Gap (GAP) earnings Q1 2025

New tariffs could impact Gap‘s business by $100 million to $150 million, if they remain in effect, the company said Thursday when announcing fiscal first-quarter earnings. 

Shares fell more than 15% in after-hours trading.

In a news release, Gap said new 30% duties on imports from China and a 10% levy on imports from most other countries will cost the company between $250 million and $300 million without mitigation efforts. For now, it’s leaving that impact out of its guidance. 

Gap said it’s already mitigated about half of those costs and without further action, the cost is expected to be between $100 million and $150 million, which will likely show up on the balance sheet in the back half of the year. The company said it’s going to build on its mitigation efforts by continuing to diversify its supply chain and reducing its exposure to China.

CEO Richard Dickson said on a conference call with investors Thursday that the company is planning to buy more cotton from the U.S. to help mitigate the tariff impact.

“Based on what we know today, we do not expect there to be meaningful price increases or impact to our consumer,” Dickson told CNBC in an interview. “I’ve talked about this often: We truly believe that strong brands can win in any market. It’s a big industry. It’s a big market. Obviously we’re a big player with market share, but as we look ahead, we see the potential to further market our brands and gain share.”

Beyond tariffs, Gap issued fiscal first-quarter results that beat expectations on the top and bottom lines.

Here’s how the apparel company performed compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

• Earnings per share: 51 cents vs. 45 cents expected
• Revenue: $3.46 billion vs. $3.42 billion expected

The company’s reported net income for the three-month period that ended May 3 was $193 million, or 51 cents per share, compared with $158 million, or 41 cents per share, a year earlier. 

Sales rose to $3.46 billion, up about 2% from $3.39 billion a year earlier.

Gap’s guidance was largely in line with consensus, but its gross margin forecast came in weaker than expected. It’s expecting full-year sales to grow between 1% and 2%, in line with LSEG expectations of 1.3% growth.

For the current quarter, it said it expects sales to be flat, compared with LSEG expectations of 0.2% growth. It’s expecting its gross margin to be 41.8%, weaker than the 42.5% that StreetAccount had expected. That expected impact to gross margin isn’t related to tariff effects, but rather the company lapping certain benefits it saw in the year-ago period related to its credit card program.

In March, before President Donald Trump issued new tariffs on imports from most parts of the world, the company was expecting a minimal impact from the duties. But three months later, it’s in a different position.

In March, Gap said it sources less…