GAP INC

Tariff Update

In the second quarter, the Company recorded a $417 million adjustment to cost of goods sold related to the net IEEPA tariff recovery. The Company received refunds of $95 million and related interest income of $5 million in the second quarter of 2026, with the remaining refunds and related interest income expected in the third quarter. The Company's adjusted outlook excludes the impact of the refunds.

Following the Section 301 announcement in July, the Company updated its tariff rate assumptions to incorporate a roughly 10% incremental rate from July 24, 2026 through the end of August reflecting the rates currently in place. The prior outlook assumed an incremental high-teens rate beginning July 24, 2026. This update is expected to provide approximately $15 million of net tariff relief to full-year gross profit and operating income, or approximately 10 basis points of benefit to full-year gross margin and operating margin. The benefit is expected to be concentrated in the fourth quarter based on the timing of receipts and is reflected in the Company's current outlook.