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Gap (GAP) CEO Richard Dickson says his turnaround of the retailer remains intact despite trade war headwinds.
"No," Dickson told Yahoo Finance (video above) on whether the trade war has stalled his progress.
Dickson added, "Like any business, we're constantly navigating complexity. And there's a lot of complexities in running a business. And in this case tariffs is a focus. But it's our responsibility to do so without ever compromising the long-term integrity of our strategy."
Gap shares were pounded by about 20% Friday in the wake of its first quarter results.
While the company beat analyst sales and profit forecasts, it warned of a large hit to operating profits this year at the hands of tariffs. Some analysts estimated the impact could be about $0.25 a share for the year.
To navigate the volatile trade backdrop, Gap is lowering its sourcing from China from less than 10% in 2024 to less than 3% exiting the year. By the end of 2026, no single country should account for more than 25%. The company is also doubling its vendor sourcing for American-grown cotton in 2026.
"Overall, Gap is executing very well, delivering top-line consistency at Old Navy and Gap (and management said 2Q is off to a good start), gross margin upside and showing cost discipline. While we expect Gap to be in the penalty box near-term on the Gap brand falling short of market expectations and tariff guidance, we believe risk/reward is especially attractive [on the stock's decline]," Citi retail analyst Paul Lejuez said in a note.
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Net sales: +2% year over year to $3.5 billion, vs. $3.42 billion estimate
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Comparable sales:
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Old Navy: +3% compared to +3% last year, vs. +1.7% estimate
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Banana Republic: 0% compared to +1% last year, vs. +1.6% estimate
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Gap: +5% compared to +3% last year, vs. +3.25% estimate
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Athleta: -8% compared to +5% last year, vs. -1.94% estimate
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Gross margin: 41.8% compared to 41.2% last year, vs. 41.6% estimate
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Diluted earnings per share: $0.51 vs. $0.45 estimate
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Trade war effects: Inventory levels rose 7% from the prior year.
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Trend watch: The company's same-store sales have gained for five straight quarters.
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Flush with cash: The company's total cash position surged 28% year over year to $2.2 billion.
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Warning: If tariffs stay in place at current levels, it could cost Gap $250 million to $300 million this year. Guidance does not include this impact, Gap says. Gap adds it could mitigate about half of the tariff impact — bringing a $100 million to $150 million potential hit to operating income.
