Gap Inc.’s latest quarter was a tale of solid top-line progress colliding with a jarring new cost curve.  Fiscal 1Q 25 revenue inched 2 % higher to $3.5 bln and diluted EPS of $0.51 beat estimates by nearly twenty cents, helped by continued traffic gains at Old Navy and core Gap stores.  Yet the upside was eclipsed by management’s stark warning that the Trump administration’s fresh tariff rounds could saddle the company with $250-$300 mln in incremental duties this fiscal year.  After mitigation—mostly vendor cost sharing, country-of-origin shifts and selective price increases—the net hit to operating income is still pegged at $100-$150 mln, concentrated in the back half.  Shares, up 45 % year-to-date into the print, promptly gave back more than 16 % as investors recalibrated the margin trajectory.

• Comp sales: Company‐wide comps rose +5 %, led by Old Navy at +7 %; Banana Republic (-3 %) and Athleta (-2 %) remained laggards.
• Digital mix: E-commerce grew 6 % and now represents ~40 % of sales, giving Gap some pricing flexibility as tariffs bite.
• Tariff math: Management’s base-case assumes the 25 % duties on Vietnamese and Indian apparel hold all year, layered on top of existing China levies; every 100 bps of additional duty would shave roughly $30 mln off EBIT.
• Sourcing diversification: CEO Richard Dickson stressed that product sourced from China dropped below 10 % in calendar 2024 and should fall further, while no single country will exceed 25 % by 2026—buffering future shocks.
• Guidance: FY25 EPS view stays at $2.05-2.25, but the range now explicitly embeds the $100-$150 mln tariff drag; 2Q sales are guided “roughly flat” as Banana and Athleta turnarounds continue.
• Balance sheet: Inventory dollars fell 14 % Y/Y, giving Gap room to chase trends without resorting to deep promotions if tariff-driven price tags pinch demand.
• Peer read-through: With Nike sourcing ~25 % of units from Vietnam and Abercrombie still >15 % China-exposed, the sector faces similar duty shocks—yet few have publicly quantified the hit as explicitly as Gap just did.

Bottom line:  Gap just reminded the entire apparel complex that diversification is necessary but not sufficient when trade policy turns punitive.  The company’s early work moving production out of China softens the blow, but a potential $0.25-0.35 EPS headwind forces investors to fade what had looked like an accelerating recovery story.  If Old Navy keeps comping mid-single digits and tariff mitigation tracks to plan, the stock—now back near $18—could rebuild toward the mid-20s as early as holiday ’25.  A wider tariff net or a stumble in the Banana/Athleta revamps, however, would likely cap any rally and keep apparel retailers trading defensively while Washington’s trade chess match plays out.