US' Gap Inc Q2 FY25 EPS rises 6% as net sales hold steady at $3.7 bn

The online sales grew 3 per cent and represented 34 per cent of total sales, while store sales dipped 1 per cent as the company closed the quarter with around 3,500 stores, of which 2,486 were company-operated.

The gross margin of the company contracted 140 basis points (bps) to 41.2 per cent due to lapping last year’s credit card revenue-sharing benefit, while operating income stood at $292 million, reflecting a margin of 7.8 per cent. The net income totalled $216 million with an effective tax rate of 27 per cent.

The company ended the quarter with $2.4 billion in cash, cash equivalents, and short-term investments, up 13 per cent year-over-year, providing strong liquidity. The operating cash flow was $308 million, and free cash flow reached $127 million after $181 million in capital expenditures (capex).

The inventory of the company rose 9 per cent to $2.3 billion, largely from accelerated receipts and tariff-related costs. Gap Inc returned $144 million to shareholders, including $62 million in dividends and $82 million in share repurchases, and approved a third quarter (Q3) dividend of $0.165 per share.

At the brand level, Old Navy delivered $2.2 billion in sales, up 1 per cent, with comparable sales rising 2 per cent. Gap reported sales of $772 million, up 1 per cent, with comparable sales rising 4 per cent, marking the seventh straight quarter of positive comps.

Banana Republic saw sales fall 1 per cent to $475 million, but comparable sales rose 4 per cent, reflecting progress in its repositioning strategy. Athleta, however, remained a drag, with sales down 11 per cent to $300 million and comparable sales declining 9 per cent, as the brand continues a longer-term reset.

“In Q2, Gap Inc overdelivered on profit expectations and achieved our topline goals. With positive comps for the sixth consecutive quarter, fuelled by our three largest brands Old Navy, Gap and Banana Republic, it's clear our strategy is working," said Richard Dickson, president and chief executive officer (CEO) at Gap Inc. “Two years ago, I shared my vision for leading Gap Inc into an exciting new chapter. Since then, we've built a stronger foundation with more relevant brands, a sharper operating platform, and a more unified culture while consistently demonstrating agility and resilience in dynamic environments. We are advancing our transformation with discipline, clarity, and momentum and remain committed to building a high-performing company that delivers sustainable, long-term value for our shareholders.”

For FY25, Gap Inc is expecting net sales growth of 1 to 2 per cent and operating margin of 6.7 to 7 per cent, inclusive of a 100–110 bps tariff impact. Capital expenditures are projected at $500–550 million, with approximately 35 net store closures for the year.

For the third quarter, the company guided 1.5 to 2.5 per cent net sales growth, gross margin deleverages of 150–170 bps including a 200-bps tariff impact, and slight expense deleverage tied to timing of investments.

ALCHEMPro News Desk (SG)