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Gap reported Q2 FY2027 revenue of $3.7 billion, down −1.99% from a year earlier. Revenue missed the consensus by −1.86%, although both the reported figure and the estimate round to $3.7 billion. Adjusted earnings per share of $0.52 beat the consensus estimate of $0.50.
Reported diluted earnings per share rose to $1.38 from $0.57 a year earlier. Gap reported gross margin of 52.8%, compared with 41.2%, and operating margin of 18.5%, compared with 7.84%. Free cash flow fell to $183.0 million from $350.0 million.
On its separately identified Q2 fiscal 2026 call, CFO Katrina O’Connell said sales declines at Old Navy and Athleta accompanied growth at the Gap and Banana Republic brands. The company’s fiscal 2026 filing attributed its second-quarter sales decline primarily to Old Navy and Athleta, partly offset by growth at Gap.
| Q2 FY2027 | Q2 FY2026 | Change | |
|---|---|---|---|
| Revenue | $3.7 billion | $3.7 billion | −1.99% |
| Diluted EPS | $1.38 | $0.57 | 142.1% |
| Gross margin | 52.8% | 41.2% | 11.6 percentage points |
| Operating margin | 18.5% | 7.84% | 10.7 percentage points |
| Free cash flow | $183.0 million | $350.0 million | −47.7% |
| Against the consensus | Reported | Consensus | Result |
|---|---|---|---|
| Adjusted EPS | $0.52 | $0.50 | Beat by 4.00% |
| Revenue | $3.7 billion | $3.7 billion | Missed by 1.86% |
Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.
What management said on the call
On Gap’s Q2 fiscal 2026 call, CEO Richard Dickson said Old Navy’s seasonal assortment and pricing decisions affected sales of dresses, shorts and swimwear. Marketing also fell short of generating the traffic the company expected. In response to analysts’ questions, he said fall products had reached stores and August sales and traffic had improved.
Dickson said Old Navy had adjusted its fall assortment and pricing after the summer products failed to deliver the intended combination of style, quality and price. He also said the brand had changed its marketing to connect campaigns more closely with its products. The company had launched Old Navy Beauty Co. nationwide and planned to introduce Old Navy Sport, he said.
At the Gap brand, Dickson said comparable sales rose 10%, with women’s products leading performance and denim and fleece contributing to sales. He said the brand was investing in beauty and accessories and expected to complete approximately 35 store remodels during the year. At Athleta, he said tighter inventory management had improved inventory productivity while the company introduced new products.
CFO Katrina O’Connell said adjusted gross margin was 41.4% in the quarter, up 20 basis points from a year earlier. She attributed the merchandise margin increase primarily to Gap, partly offset by more promotional activity at Old Navy. Asked about margin performance, she said tariff-related benefits had largely funded fuel headwinds.
O’Connell said Gap continued to invest in stores, technology and its supply chain, while returning cash through dividends and repurchases. She said inventory units were up 4% at quarter-end, reflecting higher in-transit inventory largely tied to geopolitical disruptions.
Guidance
In its fiscal 2026 release, Gap raised its adjusted earnings-per-share outlook to approximately $2.35 to $2.45 from approximately $2.30 to $2.40. It raised its adjusted operating-margin range to about 7.4% to 7.6% from about 7.3% to 7.5%.
The company also changed its adjusted gross-margin outlook to up slightly year over year, from flat to up slightly. It now expects Gap brand comparable sales growth in the high-single to low double-digit range, compared with its previous expectation of high-single-digit growth.