synopsis

The brand forecasted an 8-10% growth in operating profit in fiscal 2025, notwithstanding the impact of tariffs.

Gap, Inc. (GAP) shares dropped 15% in after-hours trading on Thursday, as the apparel brand said it faces a $100 million to $150 million impact on its operating income this year despite efforts to mitigate the effects of U.S. tariffs.

The company anticipates incurring $250 million to $300 million in additional costs in fiscal 2025, largely driven by increased import expenses. It plans to partially offset these through sourcing adjustments and other efficiency measures.

Without considering the impact of tariffs, the company expects operating income to grow 8% to 10% and net sales to increase 1% to 2%.

The warning took the sheen off better-than-expected results for the first quarter.

Net sales rose to $3.46 billion, beating analyst expectations of $3.42 billion from FactSet.  

Comparable sales grew 2%, led by its athleisure brand Athleta and the namesake Gap brand. The company said Gap has been a standout performer over the last couple of quarters, fueled by “style, product newness, innovation, and compelling marketing."

Earnings per share were $0.51, also higher than the expected $0.44.

Gap imports a sizable volume of its merchandise from China, Vietnam, and Indonesia.

On Stocktwits, the retail sentiment shifted to 'extremely bullish' from 'bullish' the previous day.

GAP sentiment and message volume as of May 29 | Source: Stocktwits

A user indicated that the stock reaction was "a little over done" as the company is implementing a turnaround.

Gap shares are up 18.3% this year.

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