NEW YORK CITY, New York: Shares of Gap and American Eagle Outfitters fell sharply on May 29 after both retailers delivered disappointing forecasts, highlighting growing pressure on discretionary consumer spending and weakness in key apparel categories.

Gap, the parent company of Old Navy, lowered its annual sales outlook as it continues efforts to revive growth, while American Eagle maintained its full-year guidance but warned that profit margins could come under pressure in the near term.

Investors reacted negatively, sending both stocks down more than 12 percent. Gap was on track for its biggest one-day decline in a year, while American Eagle shares dropped as much as 19 percent, adding to losses already accumulated in 2026.

The weakness also spread beyond the United States, with shares of Swedish fashion retailer H&M slipping about one percent earlier in the day.

The results point to an increasingly divided consumer environment. Retailers are facing softer spending from lower-income shoppers, whose confidence has been hurt by the economic impact of the Iran conflict, while higher-income consumers remain more selective in their purchases.

The contrast was evident earlier this week when Abercrombie & Fitch and Bath & Body Works reported stronger-than-expected quarterly results, suggesting demand remains healthy for some affordable lifestyle and fashion products.

Dana Telsey, chief executive and chief research officer at Telsey Advisory Group, said Gap's weaker outlook was disappointing given broader consumer resilience earlier in the fiscal year. "(Gap's) moderated outlook is disappointing against the backdrop of a relatively resilient consumer through the first quarter of the fiscal year, broadly speaking," Telsey said.

Analysts said much of Gap's weakness stemmed from Old Navy, where seasonal women's clothing, including dresses, failed to resonate with shoppers. Analysts at BTIG described Old Navy as the company's "key swing factor."

Some analysts noted that Gap's expansion into higher-margin beauty products could support longer-term growth.

American Eagle also struggled with shifting consumer preferences. While its Aerie brand continued to perform well, that strength was not enough to offset weakness at the company's core American Eagle label.

Sales of women's bottoms were particularly affected by changing fashion trends and a colder-than-usual spring season.

The retailer recently launched another marketing campaign featuring actor Sydney Sweeney to attract Gen Z shoppers. The move follows a viral and controversial campaign featuring Sweeney last year that helped boost the company's stock.

However, analysts at Barclays warned that recreating last year's success may prove difficult, even as marketing expenses are expected to remain elevated this quarter.

Telsey said the American Eagle brand continues to lag well behind Aerie despite plans to refresh its women's assortment ahead of the back-to-school shopping season.

By May 28, American Eagle shares had fallen as much as 19 percent, while Gap shares were down about two percent for the year through the close on May 27.