahead of guidance. Merchandise margins declined 100 basis points, and ROD deleveraged 30 basis points. The 100 basis point decline in merchandise margins reflects an expected headwind from the net impact of tariffs of 200 basis points.

Implying 100 basis points of underlying merchandise margin expansion. This was driven by strength and lower discounting at the Gap brand, combined with better inventory management across the portfolio. Partially offset by modest headwinds related to the credit card dynamic I previewed earlier. Higher fuel costs also had a slight impact in the quarter. AUR increased relative to last year across all brands, as we continue to operate with discipline. On a reported basis, SG&A was $972 million. On an adjusted basis, SG&A was $1.2 billion and 35.3% of net sales. As expected, the increase to last year was primarily driven by the timing of planned investments in key growth initiatives and capabilities.

Including the relaunch of our loyalty program, expansion of beauty and accessories teams, and continued investments in technology and our fashiontainment platform to modernize our brands and operations through next generation capabilities. First quarter reported operating margin was 12.7%. On an adjusted basis, operating margin was 5.2%. Down 32 basis points compared to last year, primarily reflecting the net impact of tariffs. Reported earnings per share were $0.90, Adjusted earnings per share of $0.38 versus last year's earnings per share of $0.51. Before I move on to the details of our cash flow and balance sheet, I would like to reiterate our capital allocation framework.

Our approach remains balanced leveraging our healthy balance sheet and robust cash profile to enhance long term shareholder value. Our first priority is investing in the business. Through high returning capital investments. First-quarter capital expenditures were $135 million and for fiscal 2026, we continue to expect approximately $650 million in investments related primarily to stores, technology, and supply chain. Second, we believe in paying an attractive dividend that grows with net income growth. In the first quarter, we paid $63 million to shareholders in the form of dividends, reflecting a 6% increase on our quarterly rate to 17.5 cents per share. Additionally, the board recently approved a second-quarter dividend of 17.5 cents per share.

And our third priority is focused on share repurchases. As previewed last quarter, we have evolved our approach to being more aggressive in driving earnings accretion. Aligned with this principle year to date, we repurchased $400 million worth of stock or approximately 16 million shares. Looking ahead, we have approximately $600 million remaining under our current authorization, we will continue to deploy opportunistically as we balance our capital priorities and annual objectives. Now turning to cash flow and the balance sheet. Our cash position remains strong. We ended the quarter with $2.6 billion of cash equivalents and short term investments on our balance sheet. An increase of 15% compared to last year.

First quarter net cash from operating activities was $213 million inclusive of the net gain from the legal settlement and the concurrent charitable donation. And free cash flow was $78 million. Disciplined inventory management resulted in end of quarter inventory levels flat to last year with units down. We continue to be rigorous in our approach to inventory and expect to operate in line with our principle of unit purchases positioned below sales. Before I move on to our outlook, I want to thank our teams for their continued focus and resilience.

The foundational rigor we have established is allowing us to operate with agility, and our healthy financial position is providing us with the flexibility to be thoughtful in our investments while remaining committed to increased capital allocation and enhanced shareholder returns. Now onto our outlook. Our guidance today reflects a commitment to delivering a third consecutive year of profitable sales growth. Continued operating margin improvement, and robust free cash flow generation. As is typically our practice, we are taking a balanced approach. Factoring in the visibility we have into the consumer and the broader macroeconomic and geopolitical environment in the near term while also recognizing potential uncertainties going forward.

Before I share specifics on the second quarter and full year, I would like to discuss our assumptions on tariffs across 2 areas. First, the benefit from lower tariff rates following the supreme court ruling in February And second, the potential refunds on tariffs incurred and paid for products landed in The US before the ruling. Let's start with the benefits related to lower tariff rates. Our full year outlook shared in Mark reflected tariff rates under the IEPA regime, and assumed a roughly neutral net tariff impact on our profit and margin for the year, supported by substantial mid mitigation strategies we continue to deploy.

We are updating our assumptions today to reflect section 22 tariffs at a 10% rate on goods received after February 24 through the July 24 deadline. For the remainder of the year, we have assumed tariff rates revert back to IEPA level rates incorporated in our original plan. We maintain this assumption based in part on comments from the administration indicating an intention to reimpose higher tariff rates following the expiration of section 22, potentially at levels comparable to those implemented under the IEPA regime. Tying these pieces together we now expect approximately $80 million or 50 basis points of year over year net tariff relief to our gross and operating margin relative to our prior outlook.

For tariffs to be net neutral for the year. Given the timing of receipts, this benefit is expected to be weighted toward the second and third quarters. We are taking a balanced and prudent view in assessing how we factor this into our outlook for the company. As we consider our plans in the context of 3 factors. Number 1, the consumer, Number 2, the promotional environment. And number 3, fuel cost pressures tied to the geopolitical environment. From what we can see today, the consumer remains resilient. And while we continue to monitor their behavior at this time, our outlook does not assume any meaningful shift over the balance of the year.

Their promotional environment thus far has remained rational. Yet we are keeping a close watch on the extent to which companies may reinvest this year's tariff upside into pricing actions. Fuel costs are elevated, and we continue to monitor conditions and its potential implications across the broader operating environment. The, on a full year basis, we are reserving the tariff relief as added flexibility to navigate the year with approximately half of the $80 million benefit serving as a buffer against sustained elevation in fuel costs. And the remaining half reserve for potential pricing investments should the promotional environment intensify.

Should fuel costs retreat meaningfully from current levels, or should the promotional environment remain rational, there would be upside to our outlook. Additionally, if the administration does not reimpose higher tariff rate, upon the expiration of section 122, or if tariffs instead return to historical baseline levels this would be another source of upside, all else equal. On the topic of tariff refunds, we are monitoring for potential recovery of previously paid IEPA tariffs where Gap is the importer of record. Applications are currently being accepted in phases.

While we are encouraged by the progress we are seeing in the industry, and hopeful we will have success, At this point, recognizing we have not been part of the first phase of the review process, do not have certainty in the outcome and are not factoring in any benefits of a potential refund in our outlook today. Turning to the specifics of our outlook for fiscal 2026. Beginning with net sales, As noted in our press release, we now expect full year net sales growth of 1% to 2%. The revised outlook primarily reflects a more tempered view of Old Navy's performance. Based on trends observed at the start of the year.

We now expect Old Navy comparable sales to be flat to up 1% for the full year. On a 2 year comp basis, our outlook reflects an acceleration in the back half as spring and summer categories become a smaller part of the revenue mix, and denim and active become more important. And as some of our new growth initiatives such as beauty and sports licensing begin to roll out more purposefully. As Richard noted, while this is our current outlook, the teams are working hard to deliver better. As it relates to the balance of the portfolio, we are adjusting the complexion of our growth expectations.

With building momentum at the Gap brand, we now anticipate full year comps in the single digits. At Athleta, our outlook reflects a slower rebuild with the second quarter trending similar to the first quarter. And we continue to expect Banana Republic to post another year of comp growth. Consistent with our prior outlook. Turning to gross margin. We are maintaining our outlook for full year gross margins to be flat to up slightly to the prior year. We continue to expect merchandise margin expansion. With regards to rod, we now expect deleverage of approximately 50 basis points on the year given our lower revenue outlook.

As noted earlier, while the change in our tariff assumptions is expected to result in 50 basis points of net tariff relief, We are reserving this benefit as we account for potentially sustained fuel inflation and also embed pricing flexibility to react to potential changes in the competitive environment. Moving on to SG&A. As we establish ourselves as a high performing company, our standard is continuously focus on driving improvement to our cost structure. For the full year, we continue to expect adjusted SG&A as a percentage of sales to be roughly flat year over year.

This includes $150 million in cost savings, as we enhance our efficiency and effectiveness a portion of which will go towards managing inflation, with the remaining funding our growth accelerator initiatives. As I mentioned last quarter, there is some nuance to the quarterly cadence of the investments that will cause adjusted SG&A to continue to deleverage in the second quarter before leveraging in the second half. The improvement in the second half primarily reflects 2 factors that we will begin to lap. First, spending on strategic initiatives that began in the second half of last year And second, higher incentive compensation expense that was weighted towards the third and fourth quarter last year.

Taking this all into consideration, we continue to expect an adjusted operating margin of 7.3% to 7.5% for the full year compared to 7.3% last year. At the same time, we are raising our outlook for full year adjusted EPS to $2.30 to $2.40 reflecting favorability on interest income, tax, and share count. Our updated earnings outlook reflects growth in the range of 8% to 12% to last year. Interest income is now expected to be approximately $25 million We expect a tax rate of approximately 25%. And with the repurchase activity completed year to date, we anticipate a weighted average share count of 375 million, down approximately 2% to last year.

Now let me turn to our outlook for the second quarter of fiscal 2026. Quarter to date, the portfolio is trending largely in line with Q1 performance. With the exception of Old Navy, where as Richard noted, we experienced a slow start but are seeing improvement with the changes the teams are driving. With this in mind, we expect net sales in the second quarter to be flat to down 1% year over year, with comps at Old Navy projected down in the low single digits. We expect the spread between comp and net sales to be roughly similar to the first quarter. Largely reflecting the same credit card dynamic we experienced in Q1.

After which, we expect comp sales and net sales to track more closely for the balance of the year. We expect second quarter gross margin to be about flat to down 50 basis points compared to last year's gross margin of 41.2%. This reflects continued merchandise margin expansion, with ROD deleverage of approximately 80 basis points. Our outlook for merchandise margins incorporates net tariff relief of approximately 30 basis points combined with underlying margin expansion driven by expansion at all brands outside of Old Navy. Where we expect higher promotions as we clear seasonal product. We will also experience slight headwinds from the credit card dynamic and we expect a continued slight impact from higher fuel costs.

Last, we are planning for SG&A as a percentage of net sales to deleverage. Approximately 110 to 120 basis points compared to last year. Which reflects the timing of the growth investments I spoke to earlier. In closing, while our outlook reflects our best view of the business today, as Richard noted, we are always striving for better. Our foundation remains strong, rooted in disciplined financial and operational rigor. And a proven reinvigoration playbook. Our teams are operating with agility and a mindset of continuous improvement. Overall, this gives me confidence in our trajectory moving forward and in our ability to continue creating sustainable value both for customers and shareholders. With that, I will open the line for questions. Operator?

Operator: Thank you. As a reminder to ask a question, please press star then the number 1 on your telephone keypad. If you would like to withdraw your question, simply press *1 again. Your first question comes from Matthew Boss with JPMorgan. Your line is open.

Analyst (Matthew Boss): Great. Thanks. So, Richard, to dig maybe a little deeper into the top line improvement embedded in the back half of the year, Old Navy, what is the time line that you see to fully rightsize the product assortment and value proposition if we are thinking about back to school At the Gap, have you seen any sequential softening in the second quarter to the 10 comps in first quarter? And then at Athleta, what is a reasonable time line for inventory optimization in your view?

Richard Dickson: Okay. Matthew, there is a lot to unpack there, but I appreciate, the breadth of the questions. First, zooming out, you know, we delivered progress across several key metrics in the first quarter. As mentioned, it is our 9th consecutive quarter of positive comparable sales. 3 out of the 4 brands are growing. Our comps up 2%. that is building on 2% comp growth from last year. Outperforming our gross margin outlook by 30 basis points, and winning across all income cohorts, Last but not least, returning over $450 million in cash to shareholders through dividends and repurchases. When we get into the specifics of each brand, we will start you know, with the Old Navy question.

First, important to recognize, we did deliver a 1% comp on top of last year's 3% growth. That also marks this brand's 6th consecutive quarter of positive comps. Now looking at the specifics of the categories, we also continued to deliver results. Particularly across active, denim, kids and baby. These have been really categories that we have strategically pursued winning, All of them posted growth versus last year. And we continue to build relevance, in those categories with our customers. Important also to mention that we maintained share overall, and continue to be a top ranked brand in active denim and kids and baby. Now seasonal categories have gotten off to a weaker start in particular dresses.

And bluntly, we have not had the right fashion and value equation for that category. The team is moving quickly, obviously, to drive better conversion sharper price points, stronger messaging, And as these changes have begun to take hold, we have seen the trends improve. But given the performance that we have had in Q1 and the continued challenge in seasonal products in Q2, we are taking a moderated view on the year. That being said, we are driving for better results. So, specifically, when I look to the second half, seasonal categories will be behind us. And I am very confident in our ability to drive improvement.

We have got some great, exciting new strategic category news with back to school programming, our emphasis on active and denim, are winning categories for us, We are investing in categories that we believe our customers will respond to, As you know, we are rolling out our beauty program to the entire fleet. We just talked about our Fanatics sports licensing partnership. Which is gonna have exciting segments, including the NFL in the fall. And so as we look at the overall Old Navy business, first half will be challenged with the with the seasonal weakness. And then as we move forward in the second half, we expect that continue to improve. Now gap.

Clearly, we feel very good about the Gap brand. Importantly, the consistency that this brand is demonstrating is evident as this is now our 10th consecutive quarter of positive comps. And it is not just a positive it is a double-digit standout 10% comp against 5% last year. So this is really consistent growth. We are seeing the consistency across categories, women's, doing incredibly well. We are making great progress in men's, and we have been improving trends in kids and baby. Category performance also remains very healthy and consistent. Particularly in denim, We have been delivering clear and consistent brand messages which is obviously resonating with our consumers. Particularly with Gen z.

The collaborations that we have done continue to drive excitement and cultural relevance. At the same time, I will say we are maintaining that broad multigenerational appeal. Now Gap will continue to power its categories with trend right assortments, We are gonna leverage collaborations as we move forward. And you will see great cultural moments to build upon as we move only through the second quarter, but back in the back half. As mentioned again here, we are also relaunching our fragrance business. Which is very exciting. We are launching bags to further build on the brand's momentum. And in summary, what I would say is back is, you know, Gap is back on the forefront of the cultural conversation.

It is clearly on a roll as an iconic American brand. We see significant runway ahead, as we continue to build momentum through great product, great storytelling, and, of course, great execution. The third part of your question was Athleta. So, look, Athleta, let's unpack that for a bit. You know, 2026, as we have called out, is a rebuild year for Athleta. And as we continue to strengthen the brand's foundation under Maggie's leadership, since joining in August, Maggie has taken several actions to strengthen the brand. First off, she streamlined the assortment considerably. Resulting in better AUR and margins, even with the challenging top line. She's also been repositioning talent and filling in key roles in her organization.

And as you can see on our website, if you take a look, we are delivering a much better creative execution for the brand. it is early, but we are seeing some good reads of the new fashion that arriving, albeit small. But as Katrina shared, we expect Q2 to be similar to Q1. But with all the work Maggie is doing, we feel very good about where we are and the work that they are doing to impact the second half. We have embedded a slight improvement relative to the first half trend, but let's see how the consumer responds. I will also sum up by saying Athleta remains an important brand in our portfolio.

And we remain focused on rebuilding it for the long term growth. it is great color. Best of luck. Thank you, Matthew.

Operator: The next question comes from Dana Telsey with Telsey Group.

Analyst (Dana Telsey): As you think about the Old Navy business, would you say the Old Navy impact was more macro or more enhancements that you need to adjust particularly on the women's business in terms of what happened, so external or internal, really. And then also, it is interesting on the channel distribution. Stores picked up 3% versus prior quarter flat. Online sales slowed a little bit to down 2%. From the fourth quarter, up 5% Anything you would take to note either demographically, geographically, about the channel performance. Thank you.

Richard Dickson: Thank you, Dana. I will take the first 1, and maybe Katrina can join in on the second 1. Look. On Old Navy, we are not seeing this as a consumer issue. We actually see consistency and strength in our customer behavior, We are winning with all income cohorts. Growth across low, middle, and high income customers, And as we all know, you know, when we have the right product at the right price value equation, customers are there. This is just a seasonal category that has just gotten off to a weaker start. And as I said, in particular dresses where we just did not have the right fashion and value equation.

The team, as I mentioned, again, is working really hard and quickly with sharper price points again, stronger messaging. And as these things sort of move through the system, The good news is as we look to the second half, the strength of our categories like active, denim, kids and baby, getting ready for back to school, and the programs that we have to build upon them gives me great confidence in our ability to continue to improve, as the year progresses.

Katrina O'Connell: And then, Dana, as it relates to channels, Q1, as you said, the store sales were up 3% year over year. We are really excited to see that traffic was up in stores. And then online decline was really very specific to the quarter related to 2 things. First of all, Athleta is our most digitally penetrated brand. And with their weaker performance that did weigh on the overall channel. And then in addition to that, dresses really over indexes as an online business And so with the weakness in dresses at Old Navy, that also weighed on the channel.

Overall, though, that traffic was up in online as well, and we continue to believe that is a really important channel for us going forward. Thanks, Dana. Thank you.

Operator: Your next question comes from Brooke Roach with Goldman Sachs. Your line is open.

Analyst (Brooke Roach): Good afternoon, and thank you for taking our question. Richard, Katrina, can you provide a diagnosis of what went wrong in your consumer insight and design process that led to this dress assortment and value equation challenge at Old Navy? Are you changing to ensure more consistency in the seasons ahead?

Richard Dickson: First off, Brooke, thank you for the question. I think, you know, in general, we know fashion is a dynamic business. And, ultimately, in this particular case, in this particular category, we just did not deliver the right fashion value equation. It does not necessarily mean that everything was off. It just means it was much weaker than we had anticipated. We also have had similar weak customer response in swim and shorts. So when we look at the total of seasonal know, category strength, it is just gotten off to a really slow start.

That being said, you know, we do see momentum in those other categories, as I mentioned, and even more so in some of the other categories including knits. We are, you know, diagnosing this very quickly in terms of where we missed. But, again, as long as we see the consistency and strength in our consumer and our traffic, we believe that we can convert that into momentum, particularly moving forward into the back half. This is a learn business every day, We obviously, you know, wanna make sure that more things go right.

And in this particular case, we just have gotten off to a weaker start and right now, we are driving the changes that we need to We are seeing them take hold. We have seen trends improve. And as we move through this, I am confident that we will have the ability to drive improvement in the back half. Great. Thanks so much. I will pass it on.

Operator: Your next question comes from Adrienne Yih-Tennant with Barclays. Your line is open.

Analyst (Adrienne Yih): Great. Thank you very much for taking my question. Richard, I wanted to kind of focus on 2 things at Old Navy. I guess the first of them is the categories that are seasonal in nature. Last year, you had you had taken some pricing up in core categories, denim and athleisure. And those are not the call out segments that are kind of causing the slowdown at Old Navy. So wondering if you can talk about sort of the strength in the core, how big, if you can give us any kind of, you know, composition of how big those seasonal categories are and how much they wane into the back half.

And then secondarily, on the beauty side, what is your go to market strategy and how big do you want that? Beauty can sometimes be a very complex few business intensive. there is a lot of kind of mess, I will say, right, sometimes in the store. So how do you approach that kind of with the in store presentation? And then kind of where do you think you wanna take that in terms of categories? Thank you.

Richard Dickson: Sure. So speaking specifically about the seasonal categories, you know, it is not the largest part of our business, although we do have top ranking presence across 9 out of the 10 categories across the industry. As you know, you know, our focus has been strategically intended to drive active denim and kids and baby, and we have seen the growth of those very consistently. In particularly the active business, which we continue to grow and pursue as strength. So while these seasonal categories, you know, the first half, represent, you know, a significant opportunity for us when we get them wrong, if you will, they represent a challenge.

That being said, seasonal as they are, as I mentioned, we get through it by the end of the second quarter, and we move into a much more robust play in the categories that we are demonstrating strength. Particularly over the last several years. So I do feel confident that we will be able to pursue those and ultimately continue to improve. Now on the beauty space, we are we are very excited about, you know, the expansion of beauty. When we zoom out, this is 1 of the fastest growing you know, most resilient categories in The US. We have studied our consumer base and the relationship that they have.

With the beauty category, and so we know that they are expecting and excited for our brands to carry beauty products. When you look at other fashion and apparel retailers with a beauty offering, we know the category can represent anywhere from 5% on the low to 20% of their sales. So when you look at our total volume business and even just at that low, it does represent significant opportunity. We are taking a very purposeful approach to this. Both our assortment and merchandising strategy. It will be a combination in Old Navy of third party brands as well as our own beauty offerings.

We do believe that it could be a really meaningful contributor to the company over time. We are, of course, rolling out the beauty product into our entire fleet. As you recall, last we piloted a 150 stores. We learned a lot in that. Now we are taking that and rolling out to the balance of the fleet this year and, again, as a mix of third party and our own brands. And then at Gap, we are, you know, expanding it. We are relaunching our fragrance collection, which had, really once a very highly coveted strong customer loyalty following.

Fragrances like Dream, Grass, Heaven, Om, We are gonna reignite these with incredibly exciting marketing a refreshed packaging, updated formulation, elevated merchandise and storytelling, The presentation will be standalone in our stores. We are working with experts and expertise to really execute this. With a long term vision in mind. So stay tuned. I think you will obviously see the launch of that this fall, and Old Navy will have a full, beauty assortment as we, progress throughout the year. Fantastic. Thank you. Best of luck. Thanks, Adrienne.

Operator: Your next question comes from Mark Altschwager with Baird. Your line is open.

Analyst (Mark Altschwager): Thank you. Good afternoon. Katrina, I guess a few questions on the tariffs. Just first, on the cushion you have embedded here, 25 basis points for fuel, 25 for competitive flexibility. How should we be thinking about that competitive piece? Does old Navy need to come below a certain level? Is it more about just observing what you are seeing in the promotional environment? Second, on the assumed cliff back to the IEPA level rates, how much of a gross margin headwind is embedded in the back half of the year or Q4 specifically? I am just wondering what timing of inventory if that were to happen, that a back half story? Or is that more of a 2027 story?

And then third, on the refunds, understanding that it is not in the guide. You are not contemplating it, but just anything you can share on a realistic, range of outcomes there in terms of what you previously paid and how you think about the timing? Thank you.

Katrina O'Connell: Yeah. Sure, Mark. Maybe I will start with the AURs that we have been achieving in the business just to zoom out a little bit and tell you a little bit about how we are thinking about that. We have been seeing really good response to our value equation showing up in our results. So as Richard said, you know, continued positive comps, continued market share gains, winning across all income cohorts. Our AUR was up low single digits. In the quarter, and it was up across all of our brands. So we think that is overall a sign that our pricing our promotions, the way we are delivering product and value equation to our consumers is resonating.

What we know also, though, is that the optimal promotional level is also very dependent on what is going on in the operating environment. And so while we are focused on getting the maximum price realization on our categories, we also know that we need to be aware that there might be a dynamic that is starts to arise where we need more. So what is embedded in our current outlook today, are AURs that are similar throughout the year to what we just achieved in Q1 and last year. And we believe that gives us a room to navigate in a normal operating environment.

The tariff that we are holding aside is really there in case we need to promote more on top of that should the environment get more promotional. As it relates to the IEPA tariff in the second half, that was included in our original outlook. So that is not an incremental headwind to second half. In fact, we have a lot of mitigation built in the second half of the year. And so in the second half of the year, we had already previewed that the tariff becomes a tailwind in the back half. Even with that reversion because we have we are lapping last year, and we have a lot of mitigation in place.

And then maybe the last part of your question is really about the refund. We definitely have line of sight to what we are due in the refund. Maybe to say a little bit more about that we are using the reconciliation method and that was excluded from phase 1. So we do not have a lot of news on when the reconciliation will be included in this process. But once we know more about it and are prepared to file, we will be more forth forthcoming with the quantification. At this point, we just have not really said much about it because we are not assuming that benefit in any outlook.

Until we have more clarity on when we will be included.

Analyst (Mark Altschwager): Thank you. Really quick follow-up just, on the model, on the buyback. With the timing of the repurchases you made, just what share count should we assume for Q2 specifically? And then does the 375 million you gave for the year, does that contemplate any additional repurchases? Thank you.

Katrina O'Connell: Sure. I would say the weighted average share count for Q2 is probably in that, like, 371 million range. And then right now, what is built into the 375 million is the $400 million that we have completed year to date.

Operator: Your next question comes from Lorraine Hutchinson with Bank of America. Your line is open.

Analyst (Lorraine Hutchinson): Thank you. Good afternoon. You mentioned a need for sharper pricing at Old Navy. You think this is the customer's reaction to some of the higher prices and lower promotions? That they saw after tariffs? And is this something that you expect to wrap into the back to school season?

Richard Dickson: No. To be honest with you, Lorraine, I think the end of the day, what we do see across our portfolio is that, again, when you have the right product at the right price with the right value equation, customers are there. And we are seeing consistency and strength in our customer behavior. When we look at the portfolio as a whole, again, we are winning with all income cohorts. We see the areas of strength that we have been concentrating on strategically continue to grow Denim, again, active, kids and baby, knits, fleece, when, again, priced right with the right fashion quotient. We see, we see the equation work.

Where we are acknowledging transparently, we just got off to a week's start, is in dresses. And when we talk about sharper price points, you know, these are designed to move the merchandise with stronger messages. And to some extent, it also drives even more interest in traffic. That halos all the other categories. So this is an expertise, I would say, that we have, particularly in Old Navy. You know, again, we are the number 1 apparel specialty retailer in the country. We our pricing strategies are very precise. We know how to drive traffic, and we know how to excite our consumers. This particular case, seasonal categories simply got off to a weaker start.

That being said, you know, Q2 is gonna be an area where we move through and then look to obviously recover and drive growth. In the back half. But, no, I do not see any reaction at this point that we would take, you know, based on the early days of seasonal category weakness. Thank you. Thanks, Lorraine.

Operator: The last question comes from Michael Binetti with Evercore. Your line is open.

Analyst: Just really quickly, I am wondering if you have if you think there is any impact from the big tax refund season in first quarter that we should think about normalizing as we think about what the underlying rates are? In the businesses. And then Richard, I think you said to Matthew's question earlier that trends had improved at Old Navy. As the teams intervened in seasonal categories. I was a little bit unclear on what you expect to worsen from the 1% comp in the first quarter to the low single digit guidance. If the strategic category sound like they are fine, seasonals, you know, have been intervened and are improving.

Can you just help me understand if Old Navy is within the low single digit guidance range today? And then maybe just curious a little bit more what you think might have missed the mark on the seasonals. Does that build your confidence that we just moved past this, and we have the design language right as we go forward.

Richard Dickson: Sure. Michael, first on the tax, refund question. I think, you know, the tax refund provided a tailwind I would say, to the overall market. Within that environment, you know, again, Old Navy held share. And we gained share at the portfolio level. But we did not really observe any meaningful change in the underlying consumer behavior. Or, you know, a significant step up in spending. As I said, you know, consumer behavior remains consistent. We are not assuming any meaningful change in that Into Q2. consumer behavior for the remainder of the year, but we are conscious and considerate. About all the macroeconomic factors that, consumers are facing.

The Old Navy category question, I would sort of zoom up and just reiterate. First off, again, fashion is a dynamic category, and our objective, obviously, is to always try to deliver our best assortment and customer experience. And we learn every day we move forward. As we zoom out, even with the slower start for Old Navy and our lower sales assumptions, our portfolio is still on track to deliver our third year in a row of profitable sales growth. We look at the portfolio as a whole, and granted, you know, we are experiencing some challenges in our seasonal categories, we are also seeing the strength in others.

And so that balance in the mix is ultimately where we have taken a moderated, you know, perspective in terms of where we are where we will net out for the second quarter. And then ultimately where we see continued improvement in the back half. And so on balance, again, giving ourselves some room, obviously, to, you know, perform in the context of, what we want to, lay out as expectations, but we are always working to outperform. And, certainly, the teams here are striving constantly to do that, and you could expect that as we move forward. Missed on the seasonal, marks on aspects, you know, we can get the broad based narrative around fashion.

The specifics around, you know, the bohemian style versus others. You know? Did we have enough feature and function in some of our dress assortment that we are now learning our customers would have wanted? I think those are all learnings that the teams are taking back right now. And, ultimately, we will have that guided for the next year, as we move into the next year pretty quickly here. But as I look again at our assortment and category depth the areas that we are gonna create demand creation in the back half, seasonal categories moving through the second quarter, I do feel confident that as we get into the back half we are gonna see continued improvement.

Operator: Concludes the question and answer session and will conclude today's conference call. Thank you for joining. You may now disconnect.