Dive Brief:
- Gap Inc. expects to begin reaping “meaningful benefits” from its tariff mitigation efforts starting in Q2 of its next fiscal year, according to its most recent earnings call.
- The majority of the improvements will result from sourcing and production adjustments as well as targeted price hikes, CFO Katrina O’Connell said on the call, which followed the release of the company’s fiscal Q3 results last month.
- “The back half of 2026 should turn to a tailwind as our actions build, and we lap most of this year's tariff impact,” O’Connell said, while noting the company anticipates effects from the duties to remain stable the next two quarters.
Dive Insight:
Like many other retailers and consumer brands, Gap has been hard at work offsetting the impact of new tariffs introduced by the Trump administration this year. In fiscal Q3, for example, the company increased prices across a few categories as a result of levies, according to O’Connell, including denim.
“We look at all the various inputs really with an eye to maintaining the overall value proposition for our consumers,” she added. “So we did take select pricing in select categories.”
Despite the efforts, Gap reported a 5% increase in inventory in the quarter, which O’Connell said was primarily attributable to higher costs from tariffs.
“We do not expect the annualization of tariffs in 2026 to cause further operating income declines,” she added.
Despite the weight of duties this year, Gap has a bullish outlook for its holiday season performance, especially coming off a Q3 in which it boosted net sales by 3%, primarily driven by its flagship and Old Navy brands.
During the quarter, the company also recorded a 30% increase in supply chain productivity on the back of new artificial intelligence and automation capabilities within its fulfillment network and sharper inventory management, per CEO and President Richard Dickson.
