Gap Inc. shares climbed approximately 17% in premarket trading Friday after the apparel retailer announced that industry veteran Michael Francis will become president and CEO of Old Navy, its largest brand. Francis, who takes over on November 2, replaces Haio Barbeito amid ongoing struggles at the value-priced chain.
The leadership change comes as Old Navy works to reverse a downturn, particularly in women's apparel. The brand reported a 4% decline in comparable sales for the second quarter, its first drop in 12 quarters, as seasonal merchandise and a sharper-than-expected slowdown in customer traffic weighed on results.
CEO Richard Dickson said the company is entering the second half with mixed performance across its brands. While Gap and Banana Republic have shown stronger results since Dickson took the helm in 2023, Old Navy has remained a key weak spot. Dickson acknowledged that revenue fell short of expectations, though operational discipline helped support gross margins.
Focus on denim and activewear
To revive Old Navy, Gap plans to emphasize denim, activewear, sweaters, and knits. Management noted that Old Navy is the third-largest denim brand in the U.S. and sees opportunities in styles like low-rise and baggy jeans. The retailer also intends to expand its activewear offering with Old Navy Sport this fall, betting on categories that resonate with its core customers.
Analysts view the leadership change as critical to the broader turnaround. Jefferies said the appointment underscores management's focus on stabilizing Old Navy, given its importance to the company. Neil Saunders, managing director of GlobalData, told Reuters that while Old Navy's customer base is under pressure, the brand has also failed to give consumers enough reasons to shop.
Mixed guidance
Gap topped quarterly expectations, supported by stronger pricing and sales at its namesake brand, and raised its annual profit forecast. However, it narrowed its fiscal 2026 revenue growth outlook to 1%-1.5% from the prior range of 1%-2%, citing economic uncertainty. At the same time, adjusted earnings-per-share guidance was lifted to $2.35-$2.45 from $2.30-$2.40.
The contrasting guidance highlights the challenges Gap faces as it seeks to improve profitability while rebuilding sales momentum at Old Navy. Saunders said Gap could finish the year with positive sales, but the retailer needs its largest brand to regain momentum for the turnaround to progress convincingly.
Morgan Stanley raised its price target on Gap to $23 from $21, maintaining an Equalweight rating. The firm cited better-than-expected second-quarter results, constructive trends at Old Navy, and resilient margins, but said it wants more evidence that the brand can improve in the second half.
Gap's forward 12-month price-to-earnings ratio stood at 8.33, below American Eagle Outfitters at 8.94 and Urban Outfitters at 11.93. For context on broader market moves, see futures mixed ahead of Jackson Hole and Michael Burry's Nvidia warning.
This article is for informational purposes only and does not constitute financial advice.
