Gap (GAP) may be the lone retailer this spring to stand up to the dual headwinds of a tariff-wielding president and a prickly Mother Nature. 

The company on Thursday bucked the trend of ugly retailer earnings this week, beating profit estimates and signaling a respectable year ahead. Gap's full year outlook was generally in line to consensus forecasts despite tariffs impact in the key sourcing region of China. 

"Looking ahead, 2025 represents an exciting step in our ongoing transformation as we continue to drive toward becoming a high performing house of iconic American brands that delivers long-term value for our shareholders," Gap CEO Richard Dickson said in a statement. 

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The company appears to be benefiting from a sticky turnaround at the Gap division, led by improved marketing campaigns and better styles under the watch of new lead designer Zac Posen. Old Navy looks to be getting its house in order as it follows a similar playbook to Gap.

Efforts to diversify production out of China in recent years is also helping the brand spin a better narrative relative to others in retail. 

Gap relies on China for 10% of its sourcing. About 29% and 18% of its merchandise is purchased from factories in Vietnam and Indonesia, respectively.

"Core Gap seems to be breaking away into a higher trajectory on better product/marketing, we think that Old Navy will repeat its history of significant acceleration as weather turns, and we believe Athleta will also accelerate as transitory income statement headwinds roll off and brand CEO Chris Blakeslee (formerly at Alo) shows the brand turnaround he’s been building to for 18 months," said Evercore analyst Michael Binetti.

"Within a few months, Gap could be one of the more encouraging same-store sales acceleration stories in softline retail with multiple brands in the portfolio contributing to positive EPS revisions." 

Earnings analysis:

• Net sales: -3% year over year to $4.1 billion vs. $4.07 billion estimate 

• Comparable sales:

  • Old Navy: +3% compared to +2% last year, vs. +1.74% estimate

  • Banana Republic: +4% compared to -4% last year, vs. -1.24% estimate

  • Gap: +7% compared to +4% last year, vs. +1.67% estimate

  • Athleta: -2% compared to -10% last year, vs. +4.6% estimate

• Gross margin: 38.9% compared to 38.9% last year, vs. 38.1% estimate

• Diluted EPS: $0.54 vs. $0.38 estimate

What else caught our attention:

• No pre-holiday inventory bulge: Inventory levels rose 3.6% from the prior year.

• Trend watch: Company's same-store sales rose in all four quarter of 2024.

• Flush with cash: The company's total cash position surged 38% year over year to $2.6 billion.

• Guidance:

• 2025

  • Net sales: +1% to +2% (consensus: +2%)

  • Operating income: +8% to +10% (consensus: +2%)

• Q1 2025

  • Net sales: flat to up slightly (consensus: +1%)

  • Gross margin: up slightly (consensus: flat)

Industry vibe

It has been a bad start to earnings season for America's biggest retailers. 

Profit warnings have mounted as cautious consumers pulled back on spending after the holidays. Bad weather across the country has delayed early spring buying on items like clothes and bikes. And execs have issued below consensus 2025 outlooks as they plan for a barrage of costly Trump tariffs.

Walmart's (WMT) outlook was poorly received by investors in mid-February. Rival Target (TGT) didn't have much good to say either this week when it reported fourth quarter results and guidance. 

Abercrombie & Fitch's (ANF) outlook was shy of estimates, ditto Best Buy (BBY) and Macy's (M).

Coresight Research founder and CEO Deborah Weinswig said on Yahoo Finance's Morning Brief the retail backdrop remains "volatile."

Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.

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