The Gap Inc reported a challenging Q1 2025 characterized by a material year-over-year and sequential revenue decline, offset by relatively robust gross margins and EBITDA generation. Revenue came in at $3.463 billion, down 9.56% YoY and 16.53% QoQ, underscoring ongoing demand softness in the consumer environment. Despite the top-line pressure, gross profit reached $1.448 billion, yielding a gross margin of 41.81%, and operating income was $260 million with an operating margin of 7.51%. Net income stood at $193 million, or $0.51 per share, reflecting a disciplined cost structure alongside ongoing promotional activity. EBITDA was $407 million, supporting a mid-teens margin on a cash-generating basis, but cash flow remained burdened by working capital movements and capital reinvestments.
The company posted negative operating cash flow of $140 million and free cash flow of negative $223 million for the quarter, driven mainly by a sizable working capital outflow (-$498 million) and ongoing inventory investments. The liquidity footprint remains solid with cash and cash equivalents around $1.98 billion and total cash plus short-term investments near $2.22 billion, while total debt stood at approximately $5.49 billion and net debt around $3.51 billion, signaling a levered balance sheet that requires deleveraging over the next several quarters. In the near term, management will likely prioritize balance sheet optimization, inventory discipline, and selective promotions to protect margins while pursuing growth opportunities in e-commerce and high-potential brands like Athleta. No explicit forward guidance is included in the provided data; investors should monitor deleveraging progress, cash conversion, and ongoing cost controls as potential catalysts for improving risk-adjusted returns.