(Reuters) -Gap on Thursday forecast weaker annual operating margin growth after posting quarterly comparable sales below estimates, driven by impacts from tariffs on imports of goods to the U.S., sending its shares down about 10% in extended trading.
The company in May said that it had expected about $250 million to $300 million in tariff-related costs, but aimed to mitigate more than half of that amount.
The hit comes from the reliance the company has on countries that are under the radar of the Trump
administration for hefty tariffs. As of 2024, Gap sourced less than 10% of its merchandise from China, which faces a 30% import duty. It sources less than 1% from Mexico and Canada combined.
CEO Richard Dickson in May had said the company expects reliance on China to be less than 3% exiting 2025, and for no country to account for more than 25% by end of 2026.
The company now expects annual operating margin between 6.7% and 7%, including a tariff impact in the range of 100 to 110 basis points. It logged a margin of 7.4% in 2024.
Gap continues to expect annual net sales to rise between 1% and 2%.
Even as Old Navy and Gap brands posted significant gains in year-over-year visits in April and May, it tapered in June and July, as consumers appear to have accelerated purchases to avoid anticipated price increases, according to data firm Placer.ai.
Gap, like rivals including American Eagle and Levi Strauss , has pushed its denim line with a new viral "Better in Denim" campaign featuring the global girl group KATSEYE. The campaign came weeks after American Eagle's "Great Jeans" denim campaign with actress Sydney Sweeney.
Gap's second-quarter net sales rose slightly to $3.73 billion, in line with analysts' average estimates, according to data compiled by LSEG.
The company's quarterly comparable sales of a 1% rise missed estimates of 2.26% growth.
(Reporting by Neil J Kanatt in Bengaluru; Editing by Maju Samuel)
