Forecasting in Trump's America has become akin to a high-risk sport. Tariffs appear to shift at the whim of the president, influenced by legal rulings. Despite these uncertainties, fashion brand Gap issued a warning on Thursday about the potential financial hit from the trade war, which could lead to additional costs up to $300 million. This, coupled with disappointing results, led to a dramatic fall of approximately 15% in the company's stock value, outside usual trading hours.

Gap anticipates a 1% to 2% sales increase over last year's $15.1 billion revenue and an 8% to 10% rise in operating profits, which were nearly $1.1 billion last year. However, these projections omit the trade war's effects. Should tariffs persist at current rates—30% on most Chinese imports and 10% on others—the firm estimates a gross additional cost ranging from $250 to $300 million.

Gap claims to have strategies to mitigate more than half of this cost. "After factoring in these mitigation strategies, we estimate a net operating impact of $100 to $150 million for fiscal year 2025, primarily affecting the latter half," the company explains. Gap's fiscal year runs from February to January, making 2025 the current year. Given Gap's forecast of an $88 to $110 million increase in operating profit, tariffs could potentially reduce this compared to last year.

In the first fiscal quarter, Gap's sales rose 2.2%, reaching $3.463 billion. Net profit improved by 22% to $193 million, as reported to the U.S. Securities and Exchange Commission. Despite these figures, investors were dissatisfied. The company's operating activities consumed $140 million in cash, attributed mainly to "seasonality." A year prior, they had generated $30 million in cash flow during the same period. Free cash flow, defined as net cash from operations minus property and equipment purchases, was negative $223 million, compared to negative $63 million the previous year.

Quarter-end inventory stood at $2.1 billion, marking a 7% increase from last year, largely due to early merchandise arrivals in an effort to circumvent tariffs.

Banana Republic, Gap's higher-priced chain, also faced challenges. First-quarter net sales fell 3% to $428 million, while comparable sales remained steady. "Banana Republic is focused on brand restoration and enhancement, showing promising early signs," states the firm.

Athleta, Gap's athletic apparel line, experienced a sales drop of 6% (8% in comparable terms), totaling $308 million. "Efforts are underway to restructure the brand, improve products, and refine marketing, which will take time," the group notes.

Gap itself, the group's namesake brand, fared better. Its first-quarter sales increased 5% to $724 million. "Gap maintained clarity and consistency in executing its brand revitalization strategy, achieving positive comparable sales for the sixth consecutive quarter and gaining market share for the eighth," the company reports.

Old Navy, the company's flagship label, saw a 3% sales rise to $1.981 billion. Together with Gap, these brands accounted for 78% of quarterly revenue.

Relying heavily on the U.S. market, which comprises 88.5% of sales, the company concluded the first quarter with 2,496 stores, ten fewer than three months earlier, and also sells via a thousand franchises.

Richard Dickson, Gap's CEO, maintains an optimistic outlook amidst turbulent times. "Gap delivered strong first-quarter results, surpassing financial expectations and gaining market share for the ninth consecutive quarter," he declared. "We've recorded positive comparable sales for the fifth straight quarter, with our major brands, Gap and Old Navy, increasing market share, highlighting the effectiveness of our brand revitalization strategy," he emphasized. "These results further prove our strategy's success. Despite this dynamic environment, we remain optimistic yet realistic, focusing on controlling what we can as we build our company for long-term growth," he added.