Gap Inc. on Thursday reduced its annual sales forecast, saying weaker discretionary spending among budget-conscious American households is weighing on demand for its brands. The apparel retailer, which is in the midst of a turnaround effort, joined affordable luxury goods maker Tapestry in signaling softer sales growth for the current quarter.
While lowering its top-line expectations, Gap lifted its adjusted profit forecast for the year. The company said it expects roughly $80 million in tariff relief to bolster gross profit and operating income in fiscal 2026.
Gap reported it returned $464 million of cash to shareholders during the first quarter of the fiscal year via share repurchases and dividends. The company pointed to deteriorating consumer sentiment and rising inflation as headwinds for discretionary spending, noting consumer sentiment in the U.S. fell to a record low in May and inflation posted its largest gain in three years.
Within the brand portfolio, quarterly sales at Athleta declined again, while Old Navy continued to post growth but at a slower rate. As part of its effort to attract shoppers, the company under CEO Richard Dickson has been introducing new styles, including high-waisted run shorts and straight-leg pull-on linen pants.
Gap provided updated guidance for fiscal 2026 sales growth, now expecting an increase of 1% to 2%, down from a prior forecast of 2% to 3%. For the second quarter, the company now anticipates sales to be flat to down 1%, a range that contrasts with analysts' estimates of about 2.1% growth to $3.80 billion, according to data compiled by LSEG.
For the quarter, Gap's revenue totaled $3.50 billion, missing analysts' average estimate of $3.52 billion. The company revised its full-year adjusted earnings outlook to a range of $2.30 to $2.40 per share, up from its previous forecast of about $2.20 to $2.35 per share.
Key takeaways from the quarterly release:
- Sales guidance for fiscal 2026 trimmed to 1% - 2% growth, down from 2% - 3%.
- Company raised full-year adjusted profit guidance to $2.30 - $2.40 per share.
- Gap expects ~$80 million in tariff relief to lift gross profit and operating income in fiscal 2026.
- Quarterly revenue of $3.50 billion missed the $3.52 billion analysts' average.
- Returned $464 million to shareholders in the first fiscal quarter via buybacks and dividends.
The company’s update underscores how weakening consumer sentiment and rising inflation are filtering into retail results, with specific pressure on discretionary apparel sales. Gap’s performance varied by brand, with Athleta declining and Old Navy slowing, even as new product introductions aim to re-engage shoppers.