Q3 2025 earnings gap

Clothing retailer gap It said Thursday that its comparable sales rose 5% during the fiscal third quarter, driven by strong revenues for its namesake brand following a viral “Better in Denim” campaign with girl group Katseye.

Pandemic-related rises aside, the rise in comparable sales is Gap’s strongest growth since the 2017 fiscal holiday quarter and far exceeds Wall Street’s forecast of 3.1%, according to StreetAccount.

In an interview with CNBC, CEO Richard Dixon said the company didn’t need to discount as often to sell products, was gaining customers from all income brackets and seeing a “great start” to the holiday shopping season.

“While external data points to aggregate pressures, particularly on lower-income consumers, our customers are finding value in our price, [and] “Our methods penetrate the competitive landscape,” Dixon said. “Our product resonates. So we’re very confident heading into the holiday season.”

Gap shares rose 5% in extended trading Thursday.

Here’s how the largest U.S. specialty apparel company performed this quarter compared to what Wall Street expected, based on a survey of analysts conducted by LSEG:

• EPS: 62 cents versus 59 cents expected
• profit: $3.94 billion versus $3.91 billion expected

The company’s net income during the three months ended Nov. 1 fell nearly 14% to $236 million, or 62 cents per share, compared with $274 million, or 72 cents per share, a year earlier.

Sales rose to $3.94 billion, up 3% from $3.83 billion the previous year.

For Gap’s fiscal year, which is scheduled to end around early February, the company is now on the high end of previously issued sales forecasts, expecting sales to rise between 1.7% and 2%, in line with analyst expectations. It was previously expected that sales would rise between 1% and 2%.

The company now expects full-year operating margin to reach approximately 7.2%, compared to its previous range of 6.7% to 7%. The forecast includes the impact of tariffs, which is estimated at between 1 and 1.1 percentage points.

Comparable sales across Gap, which has its namesake logo, Old Navy, Athleta and Banana Republic, have now been positive for seven straight quarters. Under Dixon, the company has been as focused on enhancing profitability and overhauling operations as it has been on reigniting cultural relevance, resulting in sustained sales growth across the portfolio.

As a result, Gap’s profitability was also growing, but now that it was facing tariffs, the retailer’s gross margin and net income were taking a hit. During the quarter, Gap’s gross margin fell 0.3 percentage points to 42.4%, but was still above expectations of 41.2%, according to StreetAccount.

The 14% decline in GAP’s net income was primarily related to the tariffs, Katrina O’Connell, GAP’s chief financial officer, said in an interview.

Gap’s better-than-expected results come as apparel sales remain generally weak across the industry and consumers retreat from nice-to-have items like new clothes in favor of essentials.

Aside from the obvious value players love it Walmart and TGX EnterprisesEarnings have been weak so far this season, with some companies blaming macroeconomic conditions and expressing caution about the holiday season.

Dixon said Gap’s diverse portfolio gives it a hedge in turbulent economic times because it can attract shoppers in a variety of different places.

“Our portfolio appeals to a broad range of consumers, giving us great flexibility in today’s environment,” Dixon said.

Here’s a closer look at the performance of each company’s brand:

Gap’s namesake brand has been the centerpiece of Dixon’s turnaround strategy since he took over as CEO just over two years ago.

During the quarter, comparable sales rose a staggering 7% — more than double the 3.2% gain analysts had expected, according to StreetAccount. Revenue rose 6% to $951 million.

During the quarter, Gap launched its popular “Milkshake” campaign, featuring early hits Kelis and members of the pop group Katseye. The campaign helped sales, but Dixon said the growth of the Gap brand is “a story about consistency” and a combination of better products, marketing and partnerships.

Sales at Old Navy, Gap’s largest brand by revenue, rose 5% to $2.3 billion with comparable sales up 6%, much better than the 3.8% expected by analysts polled by StreetAccount. The company said it saw growth in key categories such as denim, sportswear, and children’s and infants.

The elevated, business-friendly brand is still in turnaround mode but saw sales grow 1% to $464 million during the quarter with comparable sales up 4%, better than the 3.2% gain analysts expected, according to StreetAccount.

This was the second straight quarter in which Banana reported positive comparable sales, which the company attributed to improved marketing and product.

Revenue and comparable sales at Athleta fell a whopping 11% to $257 million, which is ugly for Gap’s better-than-expected results.

Dixon has repeatedly said that Atleta is in a reset year, but how long that reset will take remains unclear.

“We’re disappointed with the trend. We realize there’s a lot of work to do, but I really believe in the brand,” Dixon said. “I believe in leadership and we will continue to build this brand for the long term. It is worth it.”