Gap Inc. continues to show signs of being on firmer footing.

On Thursday, the San Francisco-based specialty retailer reported that net sales for the second quarter ended Aug. 2 reached $3.7 billion, which were flat compared to last year, though comparable sales, a better barometer of the business, rose 1 percent year-over-year. 

Operating income was essentially flat at $292 million from $293 million a year ago. Net income rose to $216 million, up from $206 million in the year-ago period.

“When we roll up all of the components of our business and we look at our quarter results, it’s really showing our strategy is working,” Richard Dickson, president and chief executive officer of Gap Inc., told WWD. “We had another solid quarter. We overdelivered on our profit expectations, and we achieved our top-line goals. Comps were up 1 percent in total. That’s the sixth consecutive quarter of positive comps, and our three largest brands all posted positive comps for the second quarter,” Dickson said, referring to Old Navy, Gap and Banana Republic. Gap Inc.’s portfolio also includes Athleta.

“We’ve been building a strong balance sheet. We’ve got cash balances right now of $2.4 billion, which is up 13 percent year-over-year. So this is a real story about doing what we say we’re going to do, delivering with consistency, and it’s giving us great confidence as we head into the second half.”

Despite the stronger results, the retailer’s shares fell 2.8 percent to close at $21.68.

Gap Inc. expects $150 million to $175 million in tariff impact on its fiscal 2025 operating income, which translates to 100 to 110 basis point impact on operating margin.

“What’s really important is that while there’s an impact in 2025 we do not expect the annualization of tariffs in 2026,” Katrina O’Connell, Gap Inc.’s chief financial officer, told WWD. “As we look to address tariffs this year, we’re utilizing a lot of the levers. We’ve discussed thoughtful adjustments to our sourcing. We’re looking at manufacturing, we’re looking at assortments, we are doing some targeted pricing. But we’re really focused on sustaining the momentum and market share gains that our reinvigoration playbook is driving as we pursue our tariff mitigation plans.”

Asked what’s been selling best, Dickson said, “It’s been an exciting denim season for the industry, but I think in particular, Gap brand has been leading the way.” He cited the launch last week of the “Better in Denim” campaign featuring the Katseye girl group, and said the campaign has become the number-one search on TikTok, with 400 million total views. “It’s proving Gap is a powerful pop culture brand, but the denim category for Gap and Old Navy has been outstanding for us. Going into the back half, we will continue that momentum.”

Dickson also cited the active category as a strong performer, particularly at Old Navy, fueled by a recent campaign with Lindsay Lohan and product innovation, and strategic partnerships. “Our Disney partnership this past quarter was very successful combination of what we call family appeal and trend-right products.”

Dickson continues to search for a new head of Banana Republic. The position has been vacant for over a year, though Dickson has been very involved in rejuvenating the brand.

“Banana Republic does over $2 billion worth of business. There are very few $2 billion brands in the industry so you need somebody who really understands how to operate a brand at scale. Over the last year we’ve been working very hard to reestablish the brand, the positioning, the vision, the codification, if you will, and now that we’ve evolved as a brand we’re looking for somebody who can accelerate and execute against a strategy and vision versus reshaping the brand. The brand is in very good condition now.”

Banana Republic’s second-quarter net sales of $475 million were down 1 percent compared to last year, but comparable sales rose 4 percent.

Old Navy, the largest volume brand in the Gap Inc. portfolio, generated second-quarter sales of $2.2 billion, up 1 percent compared to last year. Comparable sales rose 2 percent. “Old Navy continues to demonstrate consistency in execution with reinvigoration efforts continuing to progress,” the company indicated in a statement issued Thursday.

Gap brand’s second-quarter net sales of $772 million were up 1 percent compared to last year. Comparable sales were up 4 percent, achieving positive comparable sales for the seventh consecutive quarter.

Athleta’s second-quarter net sales of $300 million were down 11 percent compared to last year, while comparable sales were down 9 percent. “The brand continues to focus on resetting for the long term and improving its product and marketing, which will take time,” the company noted.

In other statistics, Gap Inc.’s store sales decreased 1 percent compared to last year, but online sales increased 3 percent and represented 34 percent of total sales. The company ended the quarter with about 3,500 store locations in over 35 countries, of which 2,486 were company-operated.

Asked why store sales were down slightly, Dickson replied, “We believe in our stores. Stores are a really important way for our customers to experience our brand. We’re also at a pivotal point with our fleet, which is positioned much more optimally. We’ve been doing a lot of coming back over the last several years. We’re also testing some new formats and experience like Gap in Flatiron and Banana Republic in SoHo,” Dickson said, referring to the two Manhattan neighborhoods where prototype-like stores were created.

“We believe we’ve got great opportunity to drive more business out of our stores,” Dickson said. “But on balance, we really look at our omnichannel approach as a way to gauge our business and our consumer reaction.” Some of the decline in store sales is due to closures, particularly at Banana Republic, but traffic overall at the stores was up last quarter.

Gross margin in the second quarter came to 41.2 percent and decreased 140 basis points versus last year. Merchandise margin decreased 150 basis points versus last year, primarily driven by lapping the benefit of incremental sales in the second quarter of fiscal 2024 relating to the company’s revenue-sharing agreement with its credit card partners.

“Gap Inc. overdelivered on profit expectations and achieved our top-line goals. With positive comps for the sixth consecutive quarter, fueled by our three largest brands Old Navy, Gap and Banana Republic, it’s clear our strategy is working,” Dickson said in his prepared statement. “Two years ago, I shared my vision for leading Gap Inc. into an exciting new chapter. Since then, we’ve built a stronger foundation with more relevant brands, a sharper operating platform, and a more unified culture while consistently demonstrating agility and resilience in dynamic environments. We are advancing our transformation with discipline, clarity, and momentum and remain committed to building a high-performing company that delivers sustainable, long-term value for our shareholders.”

The company ended the second quarter with cash, cash equivalents and short-term investments of $2.4 billion, an increase of 13 percent from the prior year.