After years of struggle, clothing retailer Gap Inc. (GPS) had finally been on a roll — with its latest earnings report crushing Wall Street expectations across the board.
Full-year profit hit $1.1 billion — up more than 80% from 2023. EPS came in at 54 cents, well ahead of the 34-cent consensus. Revenue for the quarter was $4.15 billion, topping estimates of $4.07 billion.
It marked a major turnaround for a company that had seen profits cut in half over the past two decades.
Between 2020 and 2024, Gap closed 340 Gap and Banana Republic stores in North America and slashed around 2,300 corporate jobs.
To lead the revival, Gap brought in former Mattel executive Richard Dickson as CEO last year.
For the year ahead, Gap expects sales to rise 1% to 2%, in line with LSEG’s 1.7% estimate. The company forecasts “flat or slightly up” sales for the current quarter, compared to analysts’ 1.5% growth projection.
“We’ve been operating in a highly dynamic backdrop for the last few years, and we’re expecting the same for fiscal 2025,” CFO Katrina O’Connell said on the earnings call.
“As a result, we’ve taken a balanced view with our guidance and remain focused on controlling the controllables.”
GAP underestimated Trump
The one thing Gap can’t control — and didn’t plan for — is the global trade war now erupting from President Trump’s sweeping new tariffs.
Dickson didn’t sound too worried when speaking at an industry conference last month.
"Big credit goes to our supply chains,” he said. “We’ve been working on diversifying our manufacturer footprint for quite some time. Less than 10% of our product is coming out of China.”
What he didn’t realize at the time was just how broad Trump’s tariffs would be — and that moving out of China wouldn’t protect Gap from the fallout.
That’s because after pulling back from China, Gap’s largest suppliers are now in Vietnam, followed by India and Indonesia.
Those three countries were among the hardest hit: Vietnam faces 46% tariffs, Indonesia 32%, and India 26% — all higher than many analysts had anticipated.
Gap’s stock plunged 22% on Thursday.
And it’s not alone. Retailers like Levi’s, which also rely heavily on Southeast Asia for manufacturing, are facing the same grim reality: there’s nowhere left to run.
“The advantages of chasing low-cost manufacturing bases have effectively reached their limit,” TD Cowen analyst John Kernan wrote in a note.
“Tariff mitigation practices will occur — like sharing costs with manufacturing partners — but there are zero countries with factory capacity companies can shift to at this point.”
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