Gap warned that US tariffs could shave up to $300 million from its annual operating income, sending shares down 16% in after-hours trading despite better-than-expected first-quarter results.
The company expects between $250 million and $300 million in tariff-related costs this year but says it plans to offset more than half through mitigation strategies.
Still, analysts expressed concern that Gap’s full-year guidance excluded the impact of tariffs, raising doubts about its outlook for the second half.
“We were very purposeful in separating the outlook from the estimated tariff impact,” said CFO Katrina O’Connell, who noted the hit will be weighted towards later in the year.
Gap reaffirmed its 2025 forecast of 1% to 2% sales growth and 8% to 10% growth in operating income, but analysts say excluding tariffs from this guidance has hurt investor confidence.
The retailer continues to reduce its reliance on China, aiming for no single country to account for more than 25% of its sourcing by the end of 2026.
CEO Richard Dickson said China would represent less than 3% of sourcing by the end of 2025.
First-quarter revenue came in at $3.46 billion, slightly above estimates, with profit of 51 cents per share beating the expected 45 cents.
Strong performance at Old Navy and the Gap brand helped buoy sales following a recent refresh in product styles.
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