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Gap (GAP) is trading sharply higher after reporting its Q3 (Oct) results last night. It beat EPS expectations, while revenue accelerated, increasing 3% yr/yr to $3.9 bln, in line with expectations. It also raised FY26 revenue guidance to $15.36-15.40 bln from $15.24-15.39 bln, which was above expectations.

• Comp sales accelerated to +5% from +1% in Q2, marking its best quarterly comp in over four years and the seventh straight quarter of comp growth.
• By brand, Gap led with comps +7% (+4% in Q2), Old Navy followed at +6% (+2% in Q2), and Banana Republic delivered +4% (+4% in Q2). Athleta remains a laggard with comps -11%, down from -9% in Q2.
• Gross margin declined 30 bps to 42.4% as tariffs weighed on profitability, but results were still better than expected. Lower discounting supported AUR growth, while operating margin of 8.5% fell 80 bps, including an estimated 190 bps tariff headwind, which implies roughly 110 bps of underlying margin expansion.
• The back-to-school season was strong, and management noted a positive early read on holiday trends, supported by trend-right assortments and refreshed marketing. Furthermore, it expects tariff pressure to remain similar in Q4, but mitigation efforts should begin to offset the impact as the company moves into the new year.

Briefing.com Analyst Insight

GAP's Q3 results showcased broad-based strength across its three largest brands, driving its best comp performance in over four years. Old Navy was a standout this quarter, with management noting that its value-focused assortments resonated across all income cohorts, underscoring continued consumer demand for accessible price points in an uneven macro environment. Athleta remains the key drag as the brand undergoes a broader strategic reset under new leadership. Management cautioned that the turnaround will take time, with early efforts centered on reestablishing Athleta's premium positioning, making it a watch point in the quarters ahead. With that said, raised guidance, improving tariff mitigation, and solid early holiday momentum suggest GAP is heading into the new year on stronger footing.