Highlights

  • Gap shows 42.01% basic EPS growth, a P/E of 6.77 and PEG of 0.83.
  • Second quarter fiscal 2026 net income was $501 million, against $216 million a year earlier.
  • Gap repurchased 26 million shares for $601 million in 26 weeks; $399 million remains authorized.
  • Second quarter gross margin of 52.8% includes approximately $417 million of net IEEPA tariff recoveries.

Basic earnings per share growth of 42.01% over one year, a trailing twelve-month P/E of 6.77 and a PEG of 0.83 on an expected basis define Gap (NYSE:GAP) as an undervalued growth stock, with shares trading at USD 22.19 on October 28, 2026, up 2.24%. Alongside those figures, the apparel retailer's Board approved a new $1.0 billion share repurchase authorization in February, the company entered a $200 million accelerated share repurchase agreement on March 10 and it reported second quarter fiscal 2026 net income of $501 million in late August.

Gap is headquartered in San Francisco, California, and incorporated in Delaware. It describes itself as a house of iconic American brands offering apparel, accessories and personal care products for men, women and children under the Old Navy, Gap, Banana Republic and Athleta names. Products are sold through Company-operated stores in the United States, Canada, Japan and Taiwan, through franchise partners in Asia, Australia, Europe, Latin America and the Middle East, and through websites.

Growth: Second Quarter Fiscal 2026 Earnings, Sales and Brand Comps

Net income was $501 million for the 13 weeks ended August 1, 2026 against $216 million a year earlier, and $840 million for the 26 weeks against $409 million. Basic earnings per share were $1.41 against $0.58, and diluted earnings per share were $1.38 against $0.57.

Net sales were $3,651 million against $3,725 million, a decrease of 2%, which the company attributed primarily to lower net sales at Old Navy Global and Athleta Global, partially offset by Gap Global. Gross profit was $1.93 billion against $1.54 billion, and gross margin was 52.8% against 41.2%, including approximately $417 million of net IEEPA tariff recoveries. Operating income was $676 million against $292 million, with operating margin of 18.5% against 7.8%.

Comparable sales declined 1%. Gap Global increased 10% and Banana Republic Global increased 3%, while Old Navy Global declined 4% and Athleta Global declined 12%.

Valuation: P/E of 6.77, PEG of 0.83 and Free Cash Flow

The P/E ratio of 6.77 is measured on trailing twelve-month earnings, and the PEG ratio of 0.83 is on an expected basis. Net cash provided by operating activities was $550 million for the 26 weeks against $308 million, and free cash flow, a non-GAAP measure, was $261 million against $127 million after purchases of property and equipment of $289 million. The company said its sustained ability to generate free cash flow is an important driver of value creation.

Capital Returns, Liquidity and Debt

Gap repurchased 11 million shares for $240 million in the second quarter, and 26 million shares for $601 million in the 26 weeks at an average cost of $22.97 per share. The $1.0 billion February 2026 program had $399 million remaining at August 1, 2026. The $200 million accelerated share repurchase agreement was fully settled on May 5, 2026.

The company paid a dividend of $0.175 per share in the second quarter, and in August the Board authorized a dividend of $0.175 per share for the third quarter. Cash and cash equivalents were $2.10 billion and short-term investments were $382 million, with no borrowings under the ABL Facility. Debt consists of $1.5 billion aggregate principal amount of 3.625 percent senior notes due 2029 and 3.875 percent senior notes due 2031.

Disclosed Risks and Outlook for Fiscal 2026

The company described a challenging retail environment shaped by geopolitical instability, inflation and changes in tariffs. The Supreme Court invalidated IEEPA tariffs in February 2026, temporary replacement tariffs expired in July 2026 and were replaced by Section 301 tariffs. Gap received about $95 million of IEEPA refunds, recorded the remaining $417 million in other current assets and said its second quarter and first half gross margins may not be indicative of the remainder of fiscal 2026.

Operating expenses were $1,253 million against $1,244 million, which the company attributed to strategic investments. Pending legal matters are not expected to have a material effect.

On the second quarter call on August 27, management said Old Navy had a modest miss against expectations with seasonal categories and slower traffic affecting the quarter, and that Athleta's top line remained pressured. It announced that Michael Francis will become Old Navy Brand President and CEO on November 2, succeeding Haio Barbeito.

Management narrowed fiscal 2026 net sales growth guidance to a range of 1% to 1.5% and raised adjusted operating margin guidance to 7.4% to 7.6% and adjusted earnings per share guidance to $2.35 to $2.45. For the third quarter, it expects net sales growth of 1.5% to 2.5%. It continues to expect capital expenditures of approximately $650 million for the year.