The Gap, Inc. reported a sequential acceleration in comparable sales growth across its three main banners in the most recent quarter. Old Navy led the charge with an 8% year-over-year increase in same-store sales, driven by expanded assortments in athleisure and the introduction of beauty products in over 300 flagship locations. Gap brand comps rose 4%, supported by refreshed denim collections and stronger performance in Europe, while Banana Republic delivered a 5% lift thanks to higher full-price conversion. Total retail foot traffic improved 3% system-wide, and average transaction value climbed by 3.5%, reflecting disciplined upselling on premium items.

Gross margin expanded by 150 basis points compared with the prior-year period, despite absorbing roughly $30 million of one-time tariffs on imports. Management attributed the improvement to tighter inventory management, optimized freight lanes, and a favorable shift in product mix toward higher-margin categories. Operating expenses increased only 2% year over year, held in check by continued investments in digital infrastructure and targeted marketing campaigns. As a result, adjusted operating margin widened to 12%, up from 10.8% in the same quarter last year.

At current multiples—approximately 7.0x EV/EBIT versus a 10-year average of 8.5x—Gap shares trade at a notable discount relative to peers in the specialty apparel space. The company has earmarked $400 million in capital expenditures for fiscal 2026, largely focused on store remodels and enhancements to its e-commerce platform. Management reiterated its commitment to returning excess cash through share repurchases, targeting $500 million this year, while maintaining a 1.8x net debt/EBITDA ratio. Looking ahead, analysts forecast earnings growth of 12% annually over the next two years, underpinned by further margin improvement and brand diversification initiatives.