SAN FRANCISCO — November 20, 2025 — Gap Inc. (NYSE: GAP), the parent of Old Navy, Gap, Banana Republic and Athleta, reported third‑quarter fiscal 2025 results that showed steady sales growth, stronger same‑store performance and a higher full‑year outlook, even as tariffs and a weak Athleta business weighed on profit. [1]
Key takeaways
- Net sales grew about 3% to roughly $3.94 billion, with comparable sales up 5% — the company’s seventh consecutive quarter of positive comps. [2]
- Earnings per share came in at $0.62, down from $0.72 a year ago, as tariffs and Athleta weakness offset sales gains. Operating margin was 8.5%. [3]
- Old Navy, Gap and Banana Republic all posted positive comparable sales, while Athleta comps fell 11%, remaining the biggest drag on the portfolio. [4]
- Full‑year fiscal 2025 guidance was raised: Gap now expects net sales growth of 1.7%–2.0% (up from 1.0%–2.0%) and an operating margin of about 7.2%, including tariff headwinds. [5]
- Dividend maintained at $0.165 per share for the fourth quarter, implying an annual yield of roughly 2.9% at today’s share price near $23.06. [6]
Third‑quarter numbers at a glance
Gap’s third quarter of fiscal 2025, which ended November 1, delivered net sales of about $3.9 billion, up 3% year over year, slightly ahead of the company’s own expectations and Wall Street forecasts. Comparable sales grew 5%, marking seven straight quarters of positive comps — a key proof point for CEO Richard Dickson’s turnaround narrative. [7]
Store sales rose 3%, and online sales grew 2%, with e‑commerce representing around 40% of total revenue — underscoring Gap’s still‑meaningful digital scale despite its deep mall footprint. The company ended the quarter with nearly 3,500 stores in about 35 countries, including 2,497 company‑operated locations. [8]
On profitability:
- Gross margin came in at 42.4%, down 30 basis points versus last year. [9]
- Merchandise margin declined about 70 basis points, with management estimating roughly 190 basis points of negative impact from tariffs. Underneath that, higher average unit prices helped margins. [10]
- Rent, occupancy and depreciation leveraged by 40 basis points, cushioning some of the tariff pressure. [11]
Gap generated operating income of $334 million, for an 8.5% operating margin. Net income was about $236 million, or $0.62 per diluted share, down from $0.72 a year earlier as higher costs and a weaker Athleta offset sales growth. [12]
From a balance‑sheet standpoint, the company ended the quarter with $2.5 billion in cash, cash equivalents and short‑term investments, up 13% versus last year. Year‑to‑date operating cash flow reached $607 million, with free cash flow at $280 million after $327 million in capital expenditures. Inventory stood at $2.5 billion, up 5% year over year, largely driven by higher unit costs from tariffs rather than excess product. [13]
Brand performance: strength at Old Navy, Gap and Banana Republic, weakness at Athleta
Gap’s portfolio continues to show a split personality: its three biggest brands are gaining traction, while Athleta remains in reset mode.
Old Navy: still the growth engine
Old Navy, the company’s largest brand, delivered Q3 net sales of about $2.3 billion, up 5%, with comparable sales up 6%. Management highlighted strong performance in denim, activewear and kids & baby, helped by a steady cadence of pop‑culture collaborations and value‑focused marketing. [14]
Recent campaigns and collaborations — including tie‑ins with Disney, Netflix’s Stranger Things and Universal’s Wicked, as well as the “Better in Denim” push featuring global girl group KATSEYE — are designed to sharpen Old Navy’s fashion credibility with younger families while keeping price points accessible. [15]
Gap brand: eight straight quarters of positive comps
The namesake Gap banner posted net sales of roughly $951 million, up 6%, with comps up 7%, marking its eighth consecutive quarter of positive comparable sales. [16]
Management credits what it calls a “reinvigoration playbook” — simplifying assortments, leaning into icons like denim and logo hoodies, and backing them with nostalgic-but-modern campaigns such as “Feels Like Gap” and “Get Loose with Troye Sivan.” [17]
Banana Republic: modest growth on a smaller base
Banana Republic generated $464 million in net sales, down 1%, but still managed a 4% increase in comparable sales, reflecting a more premium positioning and tighter product architecture. The brand’s focus on elevated fabrics, tailoring and lifestyle storytelling has produced a second straight quarter of positive comps even as it rationalizes its store base. [18]
Athleta: the problem child
Athleta remains the clear outlier. Net sales fell 11% to $257 million, with comps also down 11%, the fourth consecutive quarter of double‑digit declines, as the brand trims assortments to refocus on core women’s activewear. [19]
External analysts note that, despite plans for a brand reset, Athleta is still a “drag” on the group, with little visible evidence yet of a turnaround in shopper demand. [20]
Management insists Athleta is being rebuilt for the long term using the same playbook that has revived Gap and Old Navy — but it openly warns this will take time, not quarters. [21]
Guidance raised: Gap leans into momentum for the holiday quarter
Strong Q3 results and what CEO Richard Dickson described as an “encouraging” start to the fourth quarter prompted Gap to raise its full‑year fiscal 2025 outlook. [22]
The company now expects:
- Net sales growth of 1.7%–2.0% for fiscal 2025, up from its prior 1.0%–2.0% range and at the high end of earlier guidance. [23]
- A full‑year operating margin of about 7.2%, including an anticipated 100–110 basis‑point hit from tariffs. [24]
- An effective tax rate around 28%, net interest income of roughly $20 million, and capital expenditures of $500–$550 million. [25]
Gap reiterated that it expects tariffs to remain a meaningful headwind into 2026 but said it is leaning on sourcing diversification, pricing power and mix (including higher‑margin categories like beauty and accessories) to offset a large portion of that impact over time. [26]
Strategic growth pillars: beauty, AI and on‑demand delivery
While today’s headlines center on Q3 numbers, a series of strategic moves over the last few months helps explain why management is confident enough to lift guidance.
Beauty and accessories: chasing higher‑margin categories
On September 4, 2025, Gap announced a strategic expansion into beauty and accessories, initially through Old Navy. About 150 Old Navy stores are rolling out curated beauty and personal‑care assortments, with around 50 getting dedicated “shop‑in‑shops” staffed by beauty associates. Most products are priced under $25, and the company plans to extend beauty into Gap‑branded stores in 2026. [27]
The logic is straightforward: beauty is a faster‑growing, higher‑margin category than basic apparel and resonates strongly with younger shoppers. Analysts have generally welcomed the move, noting that Gap’s balance sheet — including more than $2 billion in cash — gives it room to invest in new growth verticals while maintaining its dividend. [28]
AI with Google Cloud: reimagining retail operations
In October 2025, Gap announced a multi‑year partnership with Google Cloud to embed generative AI and advanced analytics across its operations. The initiative targets product design, demand forecasting, pricing, assortment planning and personalized marketing across Old Navy, Gap, Banana Republic and Athleta. [29]
By using Google’s Gemini‑powered tools and data platforms like Vertex AI and BigQuery, Gap aims to shorten design‑to‑shelf timelines, reduce markdowns and tailor assortments more precisely to local demand — all levers that, if executed well, could support the mid‑single‑digit sales growth and margin expansion implied by its updated guidance. [30]
Old Navy + DoorDash: meeting the on‑demand shopper
Just ahead of the holiday rush, on November 13, 2025, Old Navy and DoorDash unveiled a nationwide same‑day delivery partnership. Shoppers can now order denim, activewear, seasonal “Jingle Jammies” and other items from more than 1,000 Old Navy locations across the U.S. directly through the DoorDash app. [31]
The deal expands Old Navy’s omnichannel reach and positions Gap to capture the growing consumer appetite for on‑demand apparel delivery — a trend DoorDash says has accelerated as more retailers join its platform. [32]
Taken together, the beauty expansion, AI partnership and last‑mile delivery push suggest Gap is trying to do more than just cut costs: it is leaning into new categories and capabilities that could reshape its growth profile over the next several years.
Dividends, cash and today’s stock reaction
Gap continues to return cash to shareholders. Alongside Q3 results, the company confirmed it paid a third‑quarter dividend of $0.165 per share and that its board has authorized a fourth‑quarter fiscal 2025 dividend at the same level, payable on or after January 28, 2026, to shareholders of record as of January 7, 2026. [33]
At today’s share price of about $23.06, that dividend rate equates to an annualized yield of roughly 2.9%, though the effective yield will fluctuate with the stock price. [34]
Market reaction has been choppy:
- Real‑time data show GAP shares recently trading around $23.06, down about 1.8% on the day, after reaching an intraday high near $24.87.
- Coverage from StockStory and Reuters noted that the stock initially jumped roughly 5% in extended tradingafter the release, reflecting the earnings beat and guidance hike, before giving back gains as the broader market turned volatile. [35]
Analysts’ early read tends to frame the quarter as “better than feared” on sales and margins but tempered by the continuing drag from Athleta and uncertainty around how much of the tariff burden can be offset in 2026. [36]
Risks and what to watch next
Despite the raised outlook, several risks remain front and center:
- Tariffs: Gap estimates that tariffs reduced Q3 merchandise margin by around 190 basis points and expects a 100–110 basis‑point impact on full‑year operating margin. Its exposure to China is now below 10% of merchandise sourcing and is expected to drop below 3% by the end of 2025, but the timing and magnitude of any relief will still depend heavily on trade policy. [37]
- Athleta turnaround: With sales down double digits and comps negative for a fourth straight quarter, Athleta remains the weak link. Any sign of stabilization — or further deterioration — will be closely watched in upcoming quarters. [38]
- Consumer softness: Like other apparel retailers, Gap faces a still‑uncertain macro backdrop, with price‑sensitive shoppers and elevated promotions across the sector heading into the holiday season. Management’s commentary about a strong start to Q4 will need to be confirmed when it reports year‑end results. [39]
On the positive side, Gap now has:
- Seven consecutive quarters of positive comps
- A balance sheet with more than $2 billion of cash
- A clearer set of growth bets in beauty, accessories, AI‑enabled retail and last‑mile delivery
If those initiatives deliver, the updated 1.7%–2.0% sales growth and 7.2% operating margin targets for 2025 could prove a floor rather than a ceiling. But execution — especially at Athleta and in managing tariffs — remains the key swing factor. [40]
This article is for informational purposes only and does not constitute investment advice. Investors should perform their own research or consult a licensed financial adviser before making investment decisions.
References
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