Gap Raises Dividend 6% to $0.175, Authorizes $1B Buyback as Margins Weaken
Gap raised its quarterly dividend 6% to $0.175 per share, authorized a $1 billion buyback and reported Q4 EPS of $0.45 beating estimates by 18.4%. For fiscal 2026, it guided adjusted EPS of $2.20–$2.35 but expects Q1 gross margin to shrink 150–200 bps due to tariffs.
1. Dividend Increase and Buyback Authorization
Gap raised its quarterly dividend from $0.165 to $0.175 per share, marking a second consecutive annual increase after years of stagnation. The company also authorized a $1 billion share repurchase program, which represents roughly 10% of its $10.1 billion market cap and could meaningfully reduce share count if executed.
2. Q4 Earnings and FY26 Guidance
In Q4 fiscal 2025, Gap delivered adjusted EPS of $0.45, surpassing the $0.38 consensus by 18.4%, with revenue of $4.236 billion roughly in line with expectations. For fiscal 2026, management projects adjusted EPS of $2.20–$2.35, while warning that Q1 gross margins may decline 150–200 basis points, driven by approximately 200 basis points of tariff-related headwinds.
3. Balance Sheet Strength
As of fiscal year end, Gap held $3.5 billion in cash against $5.0 billion in debt, resulting in a net debt position of $1.5 billion. The current ratio improved to 1.60x, total equity rose to $3.264 billion and including $3.985 billion in lease obligations, total leverage fell to 1.87x equity from 2.02x the prior year.
4. Brand Performance and Consumer Risk
Q4 marked the eighth consecutive quarter of positive comparable sales, led by Gap brand’s 8% net sales growth and 7% comps, while Old Navy grew revenue 3%. Athleta sales declined 11% and comparable sales fell 10%, and with the University of Michigan Consumer Sentiment at 56.4, discretionary apparel demand may face further headwinds.