Gap lists tariff costs but excludes them from forecast, shares dive

By Ananya Mariam Rajesh

May 29 (Reuters) - Gap GAP.N said on Thursday that U.S. President Donald Trump's tariffs would take a bite out of its annual operating income but offered forecasts excluding that hit, sending its shares tumbling 16% after hours.

The company expects about $250 million to $300 million in tariff-related costs, but aims to mitigate more than half of that amount.

"Exiting 2025, we now expect it (China) to be less than 3% ... our goal is for no country to account for more than 25% by end of 2026," Gap CEO Richard Dickson said.

In 2024, the company sourced less than 10% of its merchandise from China.

Tariffs have been the biggest pain point for hundreds of global companies, who have warned that costs related to moving supply chains, shipping and stockpiling were squeezing margins. Walmart WMT.N, a consumer bellwether, said it would have to increase prices.

Gap reiterated its fiscal 2025 sales forecast of 1% to 2% growth and operating income growth of 8% to 10%. It expects minimal impact to second-quarter gross margins, which is expected to be in line with the first quarter's 41.8%.

"The fact that they did not include the tariff impact in the outlook is likely weighing on the sentiment around their prospects for the rest of the year," eMarketer analyst Sky Canaves said.

The estimated tariff impact is primarily weighted to the second half of the year, according to Gap Chief Financial Officer Katrina O'Connell.

"We were very purposeful in separating the outlook from the estimated tariff impact," O'Connell added.

Gap reported first-quarter revenue of $3.46 billion, beating analysts' average estimate of $3.42 billion, according to data compiled by LSEG. It has benefited from customers shopping more at its Old Navy and namesake brands following a style refresh over the past few quarters.

Its profit of 51 cents per share beat estimates of 45 cents.