US retailer Gap's Q3 sales rise 3% as momentum builds across brands

The comparable sales increased 5 per cent, marking the seventh consecutive quarter of growth. Store sales rose 3 per cent, supported by nearly 3,500 store locations worldwide, while online sales improved 2 per cent and accounted for 40 per cent of total net sales.

The retailer’s gross margin reached 42.4 per cent, surpassing guidance, although down 30 basis points from last year due to a 70-basis-point drop in merchandise margin, largely reflecting an estimated 190-basis-point tariff impact. The underlying margin benefitted from stronger average unit retail, and rent, occupancy, and depreciation leveraged by 40 basis points (bps).

The operating expenses totalled $1.3 billion, and operating income stood at $334 million, resulting in an operating margin of 8.5 per cent. The effective tax rate was 30 per cent, producing net income of $236 million and diluted earnings per share of $0.62. The balance sheet remained robust, ending the quarter with $2.5 billion in cash, cash equivalents, and short-term investments, up 13 per cent from last year, Gap Inc said in a press release.

Across brands, Old Navy’s net sales rose 5 per cent to $2.3 billion, with comparable sales up 6 per cent, driven by strength in denim, activewear, and kids and baby categories.

Gap delivered net sales of $951 million, rising 6 per cent, while comparable sales grew 7 per cent, marking its eighth consecutive positive quarter.

Banana Republic posted net sales of $464 million, down 1 per cent, although comparable sales rose 4 per cent, supported by elevated product and storytelling initiatives.

Athleta remained under pressure, with net sales falling 11 per cent to $257 million and comparable sales declining by the same rate as the brand works through a strategic reset.

Free cash flow for the year-to-date (YTD) reached $280 million, while inventory increased 5 per cent to $2.5 billion due to tariff-driven cost inflation. Capital expenditure for the year-to-date (YTD) amounted to $327 million, and the company paid a quarterly dividend of $0.165 per share, with the same amount approved for the fourth quarter (Q4).

For FY25, Gap Inc raised its net sales outlook to the high end of its prior range, now expecting growth of 1.7 to 2 per cent. Operating margin guidance was lifted to around 7.2 per cent, inclusive of a 100-110 basis point tariff impact, and net interest income is projected at approximately $20 million. Capital expenditure is planned at $500-550 million for the full year, and net store closures are expected to total around 35.

ALCHEMPro News Desk (SG)