Barclays downgraded Gap Inc (NYSE:GAP) to Equal weight from Overweight, saying tariff costs and heavier promotions have shut the door on its earlier view that the retailer could reach double-digit operating margins by fiscal 2026.
The brokerage said Gap had delivered six straight quarters of year-on-year margin expansion but expects that trend to reverse starting in the second quarter of fiscal 2025 as new tariffs take effect.
Barclays estimated the tariffs, which began Aug. 7, will trim about 100 basis points from fiscal 2026 operating margins even after mitigation efforts.
Promotions have also deepened across the company’s core brands, with Athleta recording its fifth consecutive quarter of “deeper” discounts and Gap brand itself backsliding after earlier restraint.
Old Navy also softened, while Banana Republic improved as its premium repositioning gained traction.
Barclays said it now models fiscal 2026 operating margins roughly flat with fiscal 2025, instead of climbing toward its prior “blue-sky” scenario of 10%.
It sees margin expansion and top-line acceleration returning only in fiscal 2027, adding it will wait for clearer signs of sustainable improvement before turning more positive.
"We are downgrading shares of GAP to Equal Weight as we now believe that our previous blue-sky scenario for double-digit operating margins by FY26 is off the table, diminished by tariff margin pressure and macro uncertainty," analyst said.
Source :
https://www.investing.com/news/stock-market-news/barclays-cuts-gap-rating-as-tariff-pressure-ends-margin-expansion-hopes-4207271
