Gap Inc., reporting sales gains and cash buildup for the fourth quarter and year, has graduated from “fixing the fundamentals to building momentum.”
“The first phase — which we’ve gone through these last couple of years — was fixing the fundamentals. That phase is now behind us. Now we move into the next phase, which is about building momentum,” Richard Dickson, president and chief executive officer, told WWD. “And ultimately that involves continuously improving and growing our core apparel business, disciplined execution with better product, better marketing and better storytelling.
“We’ve been performing while we’ve been transforming.”
On Thursday, Gap Inc. reported net sales grew 2 percent to $4.24 billion for the fourth quarter ended Jan. 31, up from $4.15 billion in the year-ago period. Comparable sales rose 3 percent. Store sales were flat and online sales, representing 42 percent of total sales, increased 5 percent.
Operating income fell to $229 million, down from $259 million in the year-ago period, which executives attributed to the impact of tariffs. Net income slipped to $171 million from $206 million.
For all of 2025, net sales rose 2 percent to $15.4 billion.
“We delivered a successful fourth quarter, but even bigger, we’re marking another year of meaningful progress for Gap Inc.,” Dickson said. “We achieved our second consecutive year of top-line growth. That would be the eighth consecutive quarter of positive comparable sales. Comps were up 3 percent for the company in the fourth quarter, we drove Old Navy plus 3 percent, Gap plus 7 percent, Banana plus 4 percent. We do have work to do on Athleta, but we’re winning across all income cohorts, and we grew share in the quarter as well.
“Besides the consistency in our top-line comp, we also drove one of our highest gross margins in the last 25 years,” he said. “We further improved our balance sheet, and we’re ending the year with $3 billion in cash.”
Looking ahead, Dickson said the company will be “thoughtfully seeding growth accelerators and new capabilities.” That entails expanding Gap Inc.’s presence in lifestyle categories such as beauty and accessories, which are underdeveloped categories at the company, building the “fashion-tainment” platform and immersing the company in popular culture through high-profile marketing campaigns, and advancing technology capabilities, in particular AI.
“The progress over the past two years really reinforces our confidence, not only in our business day-to-day, but in our future business. So it’s exciting times here,” Dickson said.
“Over the last two years Gap has consistently gained market share through compelling product assortments, and great marketing and store execution,” he added. “That’s what it takes at retail, and this has resulted in a recognition that we’re a multigenerational brand. We’ve seen growth across generations. We’ve seen growth in all income cohorts. Strong categories like fleece, logo [merchandise], denim and sleepwear have really driven the brand. So Gap is firmly back in the cultural conversation as a true pop culture brand.”
At Old Navy, fourth-quarter sales of $2.3 billion increased 3 percent compared to last year; comparable sales rose 3 percent. Full-year sales rose 3 percent to $8.7 billion. “Old Navy’s 3 percent comp, that’s the fifth consecutive quarter of positive comps,” said Dickson. “It’s also been gaining share over the last two years, which really reflects the brand’s strength, consistency and reliability.”
Fourth-quarter sales at the namesake division rose 8 percent to $1.1 billion; comparable sales gained 7 percent. The retailer touted the brand’s cross-generational appeal.
Banana Republic’s fourth-quarter sales rose 1 percent to $549; comparable sales rose 4 percent. Full-year sales were down 1 percent to $1.9 billion, though comparable sales were up 3 percent. “Banana is getting really precise and defined in its assortments. There’s better product, better storytelling,” Dickson said. “Men’s continues to have momentum. Women’s is catching up and becoming more consistent with strength in denim skirts and sweaters.” Banana Republic has been operating without a president for almost two years, though Dickson, who has been very involved in repositioning the brand, expressed confidence in the team there. “I’m very hopeful that very soon I’ll be able to introduce a new leader,” he said.
And at Athleta, quarterly sales fell 11 percent to $354 million; comp sales were down 10 percent. For all of 2025, sales fell 10 percent; comparable sales were down 9 percent. “We are in the rebuild mode for Athleta, but the team is working hard at re-architecting the assortment,” said Dickson. “It’s based on insights. We’re bringing back customer favorites, and we’re really going to concentrate on building those favorites into key franchises.”
Gap Inc. raised its quarterly dividend by 6 percent to 17.5 cents, which may have disappointed Wall Street. Investors pushed the company’s stock down over 8 percent to $24.99 in after-hours trading. Wall Street was also expecting bigger gains from Old Navy.
Asked to account for decline in operating and net profit, Katrina O’Connell, executive vice president and chief financial officer, said: “Really, it’s the impact of how tariffs flowed through in Q4. Tariffs impacted our net income and operating income by 200 basis points in the quarter.”
Tariffs have been pushing prices up, industrywide. Asked by how much at Gap Inc., Katrina O’Connell, executive vice president and chief financial officer, replied: “We haven’t quantified that. What I would say is average unit retails were up in fourth quarter, and they were up last year as well. When we zoom out, that shows that the customer really is responding to the value equation we show them, and it’s showing up in the metrics that matter.”
“We’re approaching pricing as we always do,” said Dickson. “We consider all the various inputs, but ultimately maintaining the overall value proposition for our consumers. The AURs [average unit retail prices] are embedded for 2026 and they’re roughly in line with how we’ve been delivering in 2025. It’s a balanced plan.”
Gap Inc. is projecting a 2 to 3 percent net sales gain in 2026, and gross margins flat to slightly up. Diluted earnings per share are seen ranging from $2.71 to $2.86.
E-marketer principal analyst Sky Canaves wrote in an analysis: “It was not quite the holiday quarter that Gap hoped for with a mixed picture across brands. The emphasis on brand building and viral marketing campaigns accelerated the momentum for the flagship Gap brand and Banana Republic remains on track, though slower growth for Old Navy indicates that its target budget-focused customer is stretched thin and Athleta’s persistent declines signal a brand struggling deeply to set itself apart in the increasingly crowded and competitive activewear market. Dickson’s next challenge will be to expand on brand elevation efforts throughout the portfolio. He’s already taken some concrete steps this year by appointing a company wide chief entertainment officer to put culture front and center, and with the newly announced revamp of the cross-brand loyalty program.”
Steven Pan / Athleta Assets / At
Athleta is in rebuild mode.
