After 10 consecutive quarters of gains, Gap Inc. saw sales decline 2 percent in the second quarter, impacted by fashion misses at Old Navy, where a change in command was disclosed.
Michael Francis in November will step up as president and chief executive officer of Old Navy, succeeding Haio Barbeito, who transitions into an advisory role. Francis joined Gap Inc. last March as chief customer officer for Old Navy and head of marketing shared services. He’s best known for playing a pivotal role as Target’s chief marketing officer in the 2000s, molding the store’s “cheap chic” identity by tying low prices to trendy, modern designs.
Gap Inc.’s sales during the second quarter ended Aug. 1 were down 2 percent to $3.65 billion, from $3.73 billion in the year-ago period. Comparable sales were down 1 percent.
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However, Gap Inc.’s second-quarter operating income more than doubled to $676 million, from $292 million a year ago. Net income rose to $501 million, or $1.38 per diluted share, from $216 million, or $0.57 per diluted share in the year-ago period.
The San Francisco-based company revised downward its forecast for 2026 sales to a 1 percent to 1.5 percent gain, from the previous forecast for a 1 percent to 2 percent gain. Last year, Gap Inc. generated $15.4 billion in sales.
But Gap Inc. did raise its outlook on 2026 earnings per diluted share to $2.35 to $2.45, from the previous forecast of $2.30 to $2.40. For the third quarter this year, the company expects sales to rise 1.5 percent to 2.5 percent, year-over-year.
Wall Street, apparently liked the earnings situation at Gap Inc., and in immediate after-hours trading Thursday, investors pulled the company’s stock price up over 11 percent, or $2.36, to about $23.19.
“After running 10 consecutive quarters of consistency, this was the first quarter that we’re reporting a slight decrease,” Gap Inc. president and chief executive officer Richard Dickson told WWD. “We’re classifying it as a mixed quarter. It’s important to recognize that we did continue to exceed our profit expectations, and we did slightly underperform at the top line, but we also maintained our market share. We grew AUR (average unit retail price) across all brands. We also outperformed our gross margin and our SG&A outlook, and our balance sheet remains very strong. So, yes, there was a slight miss, which we’re not happy with. But ultimately, I’m very happy with the operating and financial discipline that we put in place exceeding our profit expectations.”
Old Navy’s net and comparable sales fell 4 percent to $2.1 billion. In contrast, the Gap brand continued its winning ways of the past two years by posting a 9 percent sales gain to $844 million, with comparable sales up 10 percent.
Banana Republic, which has been overhauled over the last several seasons, posted a 1 percent sales gain to $478 million; comparable sales rose 3 percent comp. Athleta, continuing its turnaround efforts, saw both net and comparable sales drop 12 percent to $264 million.
“The real challenge for us was at Old Navy. We didn’t execute well on our seasonal assortment,” Dickson said in the interview. “The categories that really represented the challenge were swim, shorts, and dresses. But we diagnosed it, and sales have improved in August as fall product set in. The seasonal categories are behind us and we’re on the right track. As we entered into the third quarter, we’re in a much better place from a product point of view. As these seasonal categories become much less important, we really start to see significant contribution from our denim business, our active business, and sweaters. Knits and denim have become much more meaningful. We continue to build on this with more fits and fashion at great value. On the active front, we’re launching Old Navy Sport in mid-September.”
Asked if the change in command at Old Navy was due to the slippage at the brand, Dickson replied, “No. This was a planned and thoughtful transition. Michael Francis has incredible experience that aligns really well with the phase we’re entering for Old Navy. He brings vast experience with some of the world’s largest consumer and retail organizations, Target, Walmart, entertainment companies like DreamWorks. I’ve been working closely with Michael since he joined in May. He’s already had some meaningful impact for the back half, and he’s going to assume the role officially in November. After which Haio will move into an advisory role. So it’s a really smooth transition, and one that’s been planned and thoughtful.”
At Gap brand, Dickson said, “We’re firing on all cylinders. There’s been 11 consecutive quarters of positive comps, including another double-digit comp quarter. We’ve seen improvements in traffic, units, AURs, and the great thing is that it’s truly broad-based across categories and channels. We saw men’s improve, women’s continue with momentum, as did kids and baby. We strengthened our market position, rising to a number-four ranking from six in kids and baby. We gained share and ranking in fleece, where we’re now the number-six brand. Our customer file is growing, particularly as we attract new Gen Z customers. At the same time, we’re preserving our multigenerational appeal.”
Dickson said that at the Gap brand, there’s strength in denim, reduced reliance on discounting and the recent collaboration with Hailey Bieber was successful. “The brand’s consistency gives us license to expand into other categories,” Dickson said, noting the recent relaunch of Gap fragrance and an expansion into accessories with Gap bags next month.
At Banana Republic, “We spent a lot of time reorienting the brand” in design, brand identity, product quality, aesthetics, and pricing, Dickson said. Banana has also been testing new store designs and refreshed its e-commerce experience. “All of this has led to consistency. This was our fifth consecutive quarter of positive comps.”
He said Athleta “remains our rebuild brand. The priority is to restore the momentum and restore it into a stronger foundation for long-term growth. Despite the challenging top line, we’re actually making some really good progress. We’re running leaner inventories and a leaner assortment, which is driving higher productivity in turns. We are doing much less discounting and more regular-price selling, which is also driving a healthier margin. We’ve got some great customer acceptance on the new product, particularly the Journey Collection, which was a six-piece collection focused on travel and wardrobing. We recently brought in new talent in digital and merchandising.”
Francis said that at Old Navy, “We will continue to sharpen our customer focus, strengthen the brand’s cultural relevance, enhance the customer experience across every touchpoint, and build on the momentum already underway.”
Francis’ work at Target went a long way to differentiating the retailer from Walmart and the now-defunct Sears and Kmart as well as department stores, dollar stores and off-pricers. After Target, Francis was lured by JCPenney’s then-CEO Ron Johnson to serve as president in 2012. Johnson was rolling out a bold transformation strategy at the struggling Penney’s, which quickly proved to be flawed as it ignored what customers wanted, and nearly put Penney’s out of business. But it was a short stint for Francis, who lasted only eight months there. He later became chief global brand officer at DreamWorks Animation. He has also worked on a consulting basis at times, advising Walmart and Old Navy in the past.
Dickson credited Barbeito for “strengthening Old Navy’s foundation, scaling its strategic categories and positioning the business for its next phase of growth.”
