Gap insists it's 'getting its vibe back.' But Wall Street's tariff worries got in the way.

By Bill Peters

Management calls out the return of low-rise jeans at Gap stores and 'modern explorer' aesthetics to Banana Republic. Analysts worry about higher tariff costs, though.

Gap reported quarterly earnings on Thursday.

During its earnings call on Thursday, executives at Gap Inc. said its efforts over the past two years to be more culturally relevant were paying off. They expressed confidence the company could keep the impact of tariffs away from its bottom line. Trends were strong in August, helped by the back-to-school season. Its namesake store chain, Chief Executive Richard Dickson said, was "getting its vibe back."

But shares slipped after hours, after the clothing retailer's second-quarter sales trends and outlook disappointed Wall Street, as tariff costs creep higher amid the fluctuations in the Trump administration's trade war.

Chief Financial Officer Katrina O'Connell, during that call, said she expected tariffs to cost the company around $150 million to $175 million. That's up from the forecast it gave in May, when Gap (GAP) ultimately put those costs at $100 million to $150 million.

Efforts to make more things in more nations, as well as "targeted pricing," would help the company manage margins, she said. In May, Gap said China - the biggest target in the U.S. trade war - was likely to account for less than 3% of the company's product sourcing by the end of this year. It said that by the end of next year, it wanted no single nation to account for more than 25% of its sourcing.

Economists have worried that the U.S. tariffs would ultimately lead to price increases for shoppers. Some retailers over this year have been cagey in discussing price increases directly, after Walmart Inc. (WMT) angered President Donald Trump this spring when it said it would likely have to start charging more.

Shares of Gap slipped 0.4% after hours on Thursday. Immediately after Gap issued its results, they were down more sharply. Shares were down 8.3% so far this year, as of the day's close.

The company said it expects third-quarter sales growth of 1.5% to 2.5%, roughly in line with FactSet estimates.

For the second quarter, Gap's same-store sales rose 1%, below analysts' estimates of a 2% gain. The company reported $3.725 billion in sales, compared with Wall Street's expectations for $3.733 billion. Earnings of 57 cents a share topped forecasts for 55 cents.

Gap's results followed subdued expectations for the quarter. And they came as other chains - such as Urban Outfitters Inc. (URBN) and department-store chain Kohl's Corp. (KSS) - showed signs of turning things around.

During the call, management said people were still snapping up its denim and activewear at Old Navy. Its namesake stores, they said, had benefited from looser denim fits and the return of low-rise jeans. Efforts to bring premium, "modern explorer" aesthetics to Banana Republic, it said, were working. Same-store sales were up across those three chains.

However, for Athleta, which makes women's yoga and workout wear, same-store sales fell 9%. Last month, Gap appointed Maggie Gauger, a veteran of Nike Inc. (NKE), as Athleta's new chief executive.

"The brand's reset will take time, but we're approaching it with intention and focus," Dickson said.

-Bill Peters

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08-28-25 2031ET