Difference in results for the 3rd quarter of 2025

Clothing retailer Gap said Thursday that its comparable sales rose 5% in the fiscal third quarter, driven by strong revenue from its namesake brand following its viral “Better in Denim” campaign with girl group Katseye.

Setting aside pandemic-related spikes, the comparable sales rise was the strongest growth for Gap since its fiscal 2017 holiday quarter and was well above Wall Street expectations of 3.1%, according to StreetAccount.

In an interview with CNBC, CEO Richard Dickson said the company didn’t need to discount as often to sell products, that it was gaining customers across all income categories and that it saw a “strong start” to the holiday shopping season.

“As external data indicates macroeconomic pressure, particularly on lower-income consumers, our customers are discovering our value on pricing, [and] our styles cut across the competitive landscape,” Dickson said. “Our product resonates. We are therefore very confident as we approach the end of year holidays. »

Gap shares rose 5% in extended trading Thursday.

Here’s how the largest specialty apparel company in the U.S. performed in the quarter compared to what Wall Street expected, based on a survey of analysts by LSEG:

• Earnings per share: 62 cents versus 59 cents expected
• Income: $3.94 billion versus $3.91 billion expected

The company’s net income in the quarter ended Nov. 1 fell nearly 14 percent, to $236 million, or 62 cents per share, from $274 million, or 72 cents per share, a year earlier.

Sales reached $3.94 billion, up 3% from $3.83 billion a year earlier.

For Gap’s fiscal year, which is expected to end around early February, the company is now heading towards the high end of its previously published sales forecast, expecting sales to rise between 1.7% and 2%, in line with analysts’ expectations. He previously expected sales to rise between 1 and 2 percent.

The company now expects its full-year operating margin to be around 7.2%, compared to a previous range of between 6.7% and 7%. The forecast includes the impact of customs duties, estimated at between 1 and 1.1 percentage points.

Comparable sales at Gap, which owns its namesake banner, Old Navy, Athleta and Banana Republic, have been positive for seven consecutive quarters. Under Dickson, the company focused as much on increasing profitability and repairing operations as it did on restoring cultural relevance, leading to sustained sales growth across the portfolio.

As a result, Gap’s profitability has also increased, but now that it is facing tariffs, the retailer’s gross margin and net profit are taking a hit. During the quarter, Gap’s gross margin fell 0.3 percentage points to 42.4%, but it remained above expectations of 41.2%, according to StreetAccount.

Gap’s 14% drop in net profit was mainly related to tariffs, Chief Financial Officer Katrina O’Connell said in an interview.

Gap’s better-than-expected results come as clothing sales remain generally weak across the industry and consumers are turning away from nice-to-have items, like new clothes, in favor of essentials.

Aside from clear value players like Walmart And TJX CompaniesProfits so far this season have been subdued, with some companies blaming macroeconomic conditions and expressing caution about the holiday season.

Dickson said Gap’s diverse portfolio gives it coverage during times of economic uncertainty because it can attract shoppers in a variety of different locations.

“Our portfolio appeals to a broad range of consumers, which gives us great flexibility in today’s environment,” Dickson said.

Here’s a closer look at how each of the company’s brands performed:

Gap’s namesake brand has been at the center of Dickson’s turnaround strategy since he took over just over two years ago.

During the quarter, comparable sales rose 7%, more than double the 3.2% gain analysts expected, according to StreetAccount. Revenue rose 6% to $951 million.

During the quarter, Gap launched its viral “Milkshake” campaign, featuring Kelis’ debut song and members of the pop group Katseye. The campaign has helped sales, but Dickson said the Gap brand’s growth is “a story of consistency” and a mix of better products, marketing and partnerships.

Sales at Old Navy, Gap’s largest brand by revenue, rose 5% to $2.3 billion, with comparable sales up 6%, far better than the 3.8% expected by analysts polled by StreetAccount. The company said it saw growth in key categories such as denim, sportswear, kids and babies.

The upscale, consumer-friendly brand is still in turnaround mode, but saw sales rise 1% to $464 million in the quarter, with comparable sales up 4%, better than the 3.2% gain analysts expected, according to StreetAccount.

This is the second consecutive quarter Banana has reported positive comparable sales, which the company attributed to better marketing and product.

Athleta’s revenue and comparable sales fell 11% to $257 million, an eyesore compared to Gap’s otherwise better-than-expected results.

Dickson has repeatedly stated that Athleta is in a reset year, but how long that reset will last remains unclear.

“We were disappointed by this trend. We understand there’s a lot of work to be done, but I really believe in the brand,” Dickson said. “I believe in leadership and we will continue to build this brand for the long term. It deserves it.”