Gap reported a sequential improvement in gross margin to 55.2%, up from 53.8% in the prior quarter, driven by stronger full-price selling and a 10% increase in digital sales. The company noted a 7% year-over-year rise in average unit retail, reflecting higher demand for new product launches in its Gap and Athleta brands. Inventory levels were reduced by 5% compared to a year ago, lowering clearance markdowns and supporting a 220 basis-point expansion in operating margin to 8.4%.

Old Navy delivered flat comparable-store sales for the third consecutive quarter, with apparel shipments increasing 4% in North America and offset by a 3% decline in international markets. The brand maintained a 30% full-price sell-through rate, up from 27% a year earlier, as promotional activity was scaled back. Management highlighted a 15% growth in loyalty program membership, indicating improved customer engagement that bodes well for sustained top-line performance.

Gap’s leadership outlined a 2026 financial framework targeting annualized earnings-per-share growth of 8–10% and a consolidated operating margin above 10%. Key initiatives include optimizing supply-chain costs by $150 million, accelerating direct-to-consumer penetration to 40% of sales, and reallocating $200 million in marketing spend toward higher-return digital channels. The board also authorized a $500 million share-repurchase program to enhance return on equity.

Chief Executive Officer Richard Dickson told investors that the company does not anticipate any further material impact from existing trade tariffs, following the realization of a $60 million headwind in the prior year. He confirmed that 95% of product categories have been renegotiated under revised agreements, and that current import duties now represent less than 1% of Gap’s total cost of goods sold. Dickson emphasized that supply-chain flexibility and alternative sourcing strategies have insulated margins from additional tariff volatility.