GAP 10-K & 10-Q changes, risk factors and insider trading
Gap Inc. · NYSE · Retail-Family Clothing Stores · CIK 39911 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Our business is impacted by global economic conditions and the related impact on consumer spending.”
New heading “Trade matters, including the imposition of tariffs by the United States, have had, and could continue to have, an adverse effect on our business.”
New heading “Our business could be adversely affected by natural disasters, public health crises, political crises, negative global climate patterns, or other catastrophic events.”
New heading “Our efforts to integrate AI into our business operations may not be successful and could result in liability.”
New heading “Legal, Regulatory, and Compliance Risks”
New heading “Our vendors’ failure to adhere to our Code of Vendor Conduct could harm our business.”
Removed heading “Global economic conditions have and could continue to adversely affect our business, financial condition, and results of operations.”
Removed heading “Trade matters may disrupt our supply chain.”
Removed heading “Risks associated with importing merchandise from foreign countries, including failure of our vendors to adhere to our Code of Vendor Conduct, could harm our business.”
Removed heading “We may not be able to generate sufficient cash to service all of our indebtedness and fund our working capital and capital expenditures, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.”
Removed heading “Covenants in the ABL Facility may restrict our business and could limit our ability to implement our business plan.”
Removed heading “Our business and results of operations could be adversely affected by natural disasters, public health crises, political crises, negative global climate patterns, or other catastrophic events.”
Largest changes
Becausesee in full comparisonindependent vendors manufacturealmost all of our products are manufactured outside of our principal sales markets, third parties must transport our products over large geographic distances.IncreasesWe may experience increases in transportation costs or delays in the shipment or delivery of our products due to the availability of transportation, work stoppages, port strikes, port and infrastructure congestion, pandemics and public health crises, social unrest, changes in local economic conditions, geopolitical instability, extreme weather conditions orothernaturalfactors, and costs and delays associated withdisasters, transitioning between vendors,couldoradverselyotheraffectunforeseenour results of operations. For example, global trade flows were recently impacted by attacks on cargo ships in the Red Sea, and port strikes in the United States.events. Operating or manufacturing delays, transportation delays, or unexpected demand for our products may require us to use faster, but more expensive, transportation methods such as air freight, whichhavecouldin the past and may in the future adversely affectimpact our gross margins.In addition, theThe cost of fuel is a significant component of transportation costs, so increases in the price of petroleum products(including due to inflationary pressures, geopoliticalinstability,instability (including ongoing conflicts between Russia and Ukraine as well as the United States, Israel, and Iran), or regulation of energy inputs and greenhouse gas emissions)couldadverselyalsoaffectimpact our gross margins.
“Our operations are subject to complex trade and customs laws, regulations, and tax requirements. The countries in which our products are manufactured or imported, or may be manufactured or imported in the future, may from time to time impose duties, tariffs, or other restrictions on our imports or adversely change existing restrictions. …”see in full comparison
“If we cannot make scheduled payments on our indebtedness, we will be in default and, as a result, our lenders could declare all outstanding principal and interest to be due and payable, could terminate their commitments to loan money to us, and could foreclose against any assets securing our indebtedness under the ABL Facility, and we could be forced into bankruptcy or liquidation.”see in full comparison
“Our ABL Facility also includes restrictive covenants that may impact our ability to grant or incur liens, sell or otherwise dispose of assets, including capital stock of subsidiaries, make investments in certain subsidiaries, pay dividends, make distributions, redeem or repurchase capital stock, or consolidate or merge with or into, or sell substantially all of our assets to, another entity. …”see in full comparison
“We generated net cash from operating activities of $1.3 billion in fiscal 2025 and ended fiscal 2025 with $3.0 billion of cash, cash equivalents, and short-term investments on our balance sheet. Our ability to make required payments on our indebtedness depends upon our future operating performance and cash flow generation, which are subject to general economic, financial, business, competitive, legislative, regulatory, and other factors that are beyond our control. …”see in full comparison
“Compliance with these and the other covenants in the ABL Facility may restrict our ability to implement our business plan, finance future operations, respond to changing business and economic conditions, secure additional financing, and engage in strategic transactions. We cannot assure you that we will be able to comply with our financial or other covenants under the ABL Facility or that any covenant violations would be waived in the future. …”see in full comparison
Full comparison: every changed paragraph (115)
Our business is impacted by global economic conditions and the related impact on consumer spending.
Global economic conditions have and could continue to adversely affect our business, financial condition, and results of operations.
Our business is affected by global economic conditions and the related impact on consumer spending worldwide. Global economic conditions have impactedimpacted, and could continue to impactimpact, our business. Some of the factors that may influence consumer spending patterns include higher unemployment levels; pandemics and other health crises; extreme weather conditions and natural disasters; higher consumer debt levels; inflationary pressures; recession or fear of recession; global geopolitical instability (including inongoing Europeconflicts between Russia and Ukraine as well as the MiddleUnited EastStates, Israel, and Iran); reductions in net worth based on market declines and uncertainty; home foreclosures and reductions in home values; fluctuating interest and foreign currency exchange rates and credit availability; government austerity measures; changes and uncertainties related to government fiscal, monetary, trade, and tax policies including changes in interest rates, tax rates, duties, tariffs, tax laws, and other restrictions; fluctuating fuel and other energy costs; fluctuating commodity prices; pandemics and other health crises; and reduced consumer confidence and general uncertainty regarding the overall future economic environment. Historically, consumer purchases of discretionary items, including our merchandise, generally decline during recessionary periods when disposable income is lower or during other periods of economic instability or uncertainty.
Deteriorating economic conditions or geopolitical instability in any of the regions in which we andor our franchisees sell our products could reduce consumer confidence and negatively impact consumer spending,spending and thereby could adversely affect our sales and results of operations.business. In challenging and uncertain economic environments, we cannot predict whether or when such circumstances may improve or worsen, or what impact, if any, such circumstances could have on our business, financial condition, and results of operations, or on the price of our common stock.
Trade matters, including the imposition of tariffs by the United States, have had, and could continue to have, an adverse effect on our business.
Our operations are subject to complex trade and customs laws, regulations, and tax requirements. The countries in which our products are manufactured or imported, or may be manufactured or imported in the future, may from time to time impose duties, tariffs, or other restrictions on our imports or adversely change existing restrictions.
For example, during fiscal 2025, the United States enacted significant changes to its trade policy and imposed substantial tariffs on imported goods from most countries, which increased cost of goods sold during fiscal 2025. In February 2026, the U.S. Supreme Court invalidated tariffs imposed under the International Emergency Economic Powers Act ("IEEPA"). Subsequently, new tariffs were imposed on a temporary basis pursuant to alternative statutory authority.
There is currently significant uncertainty about the future relationship between the United States and many other countries with respect to tariffs and trade policies, as well as the ability to recover any tariff refunds that may be owed. The situation regarding U.S. tariffs and trade policies has been fluid and continues to change. The risk of future changes may be particularly acute should trade tensions between the United States and other countries worsen, which could result in, among other things, increased tariffs and other trade restrictions, increased product costs, disruptions in the availability of goods, or a breakdown of international supply chains.
We continue to evaluate the impact of current and potential tariffs on our supply chain, costs, sales, and profitability, as well as our strategies to mitigate negative impacts. We can provide no assurance that any strategies we implement to mitigate the impact of such tariffs or other trade actions will be successful in whole or in part. To the extent that our supply chain, costs, sales, or profitability are negatively impacted by these tariffs or other trade actions, or if there is an escalation of tariffs or other trade restrictions, our business, financial condition, and results of operations could be adversely affected.
Our sourcing operations could also be adversely affected by geopolitical and financial instability in our sourcing countries, as well as U.S. or foreign labor strikes, work stoppages, or boycotts, resulting in the disruption of trade from our sourcing countries, significant fluctuations in the value of the U.S. dollar against foreign currencies, restrictions on the transfer of funds, or other trade disruptions. Disruptions to our sourcing operations in our sourcing countries could increase the cost or reduce the supply of apparel available to us and adversely affect our business, financial condition, and results of operations.
•adapting to changes in technology, including the successful utilization of data science and artificial intelligenceAI; and
If we or our franchisees are not able to respond effectively to competitive pressures, changes in retail markets, or customer expectations in the United States or internationally, our business, financial condition, and results of operations would be adversely affected.
Our success is largely dependent upon our ability to gauge and anticipate the tastes of our customers and to provide merchandise that satisfies customer demand in a timely manner. However, lead times for many of our design and purchasing decisions may make it more difficult for us to respond rapidly to new or changing apparel trends or consumer acceptance of our products. In addition, we have experienced, and could continue to experience, prolonged delays in receiving inventory due to transportation shortages, factory closures, labor shortages, port congestion, and other supply chain disruptions have in the past and may in the future lead to prolonged delays in receiving inventory.disruptions. The global apparel retail business fluctuates according to changes in consumer preferences, dictated in part by apparel trends and season. To the extent we misjudge the market for our merchandise or the products suitable for local markets, or fail to execute trends and deliver products to the market as timely as our competitors, our sales will be adversely affected,affected and thewe markdownswill requiredneed to movemark the resultingdown excess inventoryinventory. willAny of these risks could adversely affect our grossbusiness, marginsfinancial condition, and results of operations.
Our brands have wide recognition, and the success of our business depends in large part on our ability, and the ability of our franchisees and licensees, to maintain, enhance, and protect our brand image and reputation and our customers’ connection to our brands. We must also adapt to a rapidly changing media environment, including our increasing reliance on social media and online dissemination ofdigital advertising campaigns.campaigns and pursuing efforts to further personalize our marketing. Even if we, or our franchisees or licensees, react appropriately to negative posts or comments about us or our brands on social media and online, our customers’ perception of our brand image and our reputation could be negatively impacted. Customer sentiment could also be shaped by our partnerships with athletes, performers, influencers, and other celebrities, as well as our sustainability policies and related sourcing and operationsoperational decisions. Our, or our franchisees' or licensees', failure to maintain, enhance, and protect our brand image could adversely affect our businessbusiness, financial condition, and results of operations.
Customer transactions and demand for our merchandise are influenced by our marketing efforts. We use various marketing channels to drive customer awareness and consideration of and interest in shopping our brands with the aim of increasing sales, and we are increasingly using digital advertising and pursuing efforts to further personalize our marketing to drive sales and traffic to our e-commerce platform. Some of our competitors may spend more for their marketing programs than we do, or use different approaches than we do, which may provide them with a competitive advantage. In addition, we may not be able to effectively develop or implement digital advertising strategies for rapidly evolving social media and other digital channels. Partnerships with athletes, performers, influencers, and other celebrities may expose us to reputational or other risks. We have experienced fluctuations in our customers’ response to our marketing efforts. If we fail to successfully implement our marketing efforts, if our marketing efforts are not successful in driving expected increases in sales, or if our competitors’ marketing programs are more effective than ours, our sales will be adversely affected, which would adversely affect our business, financial condition, and results of operations could be adversely affected.operations.
Risks Related to Our Business and Operations
IfWe wemust are unable toeffectively manage our inventory and fulfillment operations effectively, our results of operations could be adversely affected.operations.
Fluctuations in the global apparel retail markets impact the levels of inventory maintained by apparel retailers. The nature of the global apparel retail business requires us to carry a significant amount of inventory, especially prior to the peak holiday selling season when we build up our inventory levels. Merchandise usually must be ordered well in advance of the applicable selling season and frequently before apparel trends are confirmed by customer purchases. Transportation shortages, factory closures, labor shortages, port congestion, and other supply chain disruptions have in the past and may in the future lead to prolonged delays in receiving inventory. As a result, we are vulnerable to demand and pricing shifts and to suboptimal selection and timing of merchandise purchases. We have not always predicted our customers’ preferences and acceptance levels of our trend items with accuracy. If sales do not meet expectations, too much inventory may cause excessive markdowns and, therefore, lower-than-planned margins. WeIn couldthe alsopast, bewe requiredhave to taketaken significant impairment charges on delayed or unproductive inventory, whichand we experiencedmay be required to take similar impairment charges in 2022.the future. Conversely, if we underestimate or are unable to satisfy consumer demand for our products, we may experience inventory shortages, which could result in lower than anticipated sales, delayed shipments to customers, and negative impacts on consumer relationships and brand loyalty. In addition, we have experienced, and could continue to experience, prolonged delays in receiving inventory due to transportation shortages, factory closures, labor shortages, port congestion, and other supply chain disruptions. Any of these risks could adversely affect our business, financial condition, and results of operations.
We are continuingcontinue to invest in strategic initiatives designed to optimize our inventory levels and increase the efficiency and responsiveness of our supply chain, including digital product creation, vendor fabric platforming, product testing, and in-season response to demand. We are also developing additional capabilities to analyze customer behavior and demand, which we believe will allow us to better localize assortmentassortments and improve store-level allocations to further tailor our assortments to customer needs and increase sell-through. These capabilities involve changes to our inventory management systems and processes. If we are unable to implement these initiatives and integrate these additional capabilities successfully, we may not realize the return on our investments that we anticipate, and our results of operations could be adversely affected.anticipate.
We must also maintain efficient and uninterrupted order-taking on our e-commerce platform and fulfillment operations in our distribution centers to timely and effectively deliver merchandise to our stores and e-commerce customers. In particular, our e-commerce business depends on our ability to maintain efficient and uninterrupted order-taking and fulfillment operations in our distribution centers and on our e-commerce platform. Industries that are seasonal, like ours, face a higher risk of harm from operational disruptions during peak sales seasons. Any disruption to our order-taking and fulfillment operations could adversely affect our salesbusiness, financial condition, and results of operations.
FailureWe tomust protect our inventory from loss and theft may adversely affect our results of operations.theft.
Risk of loss or theft of assets, including inventory shortage, is inherent in the retail business. Loss may be caused by error or misconduct of employees, customers, vendors, or other third parties including through organized retail crime and professional theft, which may be further impacted by macroeconomic factors, including the enforcement environment. In addition, retail theft may impact guest perceptions regarding the safety of our stores. Our inability to effectively prevent or minimize the loss or theft of assets, or to accurately predict and accrue for the impact of those losses, could adversely affect our business, financial condition, and results of operations.
Trade matters may disrupt our supply chain.
Our operations are subject to complex trade and customs laws, regulations, and tax requirements. The countries in which our products are manufactured or imported, or may be manufactured or imported in the future, may from time to time impose duties, tariffs, or other restrictions on our imports or adversely change existing restrictions. For example, the United States has imposed substantial tariffs and bans on goods imported from China (including the Uyghur Forced Labor Prevention Act) and has imposed or proposed imposing substantial tariffs on goods imported from Mexico, Canada, the European Union, and from other countries that impose tariffs on U.S. products. In fiscal 2024, less than 10 percent of our merchandise, by dollar value, was purchased from factories in China, and less than 1 percent of our merchandise, by dollar value, was purchased from factories in Mexico and Canada combined. The current political landscape, including with respect to the United States’ foreign policy priorities and relations with trading partners, has introduced greater uncertainty with respect to future tax and trade policy. We are unable to determine the impact that changes in tax and trade policy could have on our global sourcing operations, but it could be material.
Our sourcing operations could also be adversely affected by geopolitical and financial instability in our sourcing countries, as well as U.S. or foreign labor strikes, work stoppages, or boycotts, resulting in the disruption of trade from our sourcing countries, significant fluctuations in the value of the U.S. dollar against foreign currencies, restrictions on the transfer of funds, or other trade disruptions. Changes in tax and trade policy, such as the imposition of new duties or tariffs on imported products, or disruptions to our sourcing operations in our sourcing countries, could increase the cost or reduce the supply of apparel available to us and adversely affect our business and results of operations.
Independent third partiesvendors manufacture almost all of our products foroutside us.of our principal sales markets. As a result, we are directly impacted by increases in the cost of those products.products, including costs to transport those products to our principal sales markets.
A large portion of our global sourcing comes from a few specific countries. For example, in fiscal 2024,2025, approximately 27 percent and approximately 1921 percent of our merchandise, by dollar value, was purchased from factories in Vietnam and Indonesia, respectively. DelaysIn inthe past, we have experienced production delays and added costs in these countriescountries. haveAny future production delays or added costs in thethese pastcountries and may in the futurecould adversely affect our business, financial condition, and results of operations.
Because independent vendors manufacture almost all of our products are manufactured outside of our principal sales markets, third parties must transport our products over large geographic distances. IncreasesWe may experience increases in transportation costs or delays in the shipment or delivery of our products due to the availability of transportation, work stoppages, port strikes, port and infrastructure congestion, pandemics and public health crises, social unrest, changes in local economic conditions, geopolitical instability, extreme weather conditions or othernatural factors, and costs and delays associated withdisasters, transitioning between vendors, couldor adverselyother affectunforeseen our results of operations. For example, global trade flows were recently impacted by attacks on cargo ships in the Red Sea, and port strikes in the United States.events. Operating or manufacturing delays, transportation delays, or unexpected demand for our products may require us to use faster, but more expensive, transportation methods such as air freight, which havecould in the past and may in the future adversely affectimpact our gross margins. In addition, theThe cost of fuel is a significant component of transportation costs, so increases in the price of petroleum products (including due to inflationary pressures, geopolitical instability,instability (including ongoing conflicts between Russia and Ukraine as well as the United States, Israel, and Iran), or regulation of energy inputs and greenhouse gas emissions) could adverselyalso affectimpact our gross margins.
If our vendors, or any raw material suppliers on which our vendors rely, suffer prolonged manufacturing or transportation disruptions due to pandemics and public health crises, extreme weather conditions and natural disasters, geopolitical instability, or other unforeseen events,disruptions, our ability to source product could be adversely impactedimpacted, which would adversely affect our salesbusiness, financial condition, and results of operations.
Risks associated with importing merchandise from foreign countries, including failure of our vendors to adhere to our Code of Vendor Conduct, could harm our business.
We purchase merchandise from third-party vendors in many different countries, and we require those vendors to adhere to a Code of Vendor Conduct, which includes anti-corruption, environmental, labor, health, and safety standards. From time to time, our vendors and their suppliers may not be in compliance with these standards or applicable local laws. Significant or continuing noncompliance with such standards and laws by one or more of our vendors, suppliers or other third parties could subject us to liability, and could adversely affect our reputation, business, and results of operations.
OurWe failuremust toeffectively manage key executive succession and retention and to continue to attract qualified personnel could adversely affect our results of operations.personnel.
The loss of one or more of our key personnel or the inability to effectively identify a suitable successor to a key role could adversely affect our business. We made significant changes to our executive leadership team in recent years and are currently searching for a new brand president for Banana Republic. The failure to successfully transition and assimilate key employees, the effectiveness of our leaders, and any further transitions could adversely affect our business, financial condition, and results of operations.
Our business and future success also depends in part on our ability to attract and retain key personnel in our design, merchandising, sourcing, marketing, and other functions. In addition, executing strategic initiatives may require us to hire and develop employees with appropriate and specialized experience. We must also attract, develop, and retain a sufficient number of qualified field and distribution center personnel. Competition for talent is intense and the turnover rate in the retail industry is generally high. Furthermore, we have experienced a shortage of labor for field and distribution center positions, and we cannot be sure that we will be able to attract and retain a sufficient number of qualified personnel for these and other positions in futurethe periods.future. Our ability to meet our labor needs while controlling costs is subject to external factors such as unemployment levels, prevailing wage rates and competitive wage pressures, minimum wage legislation, and overtime and paid leave regulations. Failing to offer competitive wages or benefits, or to manage our workforce effectively, could adversely affect our ability to attract or retain appropriate talent sufficient to meet the needs of our business. Moreover, shifts in U.S. immigration policy could negatively impact our ability to attract, hire, and retain skilled employees who are from outside the United States.
In addition, there has been an increase in workers exercising their right to form or join a union, both generally and in the retail industry, and the U.S. National Labor Relations Board (NLRB) has issued decisions making it easier for employees to organize. Although none of our U.S. and Canadian employees are currently covered by collective bargaining agreements, we have experienced union organizing activity from time to time, and there can be no assurance that our employees will not elect to be represented by labor unions in the future. If a significant portion of our work forceworkforce were to become unionized, our culture and operating model could change and our labor costs could increase. Our responses to any union organizing efforts could also impact how our Company and brands are perceived by customers and employees.
Traditional geographic competition for talent has changed as a result of the shift to remote work. If our employment proposition is not perceived as favorable compared to other companies, including due to our requirements or expectations about when or how often certain employees work on-site or remotely, it could negatively impact our ability to attract and retain talent.
If we are unable to retain, attract, and motivate talented employees with the appropriate skill sets, we may not achieve our objectivesobjectives, and our businessbusiness, financial condition, and results of operations could be adversely affected.
Our ability to effectively obtain real estate to open new stores, distribution centers, and corporate offices nationally and internationally depends on the availability of real estate that meets our criteria for traffic, square footage, co-tenancies, lease economics, demographics, and other factors. We also must be able to effectively renew our existing store leases. In addition, we may seek to downsize, consolidate, reposition, relocate, or close some of our real estate locations, which in most cases requires a modification or termination of an existing store lease. For example, we recently completed our initiative to rationalize the Gap and Banana Republic store fleet by closing, net of openings, 344 Gap and Banana Republic stores in North America from the beginning of fiscal 2020 to the end of fiscal 2023. Failure to secure adequate new locations, successfully modify or exit existing locations, or effectively manage the profitability of our existing fleet of stores, could adversely affect our business, financial condition, and results of operations.
Additionally, the economic environment may at times make it difficult to determine the fair market rent of real estate properties within the United States and internationally. This could impact the quality of our decisions to enter into leases, exercise lease optionsoptions, or renew expiring leases at negotiated rents. Any adverse effect on the quality of these decisions could impact our ability to retain real estate locations adequate to meet our targets or efficiently manage the profitability of our existing fleet of stores, and could adversely affect our business, financial conditioncondition, orand results of operations.
Our business could be adversely affected by natural disasters, public health crises, political crises, negative global climate patterns, or other catastrophic events.
In particular, these types of events could impact our supply chain from or to the impacted regions and could impact our ability or the ability of our franchisees and other third-party partners to operate stores or websites. These types of events could also negatively impact consumer spending in the impacted regions or globally. Disasters occurring at our vendors’ manufacturing facilities could impact our reputation and our customers’ perception of our brands. To the extent any of these events occur, our business, financial condition, and results of operations could be adversely affected.
Risks Related to Strategic TransactionsInitiatives and Investments
Our franchise and licensing businesses are subject to certain risks not directly within our control that could impair the value of our brands.control.
We have entered into franchise agreements to operate stores and websites in many countries around the world. Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names. We have also entered into licensing agreements with third parties to sell products using our brand names. The effect of these arrangements on our business and results of operations is uncertain and will depend upon various factors, including the demand for our products in international markets, the demand for new product categories and our ability to successfully identify appropriate third parties to act as franchisees, licensees, distributors, or in a similar capacity. In addition, certain aspects of these arrangements are not directly within our control, such as franchisee and licensee financial stability and the ability of these third parties to meet their projections regarding store locations, store openings, and sales.
The effect of these arrangements on our business depends upon various factors, including the demand for our products in international markets, the demand for new product categories, and our ability to successfully identify appropriate third parties to act as franchisees, licensees, distributors, or in a similar capacity. In addition, certain aspects of these arrangements are not directly within our control, such as franchisee and licensee financial stability and the ability of these third parties to meet their projections regarding store locations, store openings, and sales. If sales of our products by our franchisees or licensees are not successful, we may not achieve the results we anticipate, and our business, financial condition, and results of operations could be adversely affected.
Additionally, certain of our franchisees have in the past and may in the future be unable to make payments to landlords, distributors and suppliers, as well as payments to service any debt they may have outstanding, including to us. We have also provided loan guarantees to various lenders on behalf of certain franchisees, and have guaranteed or are contingently liable for certain franchisees' leases. These arrangements could have an adverse effect on our liquidity and results of operations.
Other risks that may affect our franchisees and licensees include general economic conditions in specific countries or markets, foreign exchange rates, changes in diplomatic and trade relationships, restrictions on the transfer of funds, and geopolitical instability. The value of our brands could be impaired to the extent that our franchisees and licensees do not operate their stores or websites or sell our branded products in a manner consistent with our requirements regarding our brand identities and customer experience standards. Failure to protect the value of our brands, or any other harmful acts or omissions by a franchisee or licensee, could also adversely affect our business, financial condition, results of operations and our reputation.
OurWe currentcontinue businessto strategies include pursuingpursue selective international expansion in a number of countries around the world through several channels. This includes our franchisees opening additional stores internationally. We have limited experience operating or franchising in some of these locations. In many of these locations, we face major established competitors. In addition, in many of these locations, real estate, employment and labor, transportation and logistics, and other operating requirements differ dramatically from those in the places where we have more experience. Consumer tastes and trends may differ in these locations and, as a result, the sales of our products may not be successful, or we may not achieve the results we anticipate. If our international expansion plans are unsuccessful or do not deliver anthe appropriateresults returnwe onanticipate, our investments,business, ourfinancial condition, and results of operations could be adversely affected.
Our investments in customer, digital, AI, omni-channel, and other strategic initiatives may not deliver the results we anticipate.
One of our strategic priorities is to further develop an omni-channel shopping experience for our customers through the integration of our store and digital shopping channels. Our omni-channel initiatives include cross-channel logistics optimization and exploring additional ways to develop an omni-channel shopping experience, including further digital integration and customer personalization. These initiatives may involve significant investments in information technology systems, data science and artificial intelligenceAI initiatives, and significant operational changes. Our competitors are also investing in omni-channel initiatives, some of which may be more successful than our initiatives. If the implementation of our customer, digital, and omni-channel initiatives is not successful, or we do not realize the return on our investments in these initiatives that we anticipate, our results of operations would be adversely affected.
We have made and will continue to make investments in other strategic initiatives across our business. These initiatives involve, among others, significant investments in product design and development; marketing and media; store operations; supply chain and inventory management; and technology including automation, data analytics, and artificial intelligence.AI. In addition, we have and may continue to pursue initiatives to simplify and increase efficiencies across our business. These initiatives are subject to many estimates and assumptions, and we cannot guarantee that we will realize any or all of the intended returns, benefits, efficiencies, or cost savings from these initiatives to the extent or on the timelines expected.
Our strategic initiatives alsoinclude includeexpanding into new product categories and accelerating growth in certainother product categories where we already compete. In 2025, we announced our strategic expansion into beauty and accessories. We also continue to focus on other high-potential product categories, including activewear.active and denim. We compete with other retailers in these categories, some of which may beare larger than us and more established inthan thesewe categories,are, and competition is intense, as described above.intense. There can be no assurance that our expansion in theseany new product categories will be successful.successful or that we will successfully accelerate growth in other product categories where we already compete.
If the implementation of our customer, digital, omni-channel, and other strategic initiatives is not successful, or we do not realize the return on our investments in these initiatives that we anticipate, our business, financial condition, and results of operations could be adversely affected.
We have and may continue to engage in or seek to engage in strategic transactions, such as acquisitions, partnerships, divestitures, and other dispositions, that are subject to various risks and uncertainties and which could disrupt or adversely affect our business.uncertainties.
We have and may continue to engage in or seek to engage in strategic transactions, such as acquisitions, partnerships, divestitures, or other dispositions. InFor example, in recent years, we transferred our Europe, Mexico, and China businesses to a partnership model, and are awaiting regulatory approvals to transfer our Taiwan business.model.
We may not be able to complete strategic transactions on anticipated terms or time frames or at all, and such transactions may not generate any or all of the expected strategic, financial, operational, or other benefits if and when completed on anticipated time frames or at all.completed. In addition, these transactions may be complex, and unanticipated developments or changes, including changes in law, the macroeconomic environment, market conditions, the retail industry, or political conditions may affect our ability to complete such transactions. In addition, the process of completing these transactions may be time-consuming and involve considerable costs and expenses, which may be significantly higher than anticipated and may not yield a benefit if the transactions are not completed successfully. Executing these transactions may require significant time and attention from our senior management and employees, which could disrupt our ongoing business and adversely affect our results of operations.business. We may also experience increased difficulties in attracting, retaining, and motivating employees and/or attracting and retaining customers during the pendency or following the completion of any of these transactions,transactions. whichAny of these risks could harmadversely affect our business.business, financial condition, and results of operations.
As part of our normal operations, we receive and maintain confidential, proprietary, and personally identifiable information, including credit card information, and information about our customers, our employees, job applicants, and other third parties. The secure operation of our networks and systems, and those of our business partners, suppliers, and third-party service providers, including those on which this type of information is stored, processed, and maintained is critical to our business operations. These networks and systems are subject to an increasing threat of continually evolving data and security risks, which we must manage.risks.
Security breaches and vulnerabilities impacting our systems and those of our business partners and third-party service providers could cause harm to our systems or compromise data stored on our networks or those of our business partners and third-party service providers, and could expose us to remedial, legal, and other costs which could be material. The retail industry, in particular, has been the target of recent cyberattacks. Our efforts to take appropriate measures to safeguard our information security and privacy environment from security breaches and vulnerabilities, and to train our employees to identify security threats as part of our security efforts, vary in maturity across our business. The constantly changing nature of the cyber threats landscape means that we are not able to anticipate or prevent all types of cyberattacks, and our logging processes may not be sufficient to fully investigate a cyberattack. Additionally, as cybercriminals become more sophisticated, the cost of proactive defensive measures continues to increase. Like our peers, we have been targeted by cyberattacks, which in some cases have been successful.
Actual or anticipated cyberattacks and vulnerabilities may disrupt or impair our operations, and may cause us to incur costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants. Advances in technological capabilities, new technological discoveries, or other developments may result in the technology used by us to protect transactions and other data being more easily breached or compromised. Measures we implement to protect against cyberattacks and address vulnerabilities may also have the potential to impact our customers’ shopping experience or decrease activity on our e-commerce platform by making it more difficult to use.use or requiring website downtime. Data and security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information.
The global regulatory environment surrounding data privacy and cybersecurity is increasingly demanding, and we are required to comply with new and constantly evolving laws, such as various state-level privacy laws in the United States and international laws such as the General Data Protection Regulation in the European Union and United Kingdom, which give consumers the right to control how their personal information is collected, used, shared, and retained. Our failure to comply with these and other data privacy laws or to secure personal or confidential information could result in significant legal and financial exposure, and a loss of consumer confidence in our security measures,measures. whichAny of these risks could adversely affect our business, financial condition, results of operationsoperations, and our reputation.
Management's Discussion & Analysis (MD&A)
Removed heading “Change in operating assets and liabilities”
Largest changes
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. As our business typically follows a seasonal pattern, with sales peaking during the end-of-year holiday period, we fund inventory expenditures during normal and peak periods through cash flows from operating activities and available cash. The seasonality of our operations, in addition to the impact ofsee in full comparisonglobalmacroeconomiceconomic conditions such as uncertainty surrounding inflationary pressures, global geopolitical instability, and changes related to government fiscal, monetary, and tax policies including changes in interest rates, tax rates, duties, tariffs, and other restrictions,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.
Macroeconomic factors, including uncertainty surroundingsee in full comparisoninflationary pressures,global geopolitical instability,andinflationarychangespressures,relatedforeigntocurrencygovernment fiscal, monetary,fluctuations, andtax policies includingchanges in interest rates,tax rates,duties, tariffs, tax laws, and otherrestrictions,restrictions as a result of government fiscal, monetary, trade, and tax policies, continue to create a complex and challengingretailmacro environment.TheInmacroeconomicfiscalenvironment2025,hasthehadUnited States enacted significant changes to its trade policy andmayimposedcontinuesubstantial tariffs on imported goods from most countries. In February 2026, the U.S. Supreme Court invalidated tariffs imposed under the IEEPA, and subsequently, new tariffs were imposed on a temporary basis pursuant tohavealternativeanstatutoryimpactauthority.on consumer behavior. We anticipateWith continued uncertaintyrelated to the macroeconomic environmentexpected during fiscal2025, and2026, we will continue to monitor the impact of macroeconomicconditions,conditionsincludingon consumer behavior andthe impact of these factors on consumerdemand. For additional information on the risks and uncertainties to our business caused by macroeconomic factors, see thesectionsections entitled “Risk Factors—Risks Related to Macroeconomic Conditions—GlobalOur business is impacted by global economic conditions and the related impact on consumer spending” and "Risk Factors—Risks Related to Macroeconomic Conditions—Trade matters, including the imposition of tariffs by the United States, have had, and could continue toadverselyhave,affectan adverse effect on ourbusiness, financial condition, and results of operations”business" in Item 1A, Risk Factors, of this Form 10-K.
“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 increased cost of goods sold in fiscal 2025. Ongoing changes to tariff rates may impact our gross margins in future quarters and may also impact comparability across periods.”see in full comparison
•see in full comparisonOccupancyCostexpensesofdecreasedgoods0.4sold increased 0.8 percentage points as a percentage of net sales in fiscal20242025 compared with fiscal2023,2024, primarily driven by anincreaseestimatedinimpact of approximately 1.2 percentage points from tariff costs netsalesofwithoutrelatedamitigationcorrespondingefforts,increasepartiallyinoffsetoccupancybyexpenses.less promotional activity at all brands except Athleta Global.
“•restructuring expenses of $89 million incurred during fiscal 2023 as a result of actions taken to simplify and optimize our operating model and structure; and”see in full comparison
Full comparison: every changed paragraph (63)
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. As of FebruaryJanuary 1,31, 2025,2026, we had Company-operated stores in the United States, Canada, Japan, and Taiwan. Our products are available to customers both in stores and online, through Company-operated and franchise stores, websites, and third-party arrangements. 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.sources globally.
Fiscal 2024 consisted of 52 weeks versus 53 weeks in fiscal 2023. Fiscal 2023 net sales and operating results, as well as other metrics derived from the Consolidated Statement of Operations, include the impact of the additional week.
•Store and franchise sales for fiscal 20242025 wereincreased flat1 percent compared with fiscal 20232024 and online sales for fiscal 20242025 increased 4 percent compared with fiscal 2023.2024.
•Operating income for fiscal 2024 was $1.1 billion comparedfor with $560 million forboth fiscal 2023.2025 and fiscal 2024.
Over the last two years, we have focused on fixing the fundamentals, enabling us to perform while we transform. As we move into the next phase of our transformation, we are focused on building momentum through the following strategic priorities:
While we continue to transform, we remain focused on the following strategic priorities in the near term:
•maintaining and building upondelivering financial and operational rigor, through an optimized cost structure and disciplined inventory managementexecution;
•building our brands to increase relevance, while we elevate our product and customer experience to drive sustainable growth;
•optimizing our platform to drive scale by advancing capabilities that amplify and enable our brands;
•strengthening our culture by developing talent and fostering a high-performance environment; and
•reinvigorating our brands to drive relevance and an engaging omni-channel experience;
•strengthening and evolving our operating platform with a digital-first mindset to drive scale and efficiency;
•energizing our culture by attracting and retaining strong talent; and
•continuing to integrate social and environmental sustainability into business practices to support long-term growth.
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.
Macroeconomic factors, including uncertainty surrounding inflationary pressures, global geopolitical instability, andinflationary changespressures, relatedforeign tocurrency government fiscal, monetary,fluctuations, and tax policies including changes in interest rates, tax rates, duties, tariffs, tax laws, and other restrictions,restrictions as a result of government fiscal, monetary, trade, and tax policies, continue to create a complex and challenging retailmacro environment. TheIn macroeconomicfiscal environment2025, hasthe hadUnited States enacted significant changes to its trade policy and mayimposed continuesubstantial tariffs on imported goods from most countries. In February 2026, the U.S. Supreme Court invalidated tariffs imposed under the IEEPA, and subsequently, new tariffs were imposed on a temporary basis pursuant to havealternative anstatutory impactauthority. on consumer behavior. We anticipateWith continued uncertainty related to the macroeconomic environmentexpected during fiscal 2025, and2026, we will continue to monitor the impact of macroeconomic conditions,conditions includingon consumer behavior and the impact of these factors on consumer demand. For additional information on the risks and uncertainties to our business caused by macroeconomic factors, see the sectionsections entitled “Risk Factors—Risks Related to Macroeconomic Conditions—GlobalOur business is impacted by global economic conditions and the related impact on consumer spending” and "Risk Factors—Risks Related to Macroeconomic Conditions—Trade matters, including the imposition of tariffs by the United States, have had, and could continue to adverselyhave, affectan adverse effect on our business, financial condition, and results of operations”business" in Item 1A, Risk Factors, of this Form 10-K.
We identify our operating segments according to how our business activities are managed and evaluated. As of FebruaryJanuary 1,31, 2025,2026, our operating segments included Old Navy Global, Gap Global, Banana Republic Global, and Athleta Global. Our brands have similar products, suppliers, customers, methods of distribution, and regulatory environment. 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 into one reportable segment.
Fiscal 2024 consisted of 52 weeks versus 53 weeks in fiscal 2023. Due to the 53rd week in fiscal 2023, in order to maintain consistency, Comp Sales for the 52 weeks ended February 1, 2025 are compared to the 52 weeks ended February 3, 2024.
Comp Sales include the results of Company-operated stores and sales through our online channel. The calculation of Comp Sales excludes the results of theour franchise and licensing business.
Store count, openings,net openings/closings, and square footage for our stores are as follows:
(1)The 89 Gap China stores that were transitioned to Baozun during the period are not included as store closures or openings for Company-operated and Franchise store activity. The ending balance for Gap Asia excludes Gap China stores and the ending balance for Franchise includes Gap China locations transitioned during the period.
As of January 31, 2026 and February 1, 2025, the Company's franchise partners operated approximately 1,000 franchise stores.
Our net sales for fiscal 20242025 increased $197$280 million, or 12 percent, compared with fiscal 2023,2024, despitedriven theprimarily lossby ofan salesincrease attributablein toonline the incremental 53rd week during fiscal 2023.sales. The increase was primarily duerelated to improved Comp Sales driven by Old Navy Global and Gap Global, our two largest brands, partially offset by Athleta Global.
Cost of goods sold and occupancy expenses decreasedincreased 2.50.5 percentage points as a percentage of net sales in fiscal 20242025 compared with fiscal 2023.2024.
•Cost of goods sold decreased 2.1 percentage points as a percentage of net sales in fiscal 2024 compared with fiscal 2023, primarily driven by lower commodity costs. Additionally, there was a benefit from incremental income related to our revenue sharing arrangement from our credit card agreement primarily recognized in the second quarter of fiscal 2024.
•OccupancyCost expensesof decreasedgoods 0.4sold increased 0.8 percentage points as a percentage of net sales in fiscal 20242025 compared with fiscal 2023,2024, primarily driven by an increaseestimated inimpact of approximately 1.2 percentage points from tariff costs net salesof withoutrelated amitigation correspondingefforts, increasepartially inoffset occupancyby expenses.less promotional activity at all brands except Athleta Global.
•Occupancy expenses decreased 0.3 percentage points as a percentage of net sales in fiscal 2025 compared with fiscal 2024, primarily driven by an increase in online sales without a corresponding increase in occupancy expenses.
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 increased cost of goods sold in fiscal 2025. Ongoing changes to tariff rates may impact our gross margins in future quarters and may also impact comparability across periods.
Operating expenses decreasedincreased $100$38 million, orbut 1.1decreased 0.4 percentage points as a percentage of net sales during fiscal 20242025 compared with fiscal 2023,2024, primarily due to thean following:increase in net sales as well as an increase in strategic investments.
•a decrease in advertising expenses of $102 million;
•restructuring expenses of $89 million incurred during fiscal 2023 as a result of actions taken to simplify and optimize our operating model and structure; and
•a decrease in payroll expenses related to our operating model and structure changes; partially offset by
•an increase in performance-based compensation; and
•a gain on sale of building of $47 million that occurred during the first quarter of fiscal 2023.
Interest expense primarily includes interest on outstanding borrowings and obligations mainly related to our Senior Notes and tax-related interest expense. Interest expense increased $6 million during fiscal 2025 compared with fiscal 2024, primarily due to lower tax-related interest expense in fiscal 2024.
Interest income primarily includes interest earned on our cash, cash equivalents, and short-term investments, as well as tax-related interest income. Interest income decreased slightly during fiscal 2025 compared with fiscal 2024, primarily due to lower interest rates, partially offset by higher cash balances.
Interest income increased $26 million during fiscal 2024 compared with fiscal 2023 primarily due to higher cash balances, partially offset by a decrease in tax-related interest income.
The change in the effective tax rate for fiscal 20242025 compared with fiscal 20232024 was primarily due to changes in valuation allowances in the prior year, tax benefits recognized in the prior year from a U.S. transfer pricing settlement related to our sourcing activities, and changes in the amount and mix of jurisdictional earnings, partiallyas offsetwell byas aless favorable impactimpacts fromof stock-basedshare-based compensation.
As of FebruaryJanuary 1,31, 2025,2026, the majority of our cash, cash equivalents, and short-term investments were held in the United States and are generally accessible without any limitations.
We are also able to supplement near-term liquidity, if necessary, with our senior secured asset-based revolving credit agreement (the "ABL Facility") or other available market instruments. There were no borrowings under the ABL Facility as of FebruaryJanuary 1,31, 20252026 and February 3,1, 2024.2025. See Note 6 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for disclosures on the ABL Facility.
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. As our business typically follows a seasonal pattern, with sales peaking during the end-of-year holiday period, we fund inventory expenditures during normal and peak periods through cash flows from operating activities and available cash. The seasonality of our operations, in addition to the impact of globalmacroeconomic economic conditions such as uncertainty surrounding inflationary pressures, global geopolitical instability, and changes related to government fiscal, monetary, and tax policies including changes in interest rates, tax rates, duties, tariffs, and other restrictions,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.
We are party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on theour Consolidated Balance Sheet as of FebruaryJanuary 1,31, 2025,2026, while others are considered future obligations. Our contractual obligations primarily consist of operating leases, purchase obligations and commitments, long-term debt and related interest payments, and income taxes. See Notes 6 and 11 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for information related to our debt and operating leases, respectively.
Purchase obligations and commitments consist of open purchase orders to purchase inventory as well as commitments for products and services used in the normal course of business. As of FebruaryJanuary 1,31, 2025,2026, our purchase obligations and commitments were approximately $4 billion. We expect that the majority of these purchase obligations and commitments will be settled within one year.
We believe our existing balances of cash, cash equivalents, and short-term investments, along with our cash flows from operations,operations and instruments mentioned above, provide sufficient funds for our business operations as well as capital expenditures, dividends, share repurchases, and other liquidity requirements associated with our business operations over the next 12 months and beyond.
Net income
•an increase in net income;
Non-cash item
•ana increasedecrease of $91$80 million related to theaccounts recognitionpayable, primarily due to timing of deferredpayments taxfor expensemerchandise in fiscal 2024inventory compared with deferred tax benefit in fiscal 20232024;
•a decrease of $65 million related to accrued expenses and other current liabilities, primarily due to higher payments for fiscal 2024 performance-based compensation made during fiscal 2025; and
•a decrease of $41 million related to merchandise inventory, primarily due to higher tariff rates during fiscal 2025, partially offset by timing of receipts.
Change in operating assets and liabilities
•a decrease of $471 million related to merchandise inventory driven by a slight increase in inventory at the end of fiscal 2024 primarily due to the timing of receipts compared with a significant reduction in inventory in fiscal 2023 as a result of an elevated opening balance of inventory in that fiscal year.
Net cash used for investing activities increaseddecreased $358$92 million during fiscal 20242025 compared with fiscal 2023,2024, primarily due to the following:
•$247$117 million offewer net purchases of short-term investments duringin fiscal 2025 compared with fiscal 2024; andpartially offset by
•$69$23 million lessmore in net proceeds from the salepurchases of property and equipment during fiscal 20242025 compared with fiscal 2023.2024.
In fiscal 2024,2025, cash used for purchases of property and equipment was $447$470 million primarily related to store investments, information technology,technology systems, and supply chain improvements, to support the customer experience.
Net cash used for financing activities decreasedincreased $246$98 million during fiscal 20242025 compared with fiscal 2023,2024, primarily due to the following:
•$350 million for repayments of revolving credit facility borrowings during fiscal 2023; partially offset by
•$75$80 million inmore repurchases of common stock duringin fiscal 20242025 compared with no repurchases during fiscal 2023.2024; and
•$22 million more payments of dividends in fiscal 2025 compared with fiscal 2024.
What changed in the latest 10-Q
Risk Factors
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 31, 2026.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
Largest changes
“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. …”see in full comparison
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 undersee in full comparisonthe International Emergency Economic Powers Act ("IEEPA"),IEEPA, and subsequently,newtariffs were imposed on a temporary basis pursuant to alternative statutory authority.InTheseApriltariffs2026,expired in July 2026 and were subsequently replaced by new tariffs under Section 301 of theU.S.TradeCustoms and Border Protection launched a platform for importersAct ofrecord 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.1974.
•Cost of goods soldsee in full comparisonincreaseddecreased1.012.2 percentagepointpoints as a percentage of net sales in thefirstsecond quarter of fiscal 2026 compared with thefirstsecond quarter of fiscal 2025, primarily driven byan11.4estimatedpercentageimpactpoints, or approximately $417 million, ofapproximatelynet2IEEPApercentagetariffpointsrecoveries. Additionally, there was a benefit fromtarifflesscostspromotionalnetactivityofatrelatedGapmitigation efforts,Global, partially offset bylesshigher promotional activity at Old Navy Global primarilyatrelatedGaptoGlobal.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.
“•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.”see in full comparison
“•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.”see in full comparison
•Gross profit for thesee in full comparisonfirstsecond quarter of fiscal 2026 was$1.42$1.93 billion compared with$1.45$1.54 billion for thefirstsecond quarter of fiscal 2025. Gross margin for thefirstsecond quarter of fiscal 2026 was40.552.8 percent compared with41.841.2 percent for thefirstsecond quarter of fiscal 2025. The second quarter of fiscal 2026 includes approximately $417 million of net IEEPA tariff recoveries.
Full comparison: every changed paragraph (44)
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, and Africa.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.
Financial results for the firstsecond quarter of fiscal 2026 are as follows:
•Net sales for the firstsecond quarter of fiscal 2026 increaseddecreased 12 percent compared with the firstsecond quarter of fiscal 2025.
•Gross profit for the firstsecond quarter of fiscal 2026 was $1.42$1.93 billion compared with $1.45$1.54 billion for the firstsecond quarter of fiscal 2025. Gross margin for the firstsecond quarter of fiscal 2026 was 40.552.8 percent compared with 41.841.2 percent for the firstsecond quarter of fiscal 2025. The second quarter of fiscal 2026 includes approximately $417 million of net IEEPA tariff recoveries.
•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.
•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.
•NetOperating income for the firstsecond quarter of fiscal 2026 was $339$676 million compared with $193$292 million for the firstsecond quarter of fiscal 2025.
•DilutedThe earningseffective perincome sharetax was $0.90rate for the firstsecond quarter of fiscal 2026 was 26.3 percent compared with $0.5127.0 percent for the firstsecond quarter of fiscal 2025.
•Net income for the second quarter of fiscal 2026 was $501 million compared with $216 million for the second quarter of fiscal 2025.
•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.
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"),IEEPA, and subsequently, new tariffs were imposed on a temporary basis pursuant to alternative statutory authority. InThese Apriltariffs 2026,expired in July 2026 and were subsequently replaced by new tariffs under Section 301 of the U.S.Trade Customs and Border Protection launched a platform for importersAct 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.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 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.
Given the continued uncertainty surrounding global trade policy and broader macroeconomic conditions, we will continue to evaluate potential impacts on our business.
With continued uncertainty expected, we will continue to monitor the impact of macroeconomic conditions on consumer behavior and demand.
As of MayAugust 2,1, 2026 and MayAugust 3,2, 2025, the Company's franchise partners operated approximately 1,000 franchise stores.
Our net sales increaseddecreased $34$74 million, or 12 percent, during the firstsecond quarter of fiscal 2026 compared with the firstsecond 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 acrossat all brands except AthletaGap Global.
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.
Cost of goods sold and occupancy expenses increaseddecreased 1.311.6 percentage points as a percentage of net sales in the firstsecond quarter of fiscal 2026 compared with the firstsecond quarter of fiscal 2025.
•Cost of goods sold increaseddecreased 1.012.2 percentage pointpoints as a percentage of net sales in the firstsecond quarter of fiscal 2026 compared with the firstsecond quarter of fiscal 2025, primarily driven by an11.4 estimatedpercentage impactpoints, or approximately $417 million, of approximatelynet 2IEEPA percentagetariff pointsrecoveries. Additionally, there was a benefit from tariffless costspromotional netactivity ofat relatedGap mitigation efforts,Global, partially offset by lesshigher promotional activity at Old Navy Global primarily atrelated Gapto Global.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.
•Occupancy expenses increased 0.30.6 percentage points as a percentage of net sales in the firstsecond quarter of fiscal 2026 compared with the firstsecond quarter of fiscal 2025, primarily driven by incremental cost related to our store population.
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.
•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.
•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.
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,rates whichon has increasedour cost of goods sold since fiscal 2025.sold. Ongoing developments, including changes to tariff rates orand potentialrefund refunds,processing, willmay continue to impact our gross margins in future quarters and willmay 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 marginmargins for the second quarter of fiscal 2026 and first quarterhalf of fiscal 2026 may not be indicative of our gross margins throughout the remainder of fiscal 2026.
Operating expenses decreasedincreased $216$9 million, or 6.50.9 percentage points as a percentage of net sales during the firstsecond quarter of fiscal 2026 compared with the firstsecond quarter of fiscal 2025, primarily duedriven by costs related to thestrategic following:investments.
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:
•ancosts increaserelated into strategic investments.
Interest income primarily includes interest earned on our cash, cash equivalents, and short-term investments, as well as tax-related interest income.income and interest received on IEEPA tariff recoveries. Interest income increased slightly during the firstsecond quarter of fiscal 2026 compared with the second quarter of fiscal 2025 and during the first quarterhalf of fiscal 2026 compared with the first half of fiscal 2025, primarily due to higherinterest cashreceived balances,on IEEPA tariff recoveries, partially offset by lower interest rates.
The decrease in the effective tax rate for the firstsecond quarter of fiscal 2026 compared with the firstsecond 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,changes in the prior quarter, as well as changes in the amount and mix of jurisdictional earnings.
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.
Our primary sources of liquidity include cash and cash equivalents, short-term investments, and our ABL Facility. As of MayAugust 2,1, 2026, we had cash and cash equivalents of $2.16$2.10 billion and short-term investments of $399$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 MayAugust 2,1, 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.
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,tariffs and related recoveries, tax laws, and other restrictions as a result of government fiscal, monetary, trade, and tax policies.
Net cash provided by operating activities wasincreased $213$242 million during the first quarterhalf of fiscal 2026 compared with $140 million of net cash used for operating activities during the first quarterhalf of fiscal 2025, primarily due to the following:
•an increase in net income of $431 million;
•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;
•an increase of $130$117 million related to merchandise inventory,inventory in partprimarily due to timing of receipts and higher inventory cost during the first quarter of fiscal 2026 compared with the first quarterhalf of fiscal 2025 as well as fluctuations to inventory-related costs related to changes in tariff rates; andpartially offset by
•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.
•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.
Net cash used for investing activities increased $76$121 million during the first quarterhalf of fiscal 2026 compared with the first quarterhalf of fiscal 2025, primarily due to $108 million more purchases of property and equipment during the following:first half of fiscal 2026 compared with the first half of fiscal 2025.
•$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
•$24 million more net purchases of short-term investments during the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025.
Net cash used for financing activities increased $366$485 million during the first quarterhalf of fiscal 2026 compared with the first quarterhalf of fiscal 2025, primarily due to $331$449 million more repurchases of common stock,stock during the first quarterhalf of fiscal 2026 compared with the first quarterhalf of fiscal 2025.
(1)For the 1326 weeks ended MayAugust 2,1, 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.concurrently during the first quarter of fiscal 2026.
We paid a dividend of $0.175 per share during the firstsecond quarter of fiscal 2026. In MayAugust 2026, the Board authorized a dividend of $0.175 per share for the secondthird quarter of fiscal 2026.
GAP insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 5 filings (3 insiders, 5 trade dates, 1,046,217 shares, about $24.7M; 2 of these filings say the sales were made under a Rule 10b5-1 trading plan). Net open-market shares: -1,046,217 (purchases minus sales); net value about -$24.7M.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-10-06 | Fisher William Sydney |
Open-market sale | 500,000 | $23.89 | $11.9M |
| 2026-10-06 | Gruber Julie |
Open-market sale |
27,538 | $23.56 | $648.7K |
| 2026-10-05 | Fisher William Sydney |
Open-market sale | 433,656 | $23.35 | $10.1M |
| 2026-09-30 | Fisher William Sydney |
Open-market sale | 66,344 | $23.06 | $1.5M |
| 2026-09-29 | Fisher William Sydney |
Gift | 21,625 | — | — |
| 2026-09-29 | Fisher Robert J |
Gift | 43,250 | — | — |
| 2026-09-02 | Fisher John J |
Other | 4,003,636 | — | — |
| 2026-09-02 | Fisher John J |
Other | 3,636 | — | — |
| 2026-09-02 | Fisher Robert J |
Other | 6,004,089 | — | — |
| 2026-09-02 | Fisher Robert J |
Other | 4,089 | — | — |
| 2026-08-31 | Fisher William Sydney |
Other | 6,004,089 | — | — |
| 2026-08-31 | Fisher William Sydney |
Other | 4,089 | — | — |
| 2026-08-22 | Dickson Richard |
Shares withheld for tax | 62,852 | $19.80 | $1.2M |
| 2026-08-22 | Dickson Richard |
Option exercise | 116,502 | — | — |
| 2026-08-22 | Dickson Richard |
Option exercise | 109,649 | — | — |
| 2026-08-22 | Dickson Richard |
Shares withheld for tax | 59,155 | $19.80 | $1.2M |
| 2026-06-30 | Fisher William Sydney |
Option exercise |
19,036 | — | — |
| 2026-06-30 | Fisher William Sydney |
Option exercise |
1,743 | — | — |
| 2026-06-30 | Fisher William Sydney |
Gift |
23,000 | — | — |
| 2026-06-30 | Fisher Robert J |
Gift |
23,000 | — | — |
| 2026-06-30 | Fisher Robert J |
Option exercise |
19,036 | — | — |
| 2026-06-30 | Fisher Robert J |
Option exercise |
1,743 | — | — |
| 2026-06-30 | Shattuck Mayo A Iii |
Option exercise | 1,743 | — | — |
| 2026-06-30 | Shattuck Mayo A Iii |
Option exercise | 19,036 | — | — |
| 2026-06-30 | Dickson Richard |
Option exercise | 12,204 | — | — |
| 2026-06-30 | Dickson Richard |
Option exercise | 1,117 | — | — |
| 2026-06-30 | Shaukat Tariq M |
Option exercise | 1,743 | — | — |
| 2026-06-30 | Shaukat Tariq M |
Option exercise | 19,036 | — | — |
| 2026-06-30 | O'neill Chris |
Option exercise | 19,036 | — | — |
| 2026-06-30 | O'neill Chris |
Option exercise | 1,743 | — | — |
| 2026-06-30 | Hall Kathryn A. |
Option exercise | 1,743 | — | — |
| 2026-06-30 | Hall Kathryn A. |
Option exercise | 19,036 | — | — |
| 2026-06-08 | Fisher John J |
Gift | 273,596 | — | — |
| 2026-04-17 | Gruber Julie |
Open-market sale |
5,302 | $27.00 | $143.2K |
| 2026-04-17 | Gruber Julie |
Option exercise |
5,302 | $13.93 | $73.9K |
| 2026-04-10 | Chan Eric Kayen |
Open-market sale | 12,441 | $26.19 | $325.8K |
| 2026-04-10 | Chan Eric Kayen |
Open-market sale | 936 | $26.15 | $24.5K |
Well-known investors holding GAP (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| AQR Capital Management (Cliff Asness) | 2026-06-30 | 14,683,484 | $267.2M | 0.09% | Added 27% |
| Millennium Management (Israel Englander) | 2026-06-30 | 2,518,542 | $47.0M | 0.03% | New position |
| Two Sigma Investments | 2026-06-30 | 1,984,020 | $37.1M | 0.03% | Reduced 50% |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 1,215,536 | $22.7M | 0.01% | Added 6359% |
| Gotham Asset Management (Joel Greenblatt) | 2026-06-30 | 752,702 | $14.1M | 0.03% | Reduced 6% |
| Renaissance Technologies | 2026-06-30 | 439,282 | $10.6M | — | Sold out |
| Point72 Asset Management (Steve Cohen) | 2026-06-30 | 146,518 | $2.7M | 0.0% | New position |
| Bridgewater Associates | 2026-06-30 | 125,456 | $2.3M | 0.01% | Reduced 41% |
| D. E. Shaw & Co. | 2026-06-30 | 40,705 | $760.4K | 0.0% | Reduced 92% |