GAP CEO Gaslights Stock Into the Clearance Bin, Shares Plunge -19%

Richard Dickson must have a Masters in creative accounting spin, because the dude just tried to serve investors a $250 million sh*t sandwich and call it a croissant. How so? GAP reported an honest-to-god earnings beat, then immediately lit a dumpster fire by admitting tariffs are about to burn ‘em to hell and stunt on their ashes… shares plunged -15% after hours. 

(Source: Giphy) 

In short, GAP knocked out Q1 earnings at 51 cents per share (versus 45 cents expected) and squeezed out $3.46 billion in revenue (above the $3.42 billion Wall Street guessed). Net income came in at $193 million, up from $158 million a year ago. So yeah, good so far. Additionally, the GAP brand itself actually grew sales by 5%, while Old Navy managed to drag its $2 billion denim-clad self over the finish line with a 3% increase. Even Banana Republic’s ongoing identity crisis didn’t tank the quarter. As far as Athleta… it’s down 6%. Ooof. 

Now with that said, despite Athleta shatting the bed, you’d think the stock would do a happy dance for investors, right? Wrongo. Investors took one look at Dickson’s “we dodged an even bigger bullet” gaslighting and yeeted $GPS straight into the after-hours abyss. That’s what happens when you show up to the earnings wearing a “Tariffs Kicked My A$$” t-shirt and try to tell everyone it’s a vintage piece. 

(Source: CNBC) 

So what was the “mitigation” magic trick, you ask? Simply put, Trump’s fresh 30% tariffs on China and 10% on everyone else would have torched GAP for $250-300 million, but Dickson claims “supply chain wizardry” and some American cotton cosplay got the bill down to $100-150 million. The problem? That remains to be seen, and investors always prepare for the worst. Especially considering that $100-150 million hit isn’t even baked into the full-year guidance. It’s just going to sneak onto the balance sheet in the back half of the year like a raccoon through an open kitchen window. 

Adding insult to injury, GAPs gross margin forecast also took a swan dive: 41.8% instead of the 42.5% analysts expected. Dickson swears up and down there won’t be “meaningful” price hikes, because brands are “strong” or whatever, but let’s not pretend anyone’s shopping at Old Navy for the branding. People want $8 t-shirts that don’t dissolve in the wash, and there’s only so much “mitigation” you can do before you’re just stapling new tags onto last year’s inventory. 

(Source: Giphy) 

To be fair, the company is scrambling away from China (under 3% of sourcing by year-end, down from less than 10% in March) and is now all-in on Vietnam (27%) and Indonesia (19%). But guess what? Vietnam’s got a fat 46% reciprocal tariff hanging over its head. If that sticks, every “mitigated” cent gets kneecapped. Now don’t get me wrong…. Dickson’s turnaround efforts are real, at least on paper. Comparable sales are up, and the core brands are clawing their way back to life. But the entire plan is getting bodied by trade policy (much like a lot of things these days… that is, until the US Court of International Trade just went scorched Earth on Trump’s authoritayyy). 

Of course, only time will tell if the supply chain magic is the real deal or not, and whether GAP really does turn things around. But hey, at least the overall earnings numbers were fairly good. It’s just a shame that exaggerators are going to exaggerate as shares are down -19.86% for the day. For now though, keep your eyes on GAP going forward, and place your bets accordingly, friends. Until next time...

Stocks.News does not hold positions in companies mentioned in the article.