GAP INC recently released its 10-Q report. The Gap, Inc. operates apparel, accessories, and personal care businesses for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. Its sales run through company-operated stores, franchise stores, websites, and third-party arrangements in the U.S., Canada, Japan, Taiwan, and international markets, with franchise partners operating stores across Asia, Australia, Europe, Latin America, the Middle East, and Africa.
In Item 2, management said first-quarter fiscal 2026 net sales rose 1% from the prior year, while gross profit fell to $1.42 billion from $1.45 billion and gross margin narrowed to 40.5% from 41.8%. Operating income increased to $445 million from $260 million, helped by a $313 million gain tied to a credit card interchange fee litigation settlement, net of legal fees, partly offset by a $50 million charitable contribution made at the same time. Net income climbed to $339 million from $193 million, and diluted earnings per share increased to $0.90 from $0.51.
Comparable sales for the quarter were up 2% for The Gap, Inc. overall, with Old Navy Global up 1%, Gap Global up 10%, Banana Republic Global up 2%, and Athleta Global down 11%. Company-operated stores totaled 2,477 at May 2, 2026, up 3 from the prior quarter, with 29.6 million square feet of selling space; a year earlier, the company had 2,496 stores and 29.9 million square feet. Franchise partners operated about 1,000 stores at both May 2, 2026 and May 3, 2025.
Cost of goods sold and occupancy expenses rose to $2.08 billion from $2.02 billion, increasing to 59.5% of net sales from 58.2%. Management said cost of goods sold increased 1.0 percentage point as a share of sales, driven mainly by an estimated 2-point tariff impact net of mitigation efforts, partly offset by less promotional activity, primarily at Gap Global. Occupancy expenses increased 0.3 percentage point, mainly from incremental costs tied to the store base.
Operating expenses fell to $972 million from $1.19 billion, or 27.8% of net sales versus 34.3% a year earlier. The company attributed the decline mainly to the $313 million settlement gain, partly offset by the $50 million charitable contribution and higher strategic investments. Interest expense was $22 million, compared with $23 million, while interest income was $27 million, compared with $26 million. Income tax expense increased to $111 million from $70 million, and the effective tax rate declined to 24.7% from 26.6%.
At May 2, 2026, cash and cash equivalents were $2.16 billion and short-term investments were $399 million, with no borrowings outstanding under the ABL Facility. Net cash provided by operating activities was $213 million, compared with net cash used of $140 million in the prior-year quarter. Investing activities used $76 million more cash than a year earlier, mainly because property and equipment purchases were $52 million higher and net short-term investment purchases were $24 million higher. Financing activities used $366 million more cash than in the prior-year quarter. As a result of these announcements, the company's shares have moved -16.46% on the market, and are now trading at a price of $20.885. Check out the company's full 10-Q submission here.
