By Juveria Tabassum and Sanskriti Shekhar
March 5 (Reuters) – Gap joined a growing list of companies in warning about pressure and uncertainty from U.S. import tariffs and forecast annual adjusted profit largely below Wall Street estimates on Thursday, sending its shares down 7% in extended trading.
Gap said its annual targets did not account for the recent Supreme Court ruling on tariffs under the 1977 International Emergency Economic Powers Act, or the temporary duties imposed by U.S. President Donald Trump.
“Changes in global tariff rates in 2025 had a substantial impact on our profits,” said Katrina O’Connell, Gap’s finance chief, on a post-earnings call.
The Old Navy parent expects a 200-basis-point impact on its current-quarter gross margins from U.S. import tariffs.
“U.S. trade policy uncertainty is the single biggest force behind the sector-wide pressure,” said Sky Canaves, an analyst at eMarketer.
“The latest threats to bring tariffs back to the pre-ruling levels are sowing unease about apparel companies’ ability to absorb or pass on the costs.”
Rivals American Eagle and Abercrombie & Fitch, as well as shoemaker Steve Madden, have also flagged tariff pressures that have weighed on apparel companies’ margins and plans for the year.
Gap sources about 46% of its products from Southeast Asian countries such as Vietnam and Indonesia, which were hit by the duties last year, according to its 2024 annual report. The company has been trying to change its sourcing and has raised prices on some products, such as denim, to offset the impact of the duties.
Gap, known for its jeans and hoodies, expects annual adjusted earnings of about $2.20 to $2.35 per share, largely below analysts’ average estimate of $2.32, according to data compiled by LSEG.
It, however, announced a $1 billion share repurchase program.
Gap’s holiday-quarter same-store sales rose 3%, falling short of estimates of a 3.08% rise, as shoppers, particularly in lower-income households, sought discounts and deferred non-essential spending.
Gap, like its peers, has been investing heavily in advertising to attract shoppers. Its capital expenditure is expected to be about $650 million for the full year, compared with $470 million reported in 2025.
Sales also fell for the fifth straight quarter at Athleta, as the brand tries to revive itself.
The company’s quarterly net sales of $4.24 billion were in line with estimates, but quarterly earnings per share missed by 1 cent.
(Reporting by Juveria Tabassum in Bengaluru; Editing by Shinjini Ganguli and Rashmi Aich)
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