Key Points
The Gap beat on earnings and met expectations for sales last night.
Gap earned $0.52 per share not counting tariff refunds -- and nearly three times that if you do count the refunds.
Clothing chain The Gap (NYSE: GAP) stock soared 13% through 11:35 a.m. ET Friday after exceeding analyst targets for earnings last night.
Heading into its Q2 report, Wall Street had Gap pegged for a $0.49 per share profit on sales of $3.7 billion. Gap met the sales forecast and beat on earnings, reporting pro forma profit of $0.52 per share.
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Gap Q2 earnings
Not all Gap's news was good. While sales met expectations, they declined 2% year over year, including a 1% decline in same-store sales. Despite investors' positive reception, CEO Richard Dickson called these results "modestly below expectations."
Gap noted that its gross profit margin grew 1,160 basis points -- but refunds of Trump tariffs accounted for 1,1401 of this improvement. Back out the tariff refunds, and the improvement was less than 20 basis points -- moving in the right direction, granted, but only just barely.
One point worth noting, though: The $0.52 per share profit that Gap reported for the quarter does not count the tariff refunds. Factor those into the mix, as earnings calculated under generally accepted accounting principles (GAAP) do, and Gap ended up earning $1.38 per share in the quarter -- nearly three times the headline number!
What's next for Gap stock?
And turning to guidance, the news gets even better: Gap anticipates sales shifting back into growth mode shortly and forecasts sales up 1% to 1.5% by the end of 2026.
Gross and operating profit margins are also expected to rise, resulting in $2.35 to $2.45 per share profit before adding tariff refunds. After adding these refunds, Gap should easily exceed analysts' forecast of $2.72 per share in profit this year.
And the more times Gap beats earnings this year, the higher its stock should soar.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.