Yields remain a tight fit; maintain Marketweight

Research evidence excerpt

Yields remain a tight fit; maintain Marketweight

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Gap Inc.

Yields remain a tight fit; maintain

Marketweight

Earnings Review

Tight trading levels limit upside 23 June 2026

We maintain our Marketweight on the GAP 3.625s and 3.875s as we view risks as low High Yield Credit

but see limited spread tightening at current levels. The credit remains solid due to (1) a United States

net cash position; (2) our expectation that FY26 Adj EBITDA grows slightly year-over- Retailing

year; and (3) our estimate that FY26 free cash flow is greater than $1 billion. However,

GAP Sr Notes are rated Ba3/BB+ and yield 5.5% to 5.9% vs the BB Index at 6.0%. William M. Reuter

Therefore, upside is limited. Research Analyst

BofAS

+1 646 855 6363

william.m.reuter@bofa.com1Q26 Adj EBITDA above our estimates

1Q26 Adj EBITDA decreased 16% to $350 million largely due to (1) tariffs and (2) Michael DeRienzo

Research Analyst

elevated operating costs. Results were modestly above our Adj EBITDA estimate of $339 BofAS

million. Sales increased 1% to $3.5 billion. Comparable sales increased 2% due to michael.derienzo@bofa.com

growth in Old Navy +1%, Gap +10% and Banana Republic +2%, partially offset by a

decline in Athleta -11%. Gross margin decreased 130 bps to 40.5% due to (1) Gap Inc. (GAP)

merchandise margin -100bps and (2) deleverage of fixed costs -30bps. Based upon debt Key Data 1Q2025A 1Q2026A LTM

of $1.5 billion and cash (including short-term investments) of $2.6 billion, total leverage Operating (US$ mm)

was 0.9x and the company was in a net cash position at the end of the quarter. Revenues 3,463 3,497 15,400

Adj EBITDA 418 350 1,705

Cash from Ops (140) 213 1,646FY26 guidance tweaked

Gap reduced its FY26 sales guidance by 1% and kept the remainder of guidance Capex (83) (135) (522)