GAP INC
For the period ended May 2, 2026. Filed May 29, 2026.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
May 2, 2026 · Filed May 29, 2026
GAP$21.48-4.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2025-11-01; filed 2025-11-25.
0001628280-25-053934
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-05-02; filed 2026-05-29.
0001628280-26-039070
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 79 previous paragraphs and 82 current paragraphs.
40 unchanged; 21 reworded; 21 added; 18 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 8 previous and 8 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (21)
Current report
•Operating income for the first quarter of fiscal 2026 was $445 million compared with $260 million for the first quarter of fiscal 2025. The first quarter of fiscal 2026 includes a gain of $313 million related to a credit card interchange fee litigation settlement, net of legal fees, partially offset by a $50 million charitable contribution made concurrently.
Current report
We are focused on building momentum through the following strategic priorities:
Current report
•building our brands to increase relevance, while we elevate our product and customer experience to drive sustainable growth;
Current report
•optimizing our platform to drive scale by advancing capabilities that amplify and enable our brands;
Current report
•strengthening our culture by developing talent and fostering a high-performance environment; and
Current report
Our execution of these strategic priorities will position us to continue growing our core apparel business, while pursuing new strategic initiatives. We are expanding our beauty and accessories assortment, increasing customer engagement through our revamped loyalty program, and advancing technology capabilities throughout our organization.
Current report
In fiscal 2025, the United States enacted significant changes to its trade policy and imposed substantial tariffs on imported goods from most countries. In February 2026, the U.S. Supreme Court invalidated tariffs imposed under the International Emergency Economic Powers Act ("IEEPA"), and subsequently, new tariffs were imposed on a temporary basis pursuant to alternative statutory authority. In April 2026, the U.S. Customs and Border Protection launched a platform for importers of record to submit IEEPA tariff refund requests. We are currently evaluating our eligibility within the tariff refund process and monitoring related developments and will recognize the refund when the right to receive any amounts becomes probable and estimable. The timing and amount of any potential refund remains uncertain and may be subject to further legal and regulatory developments.
Current report
With continued uncertainty expected, we will continue to monitor the impact of macroeconomic conditions on consumer behavior and demand.
Current report
Cost of goods sold and occupancy expenses increased 1.3 percentage points as a percentage of net sales in the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025.
Current report
Uncertainty surrounding changes in U.S. trade policy and tariff rates is contributing to overall macroeconomic volatility. The Company continues to evaluate the impact of U.S. trade policy and tariff rates, which has increased cost of goods sold since fiscal 2025. Ongoing developments, including changes to tariff rates or potential refunds, will impact our gross margins in future quarters and will also impact comparability across periods. The timing and amount of any refunds remain uncertain and subject to legal and regulatory developments. As a result of these ongoing dynamics, our gross margin for the first quarter of fiscal 2026 may not be indicative of our gross margins throughout the remainder of fiscal 2026.
Current report
•a gain of $313 million related to a credit card interchange fee litigation settlement, net of legal fees; partially offset by
Current report
•a $50 million charitable contribution made concurrently with the interchange fee litigation settlement; and
Current report
•an increase in strategic investments.
Current report
Interest income primarily includes interest earned on our cash, cash equivalents, and short-term investments, as well as tax-related interest income. Interest income increased slightly during the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025, primarily due to higher cash balances, partially offset by lower interest rates.
Current report
Net Income
Current report
•an increase in net income, primarily due to a gain of $313 million related to a credit card interchange fee litigation settlement, net of legal fees, partially offset by a $50 million charitable contribution made concurrently;
Current report
Changes in operating assets and liabilities
Current report
•an increase of $130 million related to merchandise inventory, in part due to timing of receipts during the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025 as well as fluctuations to inventory-related costs related to changes in tariff rates; and
Current report
•$52 million more purchases of property and equipment during the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025, primarily related to store investments; and
Current report
•$24 million more net purchases of short-term investments during the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025.
Current report
(1)For the 13 weeks ended May 2, 2026, net cash provided by operating activities includes the impact of a gain of $313 million related to a credit card interchange fee litigation settlement, net of legal fees, and a $50 million charitable contribution made concurrently.
Removed paragraphs (18)
Previous report
•Store and franchise sales for the third quarter of fiscal 2025 increased 3 percent compared with the third quarter of fiscal 2024, and online sales for the third quarter of fiscal 2025 increased 2 percent compared with the third quarter of fiscal 2024.
Previous report
•Operating income for the third quarter of fiscal 2025 was $334 million compared with $355 million for the third quarter of fiscal 2024.
Previous report
•Merchandise inventory as of the third quarter of fiscal 2025 increased 5 percent compared with the third quarter of fiscal 2024.
Previous report
We remain focused on the following strategic priorities while we continue to transform:
Previous report
•reinvigorating our brands to drive relevance and an engaging omni-channel experience;
Previous report
•strengthening and evolving our operating platform with a digital-first mindset to drive scale and efficiency;
Previous report
•energizing our culture by attracting and retaining strong talent; and
Previous report
The macroeconomic environment has had and may continue to have an impact on consumer behavior, and we anticipate continued uncertainty related to the macroeconomic environment during fiscal 2025. We will continue to monitor macroeconomic conditions and evaluate mitigating actions. For additional information on risks related to macroeconomic conditions and our supply chain, see the section entitled “Risk Factors—Risks Related to Our Business Operations—Trade matters, including the impact of current or potential tariffs by the United States, may disrupt our supply chain and adversely affect our business, financial condition, and results of operations” in Part II, Item 1A of this Quarterly Report on Form 10-Q, and the section entitled “Risk Factors—Risks Related to Macroeconomic Conditions—Global economic conditions have and could continue to adversely affect our business, financial condition, and results of operations” in Part II, Item 1A of our Quarterly Report on Form 10-Q for the fiscal quarter ended May 3, 2025.
Previous report
•Occupancy expenses decreased 0.4 percentage points as a percentage of net sales in the third quarter of fiscal 2025 compared with the third quarter of fiscal 2024, primarily driven by an increase in Comp Sales without a corresponding increase in occupancy expenses.
Previous report
Cost of goods sold and occupancy expenses increased 0.4 percentage points as a percentage of net sales in the first three quarters of fiscal 2025 compared with the first three quarters of fiscal 2024.
Previous report
•Cost of goods sold increased 0.8 percentage points as a percentage of net sales in the first three quarters of fiscal 2025 compared with the first three quarters of fiscal 2024, primarily driven by the impact of tariff costs in the third quarter of fiscal 2025, partially offset by less promotional activity at all brands except Athleta Global.
Previous report
•Occupancy expenses decreased 0.4 percentage points as a percentage of net sales in the first three quarters of fiscal 2025 compared with the first three quarters of fiscal 2024, primarily driven by an increase in online sales without a corresponding increase in occupancy expenses.
Previous report
The ongoing impact of increased tariff rates and uncertainty surrounding changes in U.S. trade policy are contributing to overall macroeconomic volatility. The Company continues to monitor the impact of the higher tariff rates which have increased cost of goods sold in the third quarter of fiscal 2025 and are expected to impact our gross margins in future quarters.
Previous report
Operating expenses increased $56 million, or 0.5 percentage points as a percentage of net sales during the third quarter of fiscal 2025 compared with the third quarter of fiscal 2024, primarily driven by an increase due to the timing of performance-based compensation and an increase in strategic investments.
Previous report
Interest income decreased $3 million during the third quarter of fiscal 2025 compared with the third quarter of fiscal 2024 primarily due to lower interest rates, partially offset by higher cash balances. Interest income was relatively flat during the first three quarters of fiscal 2025 compared with the first three quarters of fiscal 2024.
Previous report
The increase in the effective tax rate for the third quarter of fiscal 2025 compared with the third quarter of fiscal 2024 is primarily due to the cumulative impact of a change in the Company's estimated annual effective tax rate and changes in the amount and mix of jurisdictional earnings.
Previous report
On July 4, 2025, the OBBBA was enacted in the United States. The Company included the impact of the OBBBA tax legislation in the second quarter of fiscal 2025, the period of enactment, and the impact was not material to the Condensed Consolidated Financial Statements.
Previous report
•a decrease of $133 million related to accounts payable primarily due to timing of payments for merchandise inventory during the first three quarters of fiscal 2025 compared with the first three quarters of fiscal 2024; and
Reworded paragraphs (21)
Previous wording
We are a house of iconic brands offering apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. Our products are available to customers both in stores and online, through Company-operated and franchise stores, websites, and third-party arrangements. We have Company-operated stores in the United States, Canada, Japan, and Taiwan. We also have franchise agreements to operate Old Navy, Gap, Banana Republic, and Athleta throughout Asia, Europe, Latin America, the Middle East, and Africa. Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names. In addition to operating in the specialty, outlet, online, and franchise channels, we use our omni-channel capabilities to bridge the digital world and physical stores. The shopping experience is further enhanced by our omni-channel services, including buy online pick-up in store, order-in-store, and ship-from-store, as well as enhanced mobile-enabled experiences, which allow our customers to shop seamlessly across our brands and channels. Our brands have shared investments in supply chain and inventory management, which allows us to optimize efficiency and responsiveness in our operations. Most of the products sold under our brand names are designed by us and manufactured by independent sources globally.
Current wording
We are a house of iconic American brands offering apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. Our products are available to customers both in stores and online, through Company-operated and franchise stores, websites, and third-party arrangements. We have Company-operated stores in the United States, Canada, Japan, and Taiwan. We also have franchise agreements to operate Old Navy, Gap, Banana Republic, and Athleta throughout Asia, Australia, Europe, Latin America, the Middle East, and Africa. Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names. In addition to operating in the specialty, outlet, online, and franchise channels, we use our omni-channel capabilities to bridge the digital world and physical stores. The shopping experience is further enhanced by our omni-channel services, including buy online pick-up in store, order-in-store, and ship-from-store, as well as enhanced mobile-enabled experiences, which allow our customers to shop seamlessly across our brands and channels. Our brands have shared investments in supply chain and information technology, which allows us to optimize efficiency and responsiveness in our operations. Most of the products sold under our brand names are designed by us and manufactured by independent sources globally.
Previous wording
Financial results for the third quarter of fiscal 2025 are as follows:
Current wording
Financial results for the first quarter of fiscal 2026 are as follows:
Previous wording
•Net sales for the third quarter of fiscal 2025 increased 3 percent compared with the third quarter of fiscal 2024.
Current wording
•Net sales for the first quarter of fiscal 2026 increased 1 percent compared with the first quarter of fiscal 2025.
Previous wording
•Gross profit for the third quarter of fiscal 2025 was $1.67 billion compared with $1.64 billion for the third quarter of fiscal 2024. Gross margin for the third quarter of fiscal 2025 was 42.4 percent compared with 42.7 percent for the third quarter of fiscal 2024.
Current wording
•Gross profit for the first quarter of fiscal 2026 was $1.42 billion compared with $1.45 billion for the first quarter of fiscal 2025. Gross margin for the first quarter of fiscal 2026 was 40.5 percent compared with 41.8 percent for the first quarter of fiscal 2025.
Previous wording
•The effective income tax rate for the third quarter of fiscal 2025 was 30.0 percent compared with 24.1 percent for the third quarter of fiscal 2024.
Current wording
•The effective income tax rate for the first quarter of fiscal 2026 was 24.7 percent compared with 26.6 percent for the first quarter of fiscal 2025.
Previous wording
•Net income for the third quarter of fiscal 2025 was $236 million compared with $274 million for the third quarter of fiscal 2024.
Current wording
•Net income for the first quarter of fiscal 2026 was $339 million compared with $193 million for the first quarter of fiscal 2025.
Previous wording
•Diluted earnings per share was $0.62 for the third quarter of fiscal 2025 compared with $0.72 for the third quarter of fiscal 2024.
Current wording
•Diluted earnings per share was $0.90 for the first quarter of fiscal 2026 compared with $0.51 for the first quarter of fiscal 2025.
Previous wording
•maintaining and building upon financial and operational rigor, through an optimized cost structure and disciplined inventory management;
Current wording
•delivering financial and operational rigor, through an optimized cost structure and disciplined execution;
Previous wording
Macroeconomic factors, including uncertainty surrounding global geopolitical instability, inflationary pressures, foreign currency fluctuations, and changes in interest rates, duties, tariffs, tax laws, and other restrictions as a result of government fiscal, monetary, trade, and tax policies, continue to create a complex and challenging retail environment. The United States has recently enacted significant changes to its trade policy and imposed substantial tariffs on imported goods from a number of countries. The ongoing impact of increased tariff rates and uncertainty surrounding changes in U.S. trade policy are contributing to overall macroeconomic volatility. The higher tariff rates increased cost of goods sold during the third quarter of fiscal 2025 and are expected to impact our gross margins in future quarters. The Company continues to monitor the impact of the current trade policy while we continue to pursue mitigating actions including adjustments to our sourcing, manufacturing, assortments, and pricing.
Current wording
Macroeconomic factors, including uncertainty surrounding global geopolitical instability, inflationary pressures, foreign currency fluctuations, and changes in interest rates, duties, tariffs, tax laws, and other restrictions as a result of government fiscal, monetary, trade, and tax policies, continue to create a complex and challenging retail environment.
Previous wording
Our net sales increased $113 million, or 3 percent, during the third quarter of fiscal 2025 compared with the third quarter of fiscal 2024, and increased $193 million, or 2 percent, during the first three quarters of fiscal 2025 compared with the first three quarters of fiscal 2024, driven primarily by an increase in Comp Sales across all brands except for Athleta Global.
Current wording
Our net sales increased $34 million, or 1 percent, during the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025, primarily driven by an increase in net sales across all brands except Athleta Global.
Previous wording
•Cost of goods sold increased 0.7 percentage points as a percentage of net sales in the third quarter of fiscal 2025 compared with the third quarter of fiscal 2024, primarily driven by the impact of tariff costs, partially offset by less promotional activity at all brands except Athleta Global.
Current wording
•Cost of goods sold increased 1.0 percentage point as a percentage of net sales in the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025, primarily driven by an estimated impact of approximately 2 percentage points from tariff costs net of related mitigation efforts, partially offset by less promotional activity primarily at Gap Global.
Previous wording
Cost of goods sold and occupancy expenses increased 0.3 percentage points as a percentage of net sales in the third quarter of fiscal 2025 compared with the third quarter of fiscal 2024.
Current wording
•Occupancy expenses increased 0.3 percentage points as a percentage of net sales in the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025, primarily driven by incremental cost related to our store population.
Previous wording
Operating expenses increased $6 million, but decreased 0.5 percentage points as a percentage of net sales during the first three quarters of fiscal 2025 compared with the first three quarters of fiscal 2024, primarily due to an increase in net sales while maintaining overall operating discipline.
Current wording
Operating expenses decreased $216 million, or 6.5 percentage points as a percentage of net sales during the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025, primarily due to the following:
Previous wording
The increase in the effective tax rate for the first three quarters of fiscal 2025 compared with the first three quarters of fiscal 2024 is primarily due to changes in the amount and mix of jurisdictional earnings and less favorable impacts of stock-based compensation, partially offset by prior year increases to certain income tax reserves.
Current wording
The decrease in the effective tax rate for the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025 is primarily due to more favorable impacts of share-based compensation, the recognition of certain tax benefits associated with foreign entity structure changes, as well as changes in the amount and mix of jurisdictional earnings.
Previous wording
Our primary sources of liquidity include cash and cash equivalents, short-term investments, and our ABL Facility. As of November 1, 2025, we had cash and cash equivalents of $2.26 billion and short-term investments of $255 million. We hold our cash, cash equivalents, and short-term investments across a diversified set of reputable financial institutions and monitor the credit standing of those financial institutions. In addition, we are also able to supplement near-term liquidity, if necessary, with our ABL Facility or other available market instruments. There were no borrowings under the ABL Facility as of November 1, 2025. See Note 4 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on our debt and credit facilities.
Current wording
Our primary sources of liquidity include cash and cash equivalents, short-term investments, and our ABL Facility. As of May 2, 2026, we had cash and cash equivalents of $2.16 billion and short-term investments of $399 million. We hold our cash, cash equivalents, and short-term investments across a diversified set of reputable financial institutions and monitor the credit standing of those financial institutions. In addition, we are also able to supplement near-term liquidity, if necessary, with our ABL Facility or other available market instruments. There were no borrowings under the ABL Facility as of May 2, 2026. See Note 3 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on our debt and credit facilities.
Previous wording
Net cash provided by operating activities decreased $263 million during the first three quarters of fiscal 2025 compared with the first three quarters of fiscal 2024, primarily due to the following:
Current wording
Net cash provided by operating activities was $213 million during the first quarter of fiscal 2026 compared with $140 million of net cash used for operating activities during the first quarter of fiscal 2025, primarily due to the following:
Previous wording
•a decrease of $97 million related to accrued expenses and other current liabilities primarily due to higher payments for fiscal 2024 performance-based compensation made during the first three quarters of fiscal 2025 as well as a decrease in current performance-based compensation.
Current wording
•an increase of $107 million related to accrued expenses and other liabilities, in part due to lower payments for performance-based compensation during the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025.
Previous wording
Net cash used for investing activities decreased $249 million during the first three quarters of fiscal 2025 compared with the first three quarters of fiscal 2024, primarily due to $246 million fewer net purchases of short-term investments.
Current wording
Net cash used for investing activities increased $76 million during the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025, primarily due to the following:
Previous wording
Net cash used for financing activities increased $165 million during the first three quarters of fiscal 2025 compared with the first three quarters of fiscal 2024, primarily due to $152 million in repurchases of common stock during the first three quarters of fiscal 2025 compared with no repurchases during the first three quarters of fiscal 2024.
Current wording
Net cash used for financing activities increased $366 million during the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025, primarily due to $331 million more repurchases of common stock, during the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025.
Previous wording
Free cash flow is a non-GAAP financial measure. We believe free cash flow is an important metric because it represents a measure of how much cash a company has available for discretionary and non-discretionary items after the deduction of capital expenditures. We require regular capital expenditures including technology investments as well as building and maintaining our stores and distribution centers. We use this metric internally, as we believe our sustained ability to generate free cash flow is an important driver of value creation. However, this non-GAAP financial measure is not intended to supersede or replace our GAAP results.
Current wording
Free cash flow is a non-GAAP financial measure. We believe free cash flow is an important metric because it represents a measure of how much cash a company has available for discretionary and non-discretionary items after the deduction of capital expenditures. We require regular capital expenditures to build and maintain our stores and distribution centers and for technology investments. We use this metric internally, as we believe our sustained ability to generate free cash flow is an important driver of value creation. However, this non-GAAP financial measure is not intended to supersede or replace our GAAP results.
Previous wording
We paid a dividend of $0.165 per share during the third quarter of fiscal 2025. In November 2025, the Board authorized a dividend of $0.165 per share for the fourth quarter of fiscal 2025.
Current wording
We paid a dividend of $0.175 per share during the first quarter of fiscal 2026. In May 2026, the Board authorized a dividend of $0.175 per share for the second quarter of fiscal 2026.