GAP INC

Note 1. Accounting Policies

Basis of Presentation

In the opinion of The Gap, Inc. (Gap Inc., the “Company,” “we,” and “our”) management, the accompanying unaudited Condensed Consolidated Financial Statements contain all normal and recurring adjustments (except as otherwise disclosed) considered necessary to present fairly our financial position, results of operations, comprehensive income, stockholders' equity, and cash flows as of August 1, 2026 and August 2, 2025 and for all periods presented. The Condensed Consolidated Balance Sheet as of January 31, 2026 has been derived from our audited financial statements.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted from these interim financial statements, although the Company believes that the disclosures made are adequate to make the information not misleading. Certain prior period amounts have been reclassified to conform to the current period presentation. We suggest that you read these Condensed Consolidated Financial Statements in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2026.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Our most significant accounting judgments include, but are not limited to, estimates and assumptions used for inventory valuation, income taxes and valuation allowances, sales return and bad debt allowances, deferred revenue, the impairment of long-lived assets, and recoverability of previously paid tariff costs.

Changes in Laws and Regulations

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, 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.

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 eligible IEEPA tariff refund claims of approximately $512 million and recognized a corresponding reduction to cost of goods sold and occupancy expenses on the Condensed Consolidated Statements of Operations for the 13 and 26 weeks ended August 1, 2026. This was partially offset by our commitment of appreciation for certain vendors of approximately $95 million, which was recorded within current liabilities on the Condensed Consolidated Balance Sheets. As of August 1, 2026, we received tariff refunds of approximately $95 million with the remaining $417 million recorded within other current assets on the Condensed Consolidated Balance Sheets. Additionally, we received approximately $5 million of related interest on the refund amounts.

As there continues to be ongoing legal and regulatory developments to trade policy and tariffs, we will continue to consider the impact of these developments on the assumptions and estimates used when preparing our quarterly financial statements.

Interchange Fee Settlement

In February 2026, the Company entered into settlement agreements to resolve credit card interchange fee litigation matters in which we were a plaintiff. During the first quarter of fiscal 2026, we received settlement proceeds related to these agreements, and as a result, we recorded a gain of $313 million, net of legal fees, during the 26 weeks ended August 1, 2026, which was recognized within operating expenses on the Condensed Consolidated Statements of Operations.

Restricted Cash

As of August 1, 2026, January 31, 2026, and August 2, 2025, restricted cash primarily included consideration that serves as collateral for our insurance obligations and certain other obligations occurring in the normal course of business. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets to the total shown on the Condensed Consolidated Statements of Cash Flows:

Accounting Pronouncements

Except as noted below, the Company has considered all recent accounting pronouncements and concluded that there are no recent accounting pronouncements that may have a material impact on the Condensed Consolidated Financial Statements and disclosures, based on current information.

ASU No. 2024-03, Disaggregation of Income Statement Expenses

In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses. The ASU is intended to improve financial reporting by requiring disaggregated disclosure of certain costs and expenses. The ASU is effective for fiscal years beginning after December 15, 2026 and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The ASU may be applied on either a prospective or retrospective basis. We are currently assessing the impact that this ASU will have on the Company's disclosures.

ASU No. 2025-06, Targeted Improvements to the Accounting for Internal-Use Software

In September 2025, the FASB issued ASU No. 2025-06, Targeted Improvements to the Accounting for Internal-Use Software. The ASU is intended to clarify and modernize the accounting for costs related to internal-use software. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2027, with early adoption permitted. The ASU may be applied using a prospective, retrospective, or modified transition approach. We are currently assessing the impact this ASU may have on the Company's Consolidated Financial Statements and related disclosures.

ASU No. 2025-09, Hedge Accounting Improvements

In November 2025, the FASB issued ASU No. 2025-09, Hedge Accounting Improvements. The ASU is intended to more closely align hedge accounting with the economics of risk management activities. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2026, with early adoption permitted. The ASU should be applied on a prospective basis. We are currently assessing the impact that this ASU will have on the Company's Consolidated Financial Statements and related disclosures.

Note 2. Revenue

We disaggregate our net sales by channel and also by brand and region. Net sales by region are allocated based on the location of the store where the customer paid for and received the merchandise; the distribution center or store from which the products were shipped; or the region of the franchise or licensing partner.

Net sales disaggregated by channel are as follows:

(1)Online sales primarily include sales originating from our online channel including those that are picked up or shipped from stores and net sales from revenue-generating strategic initiatives.

Net sales disaggregated by brand and region are as follows:

(1)U.S. includes the United States and Puerto Rico.

(2)Primarily consists of net sales from revenue-generating strategic initiatives.

We defer revenue when cash payments are received in advance of performance for unsatisfied obligations related to our gift cards, licensing agreements, outstanding loyalty points, and reimbursements of loyalty program rewards associated with our credit card agreement. For the 13 weeks ended August 1, 2026, the opening balance of deferred revenue for these obligations was $259 million, of which $78 million was recognized as revenue during the period. For the 26 weeks ended August 1, 2026, the opening balance of deferred revenue for these obligations was $272 million, of which $126 million was recognized as revenue during the period. The closing balance of deferred revenue for these obligations was $256 million as of August 1, 2026.

For the 13 weeks ended August 2, 2025, the opening balance of deferred revenue for these obligations was $249 million, of which $84 million was recognized as revenue during the period. For the 26 weeks ended August 2, 2025, the opening balance of deferred revenue for these obligations was $273 million, of which $137 million was recognized as revenue during the period. The closing balance of deferred revenue for these obligations was $248 million as of August 2, 2025.

As part of our credit card program agreements with Barclays and Mastercard, we received an upfront payment of $60 million prior to the program launch in May 2022, which is being recognized as revenue over the term of the agreements. We also receive revenue sharing from our credit card agreement for private label and co-branded credit cards.

Note 3. Debt and Credit Facilities

Long-term debt recorded on the Condensed Consolidated Balance Sheets consists of the following:

The scheduled maturity of the Senior Notes is as follows:

(1)On or after October 1, 2024, includes an option to redeem the 2029 Notes, in whole or in part at any time, at stated redemption prices.

(2)Includes an option to redeem the 2031 Notes, in whole or in part at any time, subject to a make-whole premium, prior to October 1, 2026. On or after October 1, 2026, includes an option to redeem the 2031 Notes, in whole or in part at any time, at stated redemption prices.

We have $1.5 billion aggregate principal amount of 3.625 percent senior notes due 2029 (“2029 Notes”) and 3.875 percent senior notes due 2031 (“2031 Notes”) (the 2029 Notes and the 2031 Notes, collectively, the “Senior Notes”). As of August 1, 2026, the aggregate estimated fair value of the Senior Notes was $1.39 billion and was based on the quoted market prices for each of the Senior Notes (level 1 inputs) as of the last business day of the fiscal quarter. The aggregate principal amount of the Senior Notes is recorded in long-term debt on the Condensed Consolidated Balance Sheets, net of the unamortized debt issuance costs.

We also have a senior secured asset-based revolving credit agreement (the "ABL Facility"), which was previously scheduled to expire in July 2027. On July 17, 2026, we entered into an amendment and restatement of the ABL Facility. Among other changes, the amendment and restatement extended the maturity date of the ABL Facility to July 2031. The ABL Facility continues to have a borrowing capacity of $2.2 billion and generally bears interest at a per annum rate based on Secured Overnight Financing Rate ("SOFR") (subject to a zero floor) plus a margin, depending on borrowing base availability. The ABL Facility is available for working capital, capital expenditures, and other general corporate purposes.

There wereno borrowings under the ABL Facility as of August 1, 2026, January 31, 2026, or August 2, 2025.

We also have the ability to issue letters of credit on our ABL Facility. As of August 1, 2026, we had $50 million in standby letters of credit issued under the ABL Facility.

Note 4. Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value on a recurring basis. The Company categorizes financial assets and liabilities recorded at fair value based upon a three-level hierarchy that considers the related valuation techniques.

There wereno material purchases, sales, issuances, or settlements related to recurring level 3 measurements for the 13 and 26 weeks ended August 1, 2026 or August 2, 2025.

Financial assets and liabilities measured at fair value on a recurring basis and cash equivalents are as follows:

We have highly liquid fixed and variable income investments classified as cash equivalents and short-term investments. All highly liquid investments with original maturities of three months or less at the time of purchase are classified as cash and cash equivalents on the Condensed Consolidated Balance Sheets. Our cash equivalents are comprised of money market funds and time deposits recorded at amortized cost, which approximates fair value, as well as debt securities recorded at fair value using market prices for identical or similar assets. We also have highly liquid investments with original maturities of greater than three months and less than two years that are classified as short-term investments on the Condensed Consolidated Balance Sheets. These debt securities are also recorded at fair value using market prices for identical or similar assets.

There wereno material realized or unrealized gains or losses or impairment charges related to short-term investments during the 13 and 26 weeks ended August 1, 2026 or August 2, 2025.

Derivative financial instruments primarily include foreign exchange forward contracts. See Note 5 of Notes to Condensed Consolidated Financial Statements for information regarding currencies hedged against the U.S. dollar.

We maintain the Gap Inc. Deferred Compensation Plan (“DCP”), which allows eligible employees to defer base compensation and annual bonus up to a maximum percentage, and non-employee directors to defer receipt of a portion of their Board fees. Plan investments are directed by participants and are recorded at market value and designated for the DCP. The fair value of the Company’s DCP assets is determined based on quoted market prices, and the assets are recorded in other long-term assets on the Condensed Consolidated Balance Sheets.

Nonfinancial Assets

We review the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The fair value of the long-lived assets is determined using level 3 inputs and based on discounted future cash flows of the asset or asset group using a discount rate commensurate with the risk. The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for our retail stores is at the store level.

There wereno material impairment charges recorded for long-lived assets during the 13 and 26 weeks ended August 1, 2026 or August 2, 2025.

We review the carrying amount of goodwill and other indefinite-lived intangible assets for impairment annually and whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount may not be recoverable.

There wereno impairment charges recorded for goodwill or other indefinite-lived intangible assets during the 13 and 26 weeks ended August 1, 2026 or August 2, 2025.

Note 5. Derivative Financial Instruments

We operate in foreign countries, which exposes us to market risk associated with foreign currency exchange rate fluctuations. We use derivative financial instruments to manage our exposure to foreign currency exchange rate risk and do not enter into derivative financial contracts for trading purposes. Consistent with our risk management guidelines, we hedge a portion of our transactions related to merchandise purchases for foreign operations and certain intercompany transactions using foreign exchange forward contracts. These contracts are entered into with large, reputable financial institutions that are monitored for counterparty risk. The currencies hedged against changes in the U.S. dollar are the Canadian dollar, Japanese yen, British pound, Euro, and New Taiwan dollar. Cash flows from derivative financial instruments are classified as cash flows from operating activities on the Condensed Consolidated Statements of Cash Flows.

Derivative financial instruments are recorded at fair value on the Condensed Consolidated Balance Sheets as other current assets, other long-term assets, accrued expenses and other current liabilities, or other long-term liabilities.

Cash Flow Hedges

We designate foreign exchange forward contracts used to hedge forecasted merchandise purchases and related costs denominated in U.S. dollars made by our international subsidiaries whose functional currencies are their local currencies as cash flow hedges. The foreign exchange forward contracts entered into to hedge forecasted merchandise purchases and related costs generally have terms of up to 24 months. The effective portion of the gain or loss on the derivative financial instruments is reported as a component of other comprehensive income (loss) and is recognized into net income during the period in which the underlying transaction impacts the Condensed Consolidated Statements of Operations.

Other Derivatives Not Designated as Hedging Instruments

We use foreign exchange forward contracts to hedge our market risk exposure associated with foreign currency exchange rate fluctuations for certain intercompany balances denominated in currencies other than the functional currency of the entity with the intercompany balance. The gain or loss on the derivative financial instruments that represent economic hedges, as well as the remeasurement impact of the underlying intercompany balances, is recorded in operating expenses on the Condensed Consolidated Statements of Operations in the same period and generally offset each other.

Outstanding Notional Amounts

We had foreign exchange forward contracts outstanding in the following notional amounts:

Quantitative Disclosures about Derivative Financial Instruments

The fair values of foreign exchange forward contracts are as follows:

The majority of the unrealized gains and losses from designated cash flow hedges as of August 1, 2026 will be recognized in income within the next 12 months at the then-current values, which may differ from the fair values as of August 1, 2026 shown above.

Our foreign exchange forward contracts are subject to master netting arrangements with each of our counterparties and such arrangements are enforceable in the event of default or early termination of the contract. We do not elect to offset the fair values of our derivative financial instruments on the Condensed Consolidated Balance Sheets, and as such, the fair values shown above represent gross amounts. The amounts subject to enforceable master netting arrangements werenot material for all periods presented.

See Note 4 of Notes to Condensed Consolidated Financial Statements for disclosures on the fair value measurements of our derivative financial instruments.

The pre-tax amounts recognized in net income related to derivative instruments are as follows:

Note 6. Share Repurchases

Share repurchase activity is as follows:

(1)Excludes shares withheld to settle employee tax withholding payments related to the vesting of stock units.

In February 2026, the Company's Board of Directors (the "Board") approved a new $1.0 billion share repurchase authorization (the "February 2026 repurchase program"). The February 2026 repurchase program had $399 million remaining as of August 1, 2026.

On March 10, 2026, the Company entered into an accelerated share repurchase agreement (the “ASR Agreement”) to repurchase an aggregate of $200 million of the Company's common stock. On March 11, 2026, the Company paid $200 million and received an initial delivery of approximately 6.9 million shares of the Company’s common stock. The ASR Agreement was fully settled on May 5, 2026, and the Company received an additional 1.4 million shares of its common stock. The total number of shares received under the ASR Agreement was approximately 8.3 million shares at an average price of $24.23.

Share repurchases in excess of issuances are subject to a 1% excise tax enacted by the Inflation Reduction Act of 2022. All common stock repurchased is immediately retired.

Note 7. Earnings Per Share

Weighted-average number of shares used for earnings per share is as follows:

The anti-dilutive shares related to stock options and stock units excluded from computations of weighted-average number of shares – diluted were 2 million for all periods presented, as their inclusion would have an anti-dilutive effect on earnings per share.

Note 8. Income Taxes

The effective income tax rate was 26.3 percent for the 13 weeks ended August 1, 2026, compared with 27.0 percent for the 13 weeks ended August 2, 2025. The decrease in the effective tax rate 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.

The effective income tax rate was 25.7 percent for the 26 weeks ended August 1, 2026, compared with 26.8 percent for the 26 weeks ended August 2, 2025. The decrease in the effective tax rate 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.

Note 9. Commitments and Contingencies

We are a party to a variety of contractual agreements under which we may be obligated to indemnify the other party for certain matters. These contracts primarily relate to our commercial contracts, operating leases, trademarks, intellectual property, financial agreements and guarantees, and various other agreements. Under these contracts, we may provide certain routine indemnifications relating to representations and warranties (e.g., ownership of assets, environmental or tax indemnifications), or personal injury matters. The terms of these indemnifications range in duration and may not be explicitly defined. Generally, the maximum obligation under such indemnifications is not explicitly stated, and as a result, the overall amount of these obligations cannot be reasonably estimated. Historically, we have not made significant payments for these indemnifications. We believe that if we were to incur a loss in any of these matters, the loss would not have a material effect on the Condensed Consolidated Financial Statements taken as a whole.

As a multinational company, we are subject to various proceedings, lawsuits, disputes, and claims ("Actions") arising in the ordinary course of our business. Many of these Actions raise complex factual, tax, and legal issues and are subject to uncertainties. As of August 1, 2026, Actions filed against us included commercial, intellectual property, customer, employment, securities, and data privacy claims, including class action lawsuits. The plaintiffs in some Actions seek unspecified damages or injunctive relief, or both. Actions are in various procedural stages and some are covered in part by insurance. As of August 1, 2026, January 31, 2026, and August 2, 2025, we recorded a liability for an estimated loss if the outcome of an Action is expected to result in a loss that is considered probable and reasonably estimable. The liability recorded wasnot material for any individual Action or in total for all periods presented. Subsequent to August 1, 2026, and through the filing date of this Quarterly Report on Form 10-Q, no information has become available that indicates a change is required that would be material to the Condensed Consolidated Financial Statements taken as a whole.

We cannot predict with assurance the outcome of Actions brought against us. However, we do not believe that the outcome of any current Action would have a material effect on the Condensed Consolidated Financial Statements taken as a whole.

Note 10. Segment Information

We identify our operating segments according to how our business activities are managed and evaluated. As of August 1, 2026, our operating segments included: Old Navy Global, Gap Global, Banana Republic Global, and Athleta Global. Each of our brands serves customer demand through our store and franchise channel and our online channel, leveraging our omni-channel capabilities that allow customers to shop seamlessly across all of our brands. Additionally, our products, suppliers, customers, methods of distribution, and regulatory environment are similar across our brands. We have determined that each of our operating segments share similar qualitative and economic characteristics, and therefore the results of our operating segments are aggregated intoone reportable segment as of August 1, 2026. We continually monitor and review our segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact our reportable segments.

Gap Inc.’s chief operating decision maker ("CODM") is our President and Chief Executive Officer. The CODM reviews measures of segment profit or loss by comparing budgeted versus actual and forecasted results for purposes of assessing performance, allocating resources, and making decisions. The measure of segment assets is reported on the Condensed Consolidated Balance Sheets in total.

The following table presents information for segment profit and significant expenses:

(1)For the 13 and 26 weeks ended August 1, 2026, cost of goods sold includes approximately $417 million of net IEEPA tariff recoveries, consisting of approximately $512 million of tariff refunds, partially offset by a commitment of appreciation of approximately $95 million for certain vendors.

(2)Occupancy expenses include lease and other occupancy related cost, depreciation, and amortization related to our store operations, distribution centers, information technology, and certain corporate functions.

(3)Operating expenses primarily include payroll and benefits expenses, advertising expenses, information technology expenses and maintenance costs, and other administrative expenses. For the 26 weeks ended August 1, 2026, operating expenses include 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.

See Note 2 of Notes to Condensed Consolidated Financial Statements for disaggregation of revenue by channel and by brand and region.

Note 11. Supply Chain Finance Program

Our voluntary supply chain finance ("SCF") program provides certain suppliers with the opportunity to sell their receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. We are not a party to the agreements between our suppliers and the financial institutions and our payment terms are not impacted by whether a supplier participates in the SCF program.

The Company's outstanding obligations under the SCF program were $421 million, $390 million, and $392 million as of August 1, 2026, January 31, 2026, and August 2, 2025, respectively, and were included in accounts payable on the Condensed Consolidated Balance Sheets.