(Reuters) -Gap said on Thursday it expects a hit to second-quarter gross margins due to tariffs amid concerns related to rising costs, sending the apparel maker’s shares down 15% after the bell.
The company’s shares fell despite beating Wall Street expectations for first-quarter sales as more customers shopped for its Old Navy and namesake brands following a style refresh over the past few quarters.
The results come at a time when most retailers including Walmart and Target have struck a cautious tone due to the impact of U.S. President Donald Trump’s tariffs on global trading partners.
Gap, which bought less than 10% of its merchandise, by dollar value, from factories in China in fiscal 2024, said it expects incremental costs from tariffs of about $250 million to $300 million but has strategies to mitigate more than half of that amount.
It retained its fiscal 2025 sales forecast of 1% to 2% growth and operating income growth of 8% to 10%. Gap said the forecast does not reflect the potential effect of tariffs.
Gap added that it expects minimal impact to second-quarter gross margins, which is expected to be in line wit the first quarter.
Most companies have either withdrawn, cut or stuck to their annual expectations while the global economic environment remains volatile with a U.S. trade court blocking most of Trump’s tariffs on Wednesday and an appeals court reinstating them a day later.
The company’s first-quarter revenue rose 2.2% to $3.46 billion, compared with analysts’ average estimates of $3.42 billion, according to data compiled by LSEG.
It reported a profit of 51 cents per share. Analysts were expecting earnings of 45 cents.
(Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Shounak Dasgupta)
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