Gap falls 2% as holiday sales miss at Old Navy, Athleta
Winter storms forced 800 temporary store closures, weighing on critical quarter for retailer
Gap Inc. shares fell 1.95% to $27.20 on Thursday after the retailer reported fourth-quarter sales that missed analyst expectations, with its largest brand Old Navy and athletic-wear label Athleta underperforming during the crucial holiday period.
The disappointing results came as historic winter storms across the United States forced approximately 800 temporary store closures in January and February, disrupting what retailers count on as their most important quarter of the year. The extreme weather dealt a particular blow to Gap and Old Navy locations, according to market reports of the earnings release.
The company reported adjusted earnings per share of $0.45 for the quarter, matching Wall Street estimates, while revenue increased by $87 million compared with the same period last year. However, the sales growth fell short of investor expectations that had been built on the retailer's recent turnaround momentum.
Old Navy, which accounts for roughly half of Gap's total revenue, was the primary drag on performance. The value-focused brand had been a bright spot in recent quarters as budget-conscious consumers sought affordable apparel amid economic pressure. Athleta, the athleisure brand that had been positioned as a growth driver, also disappointed, signaling challenges in sustaining momentum beyond the pandemic-era activewear boom.
The timing of the weather disruptions proved particularly damaging, falling during the post-holiday clearance period when retailers work to manage inventory and drive margins. Gap operates more than 3,300 stores globally under its Gap, Old Navy, Banana Republic, and Athleta banners.
Despite the quarterly setback, Gap has been on a broader recovery trajectory. The company's shares have climbed from a 52-week low of $16.48 in 2024, reflecting investor confidence in chief executive Richard Dickson's turnaround strategy, which has emphasized refreshed merchandise assortments and improved operational discipline.
Analysts remain broadly positive on the retailer's prospects, with an average target price of $30.71—roughly 13% above Thursday's closing price. The stock currently trades at 12.3 times earnings, a premium to traditional retail but below the valuations of higher-growth apparel peers.
The weather-related disruptions highlight the ongoing vulnerability of brick-and-mortar retailers to climate-related operational risks, even as Gap has invested heavily in its e-commerce capabilities. The company has emphasized its digital transformation in recent years, aiming to reduce dependence on store traffic while maintaining its physical footprint as an advantage in the competitive apparel market.
Gap's dividend yield of 2.3% provides additional income for shareholders at a time when many retailers have suspended payouts to preserve cash. The company's next dividend of $0.645 per share is scheduled for late April, according to the current dividend calendar.
Investors will be watching management's commentary on early spring trends, particularly whether the weather disruptions in January and February created pent-up demand that could boost first-quarter performance, or whether the missed sales during the critical holiday period represent permanent revenue loss rather than merely delayed purchases.
The retailer's fiscal 2025 results, also reported Thursday, showed annual revenue of $15.3 billion, with full-year profit margins holding steady at 5.6%. That performance reflects progress in Dickson's multi-year effort to stabilize the business after years of market share losses to fast-fashion competitors and direct-to-consumer brands.
Looking ahead, Gap faces the challenge of demonstrating that the Old Navy and Athleta shortfalls are temporary setbacks rather than evidence of deeper strategic issues, particularly as consumers remain selective about apparel spending in an uncertain economic environment.