Gap cuts annual sales forecast on pressured discretionary spending

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.

The company, which is undergoing a turnaround, joined affordable luxury goods maker Tapestry in expecting weak sales growth in the current quarter amid pressured demand for its brands, including Old Navy.

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 also said that it returned $464 million of cash to shareholders in the form of share repurchases and dividends during the first quarter of the fiscal year.

Consumer sentiment in the U.S. slumped to a record low in May and inflation posted 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 saw quarterly sales fall for yet another quarter in the Athleta brand, while Old Navy saw sales grow at a slower pace.

The company, which has been undergoing a turnaround under CEO Richard Dickson, has been adding new styles such as high-waisted run shorts and straight-leg pull-on linen pants to attract shoppers.

Gap expects fiscal 2026 sales to be up 1% to 2%, compared with its prior forecast of 2% to 3% growth.

It also expects second-quarter sales to be flat to down 1%, compared with analysts' estimates of about 2.1% growth to $3.80 billion, according to data compiled by LSEG.

Quarterly sales of $3.50 billion missed the analysts' average estimates of $3.52 billion.

It now expects full-year adjusted profit to be in the range of $2.30 to $2.40, compared with prior forecast of about $2.20 to $2.35 per share. (Reporting by Anuja Bharat Mistry in Bengaluru; editing by Alan Barona)