Gap shares tank after company warns Trump's tariffs could squeeze profit by $150M
The San Francisco-based company — which owns Banana Republic, Old Navy and Atheleta — reported first-quarter earnings Friday that beat Wall Street's expectations – but noted that tariffs are a looming threat to its profit margin.
Gap's shares plunged 20%, to $22,40, as of 11:45 a.m. ET.
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3 Shares of Gap, which also owns Old Navy, plunged on Friday.
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At least three brokerages trimmed price targets on the stock, with Jefferies cutting it by the most, to $26 from $29.
'Banana Republic and Athleta likely need much reinvestment to drive consistent positive comparable sales and margin expansion, in our view,' UBS analyst Jay Sole said.
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Under the leadership of Richard Dickson, who took helm in 2023, Gap laid out plans to double the use of America-grown cotton by 2026, with executives on a post-earnings call saying that investing in the US, its biggest market, remains a key priority.
It has been diversifying its supplier footprint for several years, and currently has a less than 10% exposure to China. The region was one of its top manufacturing hubs, followed by Vietnam and Indonesia. It aims for no country to account for more than 25% by the end of 2026.
'In this highly dynamic environment, we are optimistic yet realistic and remain focused on controlling the controllables as we build our company for long term growth,' Dickson said in a statement.
The retailer said comparable sales at its brands rose by 2% – better than the 1.7% increase Wall Street had expected – and revenues were up 2% to $3.5 billion.
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3 Gap warned that tariffs are a looming threat to its profit margin.
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Gap reported earnings of 51 cents a share, compared with the 45 cents a share Wall Street had forecasted.
The company did not change its guidance for the year, saying it expected to turn in sales growth of between 1% and 2% and operating income growth of between 8% and 10% to $1.1 billion.
Gap said its fiscal guidance does 'not reflect the potential effects of tariffs.'
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But if hefty tariff rates of 30% on goods made in China and 10% on goods made in most other countries are not lowered, Gap's profits will be dinged by $100 to $150 million, mostly in the second half of the year, the company said.
3 If hefty tariff rates of 30% on goods made in China and 10% on goods made in most other countries are not lowered, Gap's profits will be dinged by $100 to $150 million, mostly in the second half of the year, the company said.
JHVEPhoto – stock.adobe.com
Trump's trade policy has threatened to upend supply chains and push up prices for everyday essentials.
US businesses are holding out hope that the courts will blunt the full force of tariffs after the US Court of International Trade in Manhattan ruled that President Trump did not have unilateral authority to assess tariffs on foreign countries.
A federal appeals court put the ruling on hold on Thursday after the Justice Department appealed it.
With Post wires
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