01:00 PM EDT, 05/30/2025 (MT Newswires) -- Gap's (GAP) earnings through 2027 are likely to take a hit amid larger-than-projected headwinds from tariffs, UBS Securities said Friday.

The apparel retailer late Thursday reiterated its net sales growth outlook of 1% to 2% for fiscal 2025. However, the guidance excluded the potential impact of tariffs, given their dynamic nature, Chief Financial Officer Katrina O'Connell said during an earnings conference call, according to a FactSet transcript.

Assuming the current tariff rates stay intact, they could lead to a gross estimated incremental cost of $250 million to $300 million. After considering certain mitigation strategies, Gap said it estimates a net impact of $100 million to $150 million to 2025 operating income, mainly weighted to the back half of the year.

"Based on what we know today, we are working to develop plans to mitigate as much of the anticipated tariff impact as possible, taking actions in the short term without compromising the long-term integrity of our strategy," Chief Executive Richard Dickson said on the call.

Tariff-related remarks by the company's management indicate larger headwinds in the second half of the year than previously projected by UBS. The brokerage lowered its gross margin and earnings outlooks for Gap from 2025 through 2027.

The brokerage reduced its price target on the company's stock to $27 from $29 while reiterating its neutral rating. The shares were down nearly 20% in Friday afternoon trade.

On Thursday, a federal appeals court granted the Trump administration's request to temporarily pause a ruling that struck down a series of tariffs announced by the White House. The US Court of International Trade on Wednesday ruled that President Donald Trump overstepped his authority by imposing duties under the International Emergency Economic Powers Act.

Gap delivered a "solid" first-quarter report, with the Gap and Old Navy brands continuing to gain market share and showing robust performance in some product categories, UBS analysts Jay Sole and Mauricio Serna said. The company posted earnings of $0.51 a share on sales of $3.46 billion, both ahead of market estimates.

"However, Banana Republic and Athleta likely need much reinvestment to drive consistent positive comps and margin expansion," the analysts wrote. "If we gain conviction (management) will improve consumers' perceptions of these brands, we may reconsider our view."

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