Gap (NYSE:GAP) released fourth-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.
Benzinga APIs provide real-time access to earnings call transcripts and financial data. Visit https://www.benzinga.com/apis/ to learn more.
The full earnings call is available at https://events.q4inc.com/attendee/880134371
Full Transcript
OPERATOR
Good afternoon ladies and gentlemen. I would like to welcome everyone to The Gap Inc. Fourth quarter 2025 earnings conference call. At this time, all participants are in a listen only mode. For those analysts who wish to participate in the question and answer session after the presentation, you may now press star 1 to enter the Q&A queue. As a reminder, please limit your questions to one per participant. If anyone should require assistance during the call, please press the star key followed by the zero key on your touchtone phone. I would now like to introduce your host, Whitney Notaro, Head of Investor Relations.
Whitney Notaro
Good afternoon everyone. Welcome to Gap Inc.’s fourth quarter fiscal 2025 earnings conference call. Before we begin, I’d like to remind you that the information made available on this conference call contains forward looking statements that are subject to risks that could cause our actual results to be materially different. For information on factors that could cause our actual results to differ materially from any forward looking statements, please refer to the cautionary statements contained in our latest earnings release. The risk factors described in the Company’s Annual Report on Form 10K filed with the Securities and Exchange Commission on March 18, 2025, Quarterly Reports on Form 10Q filed with the Securities and Exchange Commission On May 30, 2025, August 29, 2025 and November 26, 2025 and other filings with the Securities and Exchange Commission, all of which are available on gapinc.com these forward looking statements are based on information as of today, March 5, 2026, and we assume no obligation to publicly update or revise our forward looking statements. Our latest earnings release and the accompanying materials available on gapinc.com also include descriptions and, where available, reconciliations of financial measures not consistent with generally accepted accounting principles. All market share data referenced today will be from Circana’s US apparel consumer service for the 12 months ending January 2026, unless otherwise stated. Joining me on the call today are Chief Executive Officer Richard Dickson and Chief Financial Officer Katrina O’Connell Connell. With that, I’ll turn the call over to Richard.
Richard Dickson
Thanks Whitney and good afternoon everyone. I am pleased to report that we delivered another successful fourth quarter in line with our expectations and marking another year of meaningful progress for Gap Inc. In the quarter we achieved comparable sales of 3%, our eighth consecutive quarter of positive comparable sales, while once again winning across all income cohorts, we continued to do what we said we were going to do, underscoring the growing resilience, durability and potential of our portfolio. Reflecting on the full year, 2025 continued to demonstrate our ability to perform while we transform even in a highly dynamic environment as we execute on our strategic priorities and deliver consistent performance while fixing the fundamentals through the disciplined execution of our brand reinvigoration playbook, we are building a clear track record of reliable growth, proving our three largest brands can deliver quarter after quarter. Gap Inc. Achieved its second consecutive year of top line growth. Full year net sales grew 2% at the high end of our outlook, fueled by comparable sales growth of 3%, building on last year’s 1% net sales growth and 3% compared. Our playbook continues to fuel our portfolio with Gap brand delivering its third consecutive year of positive comp sales and both Old Navy and Banana Republic reporting their second consecutive year of positive comp sales. We delivered one of our highest gross margins margins in the last 25 years and generated $1.1 billion in full-year operating income, a clear reflection of the strength of our platform and the financial and operational rigor embedded across the organization. Disciplined execution throughout the year further strengthened our balance sheet, enabling us to end 2025 with a cash balance of $3 billion, our highest in nearly two decades. Based on our strong financial position and confidence in our continued progress, the Board recently approved an increase in our first quarter dividend and a new $1 billion share repurchase authorization. I am proud of the resilience this team has shown and what we have achieved together. This performance gives me confidence as we continue to move forward. That confidence is rooted in something deeper than any single quarter or year since 1969 when the fishers opened a single store to bridge a generation Gap Gap Inc. Has proven that purpose and profit can coexist, taking pride in doing what’s right for our company, our customers and our communities and building brands that matter. It’s that legacy of bridging Gaps and leading with purpose that brings us to today. We have a unique opportunity with the legal settlement received to pledge a $50 million charitable donation to a combination of the Gap foundation and our donor advised fund. This marks a true legacy moment, honoring a heritage rooted in shared humanity and ensuring that our commitment to create a better world endures for generations to come. On today’s call, I’ll discuss our fourth quarter performance by brand and share how we’re thinking about 2026 in the context of our strategy. Then Katrina will walk you through our detailed financial results and outlook, after which we will open the call for questions starting with Old Navy as we execute on our reinvigoration playbook. Old Navy is becoming a proven growth engine with consistency and scale that Drives Meaningful value Fourth-quarter comp sales grew 3%, building on last year’s 3% comp growth and reflecting the brand’s fifth consecutive quarter of positive comparable sales. Old Navy ranks as a top three brand in nine of the 10 largest apparel categories and gained share in all five of the largest categories on a rolling 12 basis. Old Navy continues to win at the intersection of great product quality and price. The brand’s focused pursuit of leadership in active denim and Kids and Baby drove strong performance across each of these categories. As the brand continued to innovate and excite our customers, both active and denim continued to grow. Share and the strong execution of our Disney partnership has positioned Old Navy as Disney’s number one apparel brand direct to consumer partner in the United States. The brand has also continued to evolve its media mix model to meet consumers where they are, growing its presence on social media platforms and significantly increasing creator volume. With over 15,000 creators in the fourth quarter, almost three times the number of creators last year. Looking ahead, we believe Old Navy is well positioned and we’re confident in the brand’s ability to deliver consistently, largely in line with its performance over the past two years. Now let’s turn to Gap. Gap’s momentum accelerated meaningfully in the fourth quarter, delivering comp sales up 7% on top of last year’s 7% comp growth, marking its ninth consecutive quarter of positive comps. Returning to its powerful heritage, the brand is once again bridging the generation gap, continuing to attract Gen Z while growing its core customer, and that multi generational appeal is showing up in the results. Gap at its best is a true original, a pop culture brand that celebrates individuality united through music genres and collaborations that bridge generations and cultures. We’re leaning into that heritage with intention. From red carpet moments, most recently dressing Leon Thomas for the Grammys and Claire Danes for the Golden Globes to co hosting a star studded super bowl event in San Francisco, to spotlighting emerging artists from Tyla and Troye Sivan to Kat’s Eye and Siena Spiro, Gap is showing up in culture in ways that are authentic and relevant. In the fourth quarter, the team executed our playbook with fluency which was demonstrated through their Give your Gift holiday campaign and culturally relevant collaborations supported by a highly evolved media mix. We saw particular strength in key categories like fleece including logo, denim and sleepwear. As brand relevance has increased, we’re also proving elasticity. This was our second quarter of meaningfully pulling back discounting, driven by on trend product and strong brand heat, with a focus on elevating the customer shopping experience. New store models continue to outperform the fleet, giving us confidence in the opportunity to accelerate these formats in 2026. I’m proud to say that Gap, our namesake brand of 56 years, is firmly back in growth mode. Banana Republic delivered a 4% comp, building on a 4% comp last year with sharper merchandising and execution, Banana Republic has returned to its roots as a storytelling brand, expressed through the lens of the modern explorer. You can see that story coming to life more cohesively and comprehensively through our assortments, merchandising and how we show up in culture and consumers have taken notice,. There’s greater synergy between men’s and women’s with head to toe wardrobing guided by a clear style guide and design language that’s informing design, presentation and storytelling. Leather, suede, cashmere, and texture, all synonymous with Banana Republic’s design language, are reinforcing the brand’s distinctive point of view. This is a great example of the differentiation of our portfolio coming alive and we look forward to getting even sharper with more precision, more narrative led merchandising and a dialed up fashion quotient that underscores Banana Republic’s unique brand DNA. Shifting to Athleta While Athleta remains a work in progress, we took decisive action in the second half of 2025 appoint Maggie Gauger to lead its reinvigoration. The active category remains strategically important and resilient even amid disruption, customers continue to make fashion choices that are active oriented. Within that landscape, Athleta holds a meaningful position as the number five women’s active brand with distinction as a women’s only brand rooted in quality, performance and design intent exclusively for her. And while Athleta sales trend has been disappointing, we’ve accumulated critical learnings and are acting on them with intention. We are re architecting the assortment, building key items into enduring franchises and reorganizing the brand around consumer insights. Maggie is going deep with the team, even meeting with Athleta’s founder to reconnect the brand to its original purpose and establish clarity and alignment around the brand’s identity. With the strength of our portfolio and our proven playbook, 2026 will be about positioning the brand for sustainable growth in the years ahead. Progress will take time, but I am confident we are attracting the right talent to rebuild Athleta in 2025. The power of our portfolio became clear as our playbook successfully delivered consistent growth across our three largest brands. This was reflected in the metrics that matter, the strength of our product and in the cultural narratives that are resonating with consumers. Moving at the speed of culture takes focus and discipline, and we’re working together with clarity and conviction to continue to advance our strategy. As we’ve shared, we’ve been very purposeful in the sequential order of our transformation. Over the last two years, we have focused on fixing the fundamentals, maintaining financial and operational rigor, reinvigorating our brands, strengthening our platform and energizing our culture. The meaningful progress we’ve made across these strategic priorities has enabled us to consistently perform while we transform, strengthening our financial model and driving shareholder value as we move into the next phase of our transformation. Building Momentum Our primary focus will be growing our core apparel business through continuous improvement driven by disciplined execution with better product marketing and storytelling. In parallel, we will be building on the strength of our apparel business by thoughtfully seeding growth accelerators and new capabilities. We are beginning with expansions into adjacent lifestyle categories such as beauty and accessories, two categories that are underdeveloped in our portfolio but are meaningful to our consumers and sizable in the industry. We will also continue advancing our fashion tainment, platform and technology capabilities, all with the intent to build scale, relevance and revenue over time. Let me take a moment to share more about each of these, Starting with Beauty as discussed in the past, beauty is one of the fastest growing, most resilient retail categories in the U.S. and our customer insights reinforce strong engagement. Our research suggests that for other fashion apparel businesses that have entered the beauty space, beauty makes up anywhere from 5% to 20% of their business. We believe this is a good indicator of the category’s potential in our business over the longer term. In 2025, we introduced the consumer to our expanded beauty assortment at Old Navy and are making refinements based on our customer feedback. In 2026, we’ll be deepening this engagement with consumers and look forward to reintroducing a fragrance assortment at Gap this summer. Turning to Accessories, our accessory category performed well in 2025, reinforcing our confidence in this expansion. According to Euromonitor, this category has a $15 billion total addressable market and today Gap Inc. Represents just 1% of the market share. Consumers are looking for us to be more pronounced in accessories and we see an exciting opportunity to become a destination for wardrobing. We look forward to launching an expanded accessory line for holiday. We believe the beauty and accessory categories have the added benefit of serving as margin and traffic drivers that strengthen our brands and deepen customer connection and build lasting loyalty. We have appointed proven industry experts to lead each of these areas with focus and discipline. Our fashiontainment platform is another area we will be focusing on in 2026. Today’s customers aren’t just buying apparel, they’re buying brands that tell stories and drive cultural conversations. As we continue to build our brands, we see entertainment as a powerful growth lever. Last month Pam Kaufman joined Gap Inc. As Chief Entertainment Officer, adding focused leadership, expertise and relationships across entertainment and licensing. The fashion tainment platform we’re building is about amplifying and scaling what is already working, expanding licensing, strengthening strategic partnerships and aligning our assortments more intentionally with the entertainment calendar. One capability we believe can be better monetized is our loyalty program. Gap Inc. Has one of the largest programs in U.S. apparel retail with nearly 40 million active members. Last week we launched Encore, our newly reimagined loyalty program, setting a new standard for loyalty in the apparel space. Encore brings our fashiontainment platform to life by turning purchases into experiences that give members access to fashion, entertainment and the moments they care about. Across our portfolio of brands, it represents a shift from a traditional points based loyalty program to a broader engagement platform. By bringing fashion, entertainment and access together, we are building momentum, deepening relationships and creating long term value across our portfolio. Technology is another platform capability where we see opportunity, especially with AI. Our AI strategy is focused on three Enable, Optimize and reinvent. Enable is about enterprise wide adoption, equipping our teams with AI tools that improve day to day productivity, streamline workflows and build AI fluency. Across the organization. Optymyze focuses on high impact process improvements to drive efficiency, accuracy and speed. Re Invent is about reimagining our customer product and enterprise journeys end to end. We are focusing on areas where AI can meaningfully reduce customer friction, increase predictability across product to market and unlock productivity within the enterprise. As we close the first chapter of our transformation and step into the next, we do so with a brand portfolio that is consistently growing healthy gross margins, disciplined expense management, sustained bottom line performance and strong cash on hand. Looking ahead, we have a focused, energized team that believes in the future we’re building, our aspirations remain high and we’re positioned to deliver. I’m excited about the opportunity ahead and confident in our ability to capture it. I’ll now turn the call to Katrina for a closer look at our financials.
Katrina O’Connell
Thank you Richard and thanks everyone for joining us this afternoon. Execution of our strategic priorities continues to drive results and 2025 was a strong year of financial performance. We grew net sales 2%, gaining market share for the year as we demonstrated relevance to customers of all income levels. It’s exciting to see our playbook driving the second consecutive year of top line growth fueled by positive comp sales across our largest brands, Old Navy, Gap and Banana Republic. The rigor we’ve developed is delivering reliable profit performance with another historically high gross margin of 40.8%, operating profit of $1.1 billion and an operating margin …
This post was originally published here
