Old Navy appoints new CEO as Gap addresses underperformance in Q2

US specialty apparel giant Gap Inc. announced its second quarter financial results for the period ended August 1, 2026. The company experienced a top-line decline, with net sales decreasing 2 percent year-over-year (YoY) to 3.7 billion dollars, while comparable sales dropped 1 percent. Store sales fell 3 percent compared to the prior year across its portfolio of 2,471 company-operated retail locations. Online sales fell 1 percent YoY, representing 35 percent of total net sales.

To address underperformance at its largest division, Gap announced the appointment of Michael Francis as president and chief executive officer of Old Navy, effective November 2, 2026.

“While top-line results in the second quarter were modestly below expectations, continued operational and financial rigor contributed to gross margin strength resulting in the Company exceeding profit expectations,” said president and CEO, Richard Dickson.

“We are particularly proud of the momentum at the Gap brand, which posted another quarter of double-digit comparable sales. We have work to do at Old Navy, but we have a clear understanding of the factors that impacted performance and are taking targeted actions that are already driving improved results,” Dickson added.

Despite sales drop, operational discipline led to profit expansion

Reported gross margin stood at 52.8 percent, up 1,160 basis points YoY, heavily boosted by 1,141 basis points of net benefit related to expected tariff refunds under the International Emergency Economic Powers Act (IEEPA). Adjusted gross margin, which excludes this benefit, rose 20 basis points to 41.4 percent.

Operating income reached 676 million dollars on a reported basis, while adjusted operating income stood at 259 million dollars, generating an adjusted operating margin of 7.1 percent. Net income totaled 501 million dollars, or 1.38 dollars per diluted share. Adjusted net income reached 190 million dollars, or 0.52 dollars per diluted share.

Divergent brand performance across portfolio

Performance across the corporate portfolio diverged significantly during the second quarter:

Gap: Net sales rose 9 percent YoY to 844 million dollars, with comparable sales surging 10 percent. Strong demand in destination categories such as denim, fleece, and kidswear drove double-digit momentum.

Old Navy: Net sales fell 4 percent YoY to 2.1 billion dollars, with comparable sales down 4 percent. Weakness stemmed from softness in the womenswear seasonal assortment and lower store traffic.

Banana Republic: Net sales grew 1 percent YoY to 478 million dollars, supported by a 3 percent increase in comparable sales across both menswear and womenswear assortments.

Athleta: Net sales declined 12 percent YoY to 264 million dollars, with comparable sales dropping 12 percent as the athletic brand focuses on operational rebuilding.

Leadership shift at Old Navy

Francis, who joined the group in March 2026 as chief customer officer of Old Navy and head of marketing shared services, succeeds Haio Barbeito. Barbeito will transition into an advisory role after overseeing revenue growth of nearly half a billion dollars during his tenure.

Francis brings four decades of retail executive experience, including a decade as chief marketing officer at Target and ten years consulting for Walmart. In his new capacity, Francis will focus on refining omnichannel customer experiences, improving in-store executions, and restoring commercial momentum across womenswear and core family categories.

Tariff relief and updated fiscal 2026 outlook

Following updated Section 301 policies in July, the group expects an additional 15 million dollars in net tariff relief, benefiting full-year gross profit primarily in the fourth quarter.

For the full fiscal year 2026, Gap Inc. revised its net sales outlook to growth of 1 percent to 1.5 percent YoY. The revision factors in Old Navy comparable sales of flat to down 1 percent, offset by higher expectations for the Gap brand, where comparable sales are now projected to increase in the high-single to low double-digit range. Full-year adjusted operating margin is projected between 7.4 percent and 7.6 percent, with adjusted diluted earnings per share targeted at 2.35 dollars to 2.45 dollars.

For the third quarter of fiscal 2026, the retailer anticipates net sales growth of 1.5 percent to 2.5 percent YoY, with gross margin expanding between 25 and 75 basis points.