Gap Stock Drops 20%, Turns Red YTD as Outlook Eclipses Strong Q1

Gap Inc. (NYSE: GAP) delivered a textbook lesson in volatility today, with the stock more than 20% at $22.16 this morning; erasing its year-to-date gains and turning sharply negative for 2025 (-6.14%) in one foul swoop. The dramatic reversal followed an initially upbeat reaction to Gap’s first-quarter fiscal 2025 results, which topped analyst expectations on both revenue and earnings.

Yet, the company’s cautionary guidance on the potential impact of new tariffs sent investors into a selling frenzy, illustrating how quickly macroeconomic headwinds can overshadow operational progress in the retail sector.

Gap reported robust Q1 numbers: earnings per share of $0.51, comfortably beating the consensus estimate of $0.44, and revenue of $3.46 billion, ahead of the $3.41 billion forecast. Net sales advanced 2% year-over-year, with comparable sales also up 2%. The company’s operating margin expanded by 140 basis points to 7.5%, and digital sales surged 6%, now accounting for 39% of total net sales. Brand performance was solid, with Gap brand sales up 7%, Old Navy up 3%, and Banana Republic rising by 4%.

However, the mood shifted abruptly in after-hours trading. Gap’s management warned that recently imposed tariffs could reduce full-year operating income by $100 million to $150 million. The market’s reaction was swift: shares tumbled 14.85% after hours, with the rout accelerating to more than 20% in regular trading the next day. The stock, which had been a standout retail performer, was suddenly underwater for the year.

The release prompted swift reactions from Wall Street analysts. UBS lowered its price target to $27 (from $29), maintaining a Neutral rating and citing the risk of larger second-half headwinds from tariffs.

Citi trimmed its target to $30 (from $33) but kept a Buy rating, noting that while the Q1 beat was impressive, the Gap brand’s results and tariff commentary left investors unsettled.

Barclays reduced its target to $32 (from $33), reiterating an Overweight rating and calling the Q1 beat “convincing,” yet acknowledging that the tariff impact and high expectations had set the stage for the sharp pullback.

Gap Inc.’s sharp reversal highlights the precarious balance between operational execution and external risk factors in today’s equity markets. While the company’s Q1 performance and brand momentum are encouraging, the stock’s plunge reflects deep investor unease about tariffs and the broader retail environment. This is a perfect example of markets paying a lot more attention to guidance and outlook, than the actual numbers at times.