GAP INC
For the period ended Aug 1, 2026. Filed Aug 28, 2026.
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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.
Aug 1, 2026 · Filed Aug 28, 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 2026-05-02; filed 2026-05-29.
0001628280-26-039070
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-08-01; filed 2026-08-28.
0001628280-26-059345
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 82 previous paragraphs and 87 current paragraphs.
51 unchanged; 23 reworded; 11 added; 7 removed; 1 previous and 2 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 (11)
Current report
In April 2026, the U.S. Customs and Border Protection launched a platform for importers of record to submit claims for IEEPA tariff refunds that were previously collected. During the second quarter of fiscal 2026, we submitted claims for previously paid eligible tariffs and have received tariff refunds of approximately $95 million with the remaining $417 million recorded within other current assets on the Condensed Consolidated Balance Sheets. In addition, we received approximately $5 million of related interest. We are monitoring developments related to the refund process and assessing the timing and extent of additional recoveries.
Current report
Given the continued uncertainty surrounding global trade policy and broader macroeconomic conditions, we will continue to evaluate potential impacts on our business.
Current report
Our net sales decreased $40 million, or 1 percent, during the first half of fiscal 2026 compared with the first half of fiscal 2025. While Comp Sales were flat, the decline was primarily due to incremental income in the first half of fiscal 2025 related to the revenue sharing arrangement from our credit card agreement.
Current report
Cost of goods sold and occupancy expenses decreased 11.6 percentage points as a percentage of net sales in the second quarter of fiscal 2026 compared with the second quarter of fiscal 2025.
Current report
•Cost of goods sold decreased 12.2 percentage points as a percentage of net sales in the second quarter of fiscal 2026 compared with the second quarter of fiscal 2025, primarily driven by 11.4 percentage points, or approximately $417 million, of net IEEPA tariff recoveries. Additionally, there was a benefit from less promotional activity at Gap Global, partially offset by higher promotional activity at Old Navy Global primarily related to seasonal products. The net IEEPA tariff recovery reflects tariff refunds of approximately $512 million, partially offset by a commitment of appreciation of approximately $95 million for certain vendors.
Current report
Cost of goods sold and occupancy expenses decreased 5.3 percentage points as a percentage of net sales in the first half of fiscal 2026 compared with the first half of fiscal 2025.
Current report
•Cost of goods sold decreased 5.7 percentage points as a percentage of net sales in the first half of fiscal 2026 compared with the first half of fiscal 2025, primarily driven by 5.8 percentage points, or approximately $417 million, of net IEEPA tariff recoveries. The net IEEPA tariff recovery reflects tariff refunds of approximately $512 million, partially offset by a commitment of appreciation of approximately $95 million for certain vendors.
Current report
Operating expenses increased $9 million, or 0.9 percentage points as a percentage of net sales during the second quarter of fiscal 2026 compared with the second quarter of fiscal 2025, primarily driven by costs related to strategic investments.
Current report
•costs related to strategic investments.
Current report
•an increase of $117 million related to merchandise inventory primarily due to timing of receipts and higher inventory cost during the first half of fiscal 2025; partially offset by
Current report
•a decrease of $445 million related to other current assets and other long-term assets primarily due to a tariff refund receivable included in other current assets on the Condensed Consolidated Balance Sheets.
Removed paragraphs (7)
Previous report
With continued uncertainty expected, we will continue to monitor the impact of macroeconomic conditions on consumer behavior and demand.
Previous 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.
Previous report
•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 report
•an increase in strategic investments.
Previous 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
Previous report
•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 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.
Reworded paragraphs (23)
Previous 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.
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, and the Middle East. 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 first quarter of fiscal 2026 are as follows:
Current wording
Financial results for the second quarter of fiscal 2026 are as follows:
Previous wording
•Net sales for the first quarter of fiscal 2026 increased 1 percent compared with the first quarter of fiscal 2025.
Current wording
•Net sales for the second quarter of fiscal 2026 decreased 2 percent compared with the second quarter of fiscal 2025.
Previous 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.
Current wording
•Gross profit for the second quarter of fiscal 2026 was $1.93 billion compared with $1.54 billion for the second quarter of fiscal 2025. Gross margin for the second quarter of fiscal 2026 was 52.8 percent compared with 41.2 percent for the second quarter of fiscal 2025. The second quarter of fiscal 2026 includes approximately $417 million of net IEEPA tariff recoveries.
Previous wording
•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 wording
•Operating income for the second quarter of fiscal 2026 was $676 million compared with $292 million for the second quarter of fiscal 2025.
Previous 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.
Current wording
•The effective income tax rate for the second quarter of fiscal 2026 was 26.3 percent compared with 27.0 percent for the second quarter of fiscal 2025.
Previous wording
•Net income for the first quarter of fiscal 2026 was $339 million compared with $193 million for the first quarter of fiscal 2025.
Current wording
•Net income for the second quarter of fiscal 2026 was $501 million compared with $216 million for the second quarter of fiscal 2025.
Previous 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.
Current wording
•Diluted earnings per share was $1.38 for the second quarter of fiscal 2026 compared with $0.57 for the second quarter of fiscal 2025.
Previous wording
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 wording
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 IEEPA, and subsequently, tariffs were imposed on a temporary basis pursuant to alternative statutory authority. These tariffs expired in July 2026 and were subsequently replaced by new tariffs under Section 301 of the Trade Act of 1974.
Previous 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.
Current wording
Our net sales decreased $74 million, or 2 percent, during the second quarter of fiscal 2026 compared with the second quarter of fiscal 2025, primarily driven by a decrease in net sales at Old Navy Global and Athleta Global, partially offset by an increase in net sales at Gap Global.
Previous 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.
Current wording
•Occupancy expenses increased 0.6 percentage points as a percentage of net sales in the second quarter of fiscal 2026 compared with the second quarter of fiscal 2025, primarily driven by incremental cost related to our store population.
Previous wording
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 wording
Uncertainty surrounding changes in U.S. trade policy and tariff rates since fiscal 2025 is contributing to overall macroeconomic volatility. The Company continues to evaluate the impact of U.S. trade policy and tariff rates on our cost of goods sold. Ongoing developments, including changes to tariff rates and refund processing, may continue to impact our gross margins in future quarters and may also impact comparability across periods. As a result of these ongoing dynamics, our gross margins for the second quarter of fiscal 2026 and first half of fiscal 2026 may not be indicative of our gross margins throughout the remainder of fiscal 2026.
Previous 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:
Current wording
Operating expenses decreased $207 million, or 2.7 percentage points as a percentage of net sales during the first half of fiscal 2026 compared with the first half of fiscal 2025, primarily due to the following:
Previous wording
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 wording
Interest income primarily includes interest earned on our cash, cash equivalents, and short-term investments, as well as tax-related interest income and interest received on IEEPA tariff recoveries. Interest income increased slightly during the second quarter of fiscal 2026 compared with the second quarter of fiscal 2025 and during the first half of fiscal 2026 compared with the first half of fiscal 2025, primarily due to interest received on IEEPA tariff recoveries, partially offset by lower interest rates.
Previous 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.
Current wording
The decrease in the effective tax rate for the first half of fiscal 2026 compared with the first half 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 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.
Current wording
Our primary sources of liquidity include cash and cash equivalents, short-term investments, and our ABL Facility. As of August 1, 2026, we had cash and cash equivalents of $2.10 billion and short-term investments of $382 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 August 1, 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
Our largest source of operating cash flows is cash collections from the sale of our merchandise. Our primary uses of cash include merchandise inventory purchases, lease and occupancy costs, personnel-related expenses, purchases of property and equipment, shipping costs, and payment of taxes. In addition, we may have dividend payments and share repurchases. The seasonality of our operations, in addition to the impact of macroeconomic factors, may lead to significant fluctuations in certain asset and liability accounts as well as cash inflows and outflows between fiscal year-end and subsequent interim periods. These macroeconomic factors include 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.
Current wording
Our largest source of operating cash flows is cash collections from the sale of our merchandise. Our primary uses of cash include merchandise inventory purchases, lease and occupancy costs, personnel-related expenses, purchases of property and equipment, shipping costs, and payment of taxes. In addition, we may have dividend payments and share repurchases. The seasonality of our operations, in addition to the impact of macroeconomic factors, may lead to significant fluctuations in certain asset and liability accounts as well as cash inflows and outflows between fiscal year-end and subsequent interim periods. These macroeconomic factors include uncertainty surrounding global geopolitical instability, inflationary pressures, foreign currency fluctuations, and changes in interest rates, duties, tariffs and related recoveries, tax laws, and other restrictions as a result of government fiscal, monetary, trade, and tax policies.
Previous 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:
Current wording
Net cash provided by operating activities increased $242 million during the first half of fiscal 2026 compared with the first half of fiscal 2025, primarily due to the following:
Previous wording
•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 wording
•an increase in net income of $431 million;
Previous 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:
Current wording
Net cash used for investing activities increased $121 million during the first half of fiscal 2026 compared with the first half of fiscal 2025, primarily due to $108 million more purchases of property and equipment during the first half of fiscal 2026 compared with the first half of fiscal 2025.
Previous 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.
Current wording
Net cash used for financing activities increased $485 million during the first half of fiscal 2026 compared with the first half of fiscal 2025, primarily due to $449 million more repurchases of common stock during the first half of fiscal 2026 compared with the first half of fiscal 2025.
Previous wording
(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.
Current wording
(1)For the 26 weeks ended August 1, 2026, net cash provided by operating activities includes the impact of a pre-tax gain of $313 million related to a credit card interchange fee litigation settlement, net of legal fees, and a $50 million pre-tax charitable contribution made concurrently during the first quarter of fiscal 2026.
Previous 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.
Current wording
We paid a dividend of $0.175 per share during the second quarter of fiscal 2026. In August 2026, the Board authorized a dividend of $0.175 per share for the third quarter of fiscal 2026.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
•Occupancy expenses increased 0.4 percentage points as a percentage of net sales in the first half of fiscal 2026 compared with the first half of fiscal 2025, primarily driven by incremental cost related to our store population.
Current report — wording carried from elsewhere
The decrease in the effective tax rate for the second quarter of fiscal 2026 compared with the second quarter of fiscal 2025 is primarily due to the recognition of certain tax benefits associated with foreign entity structure changes in the prior quarter, as well as changes in the amount and mix of jurisdictional earnings.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
•$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