May 28 (Reuters) – Apparel retailer Gap cut its annual sales forecast on Thursday, signaling pressure from budget-strained Americans pulling back on discretionary spending amid macroeconomic uncertainty, sending shares down about 14% after the bell.
Apparel maker American Eagle Outfitters’ shares also tumbled about 11% as it held on to its annual sales forecast, signaling cautious consumer behavior.
Consumer sentiment in the U.S. slumped to a record low in May, and inflation posting the largest gain in three years underscores mounting pressure on households, which are looking to dip into savings and cut back on nice-to-have items.
Gap, which is undergoing a turnaround, saw quarterly sales fall for yet another quarter in the Athleta brand, while Old Navy saw sales grow at a slower pace. It also forecast weak current-quarter sales.
Last week, big-box retailers Walmart and Target cautioned about muted spending.
Gap expects fiscal 2026 sales to be up 1% to 2%, compared with its prior forecast of 2% to 3% growth.
However, Gap raised its annual profit forecast as it expects about $80 million relief from tariffs to boost gross profit and operating income in fiscal 2026.
The company said its outlook reflects a balanced approach, factoring in favorability from updated tariff assumptions while also taking into consideration potential uncertainties in the operating environment over the balance of the year.
It also said it returned $464 million of cash to shareholders in the form of share repurchases and dividends during the first quarter of the fiscal year.
Quarterly sales of $3.50 billion missed the analysts’ average estimates of $3.52 billion, according to data compiled by LSEG.
It now expects full-year adjusted profit to be in the range of $2.30 to $2.40, compared with its prior forecast of about $2.20 to $2.35 per share.
American Eagle continues to expect full-year comparable sales to grow in mid-single digits.
(Reporting by Anuja Bharat Mistry in Bengaluru; editing by Alan Barona)
