Gap cuts sales outlook as weaker discretionary demand hits shares

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Gap cuts sales forecast

Highlights

Gap cuts its fiscal 2026 sales forecast to 1%-2% growth, down from 2%-3%, and reports quarterly sales of $3.50 billion below estimates.
Despite weak second-quarter and full-year sales outlooks, Gap raises adjusted profit guidance to $2.30-$2.40 per share, bolstered by $80 million in expected tariff relief.
Amid sector-wide discretionary demand weakness and record-low U.S. consumer sentiment, Gap returns $464 million to shareholders through share repurchases and dividends in Q1.

Revised outlook and quarterly performance

As reported by Reuters, Gap says fiscal 2026 sales are expected to rise 1% to 2%, down from its prior forecast for growth of 2% to 3%. The retailer also says second-quarter sales are likely to be flat to down 1%, versus analysts' expectations for about 2.1% growth to $3.80 billion, according to LSEG data.

Quarterly sales come in at $3.50 billion, below analysts' average estimate of $3.52 billion. Gap says full-year adjusted profit is now expected in a range of $2.30 to $2.40 per share, compared with its earlier forecast of about $2.20 to $2.35 per share.

While the company continues its turnaround under CEO Richard Dickson, sales at Athleta decline again in the quarter and Old Navy records slower growth. Gap has been adding styles including high-waisted run shorts and straight-leg pull-on linen pants to draw in shoppers.

Consumer pressure and sector impact

Gap joins Tapestry in signaling weak sales growth for the current quarter as demand remains under pressure across apparel categories. American Eagle Outfitters keeps its annual sales forecast unchanged despite soft sales growth, and its shares fall about 11% in extended trading.

Consumer sentiment in the U.S. slumps to a record low in May, while inflation posts its biggest increase in three years, highlighting pressure on household budgets. Even so, Gap raises its annual profit forecast partly because it expects about $80 million in tariff relief to support gross profit and operating income in fiscal 2026.

The company also says it returns $464 million to shareholders through share repurchases and dividends in the first quarter of the fiscal year. The mix of lower sales expectations and higher profit guidance points to a retail environment where cost measures and trade-related relief help offset weaker discretionary spending.

In our earlier article on Dollar General’s stock performance, we looked at the retailer’s short-term rally alongside still-mixed technical signals and key resistance levels that could limit a breakout. We noted that, despite the bounce, the broader setup pointed to consolidation with volatility remaining elevated and few fresh fundamental catalysts to shift sentiment.

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