Leadership Change at Old Navy

Gap announced Thursday that Michael Francis will become the new CEO of Old Navy, effective Nov. 2, as the retailer seeks to revive sales at its largest brand. Francis, who was appointed chief customer officer at Old Navy in May, succeeds Haio Barbeito, who will become an advisor to the company. Barbeito had held the position since 2022.

Gap CEO Richard Dickson described the move as "a planned and thoughtful transition" in an interview with CNBC. "We've been working — from fixing fundamentals to building momentum and ultimately looking to accelerate growth, and so there's not a change in strategy," Dickson said. "We're just going to continue to execute better, continuously improve our core business, while we drive some accelerators that we're really excited about."

Incoming CEO Francis said in a statement that the brand would "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."

Mixed Quarterly Results

The leadership change accompanied Gap's fiscal second-quarter earnings report, which showed a mixed performance across its four brands: Old Navy, Gap, Banana Republic, and Athleta. Total company net sales fell 2% year over year to 7 billion, while adjusted earnings per share came in at 52 cents, beating analyst expectations of 48 cents, according to CNBC. Revenue of 65 billion missed the 69 billion expected by analysts.

Old Navy, which contributes nearly 60% to Gap's overall revenue, posted net sales of 1 billion, down 4% year over year. Comparable sales also fell 4%, versus 2% growth in the same period last year, marking the brand's first negative same-store sales figure since the second quarter of 2023. The company attributed the decline in part to an "unanticipated slowdown in traffic." Dickson told CNBC that Old Navy's summer marketing "lacked a direct product message," though he added that the brand had already begun to see "significant improvement" in traffic and sales in the past month.

The namesake Gap brand was the standout performer, with net sales growing 9% to $844 million and comparable sales up 10% — what Dickson called "another quarter of double-digit comparable sales." Banana Republic inched up 1% to $478 million, with comparable sales up 3%. Athleta, however, saw net sales sink 12% to $264 million, with comparable sales falling by the same amount, on top of a 9% decline a year earlier.

Guidance and Tariff Impact

Gap narrowed its net sales growth outlook to between 1% and 5% for the full year, down from a previous range of 1% to 2%, due to the lag at Old Navy. The company raised its adjusted earnings per share outlook to between 35 and 45, and lifted its adjusted operating margin outlook to about 4% to 6%.

The quarter included a $417 million net benefit to cost of goods sold from refunds of S. tariffs, with approximately $512 million in tariff refunds impacting earnings overall. The remainder of the tariff refund is expected in the third quarter. Absent the tariff impact, gross margin improved by 2% year over year.

Dickson added that the company continues to see a "resilient but discerning" consumer, with sales growth across all income cohorts.

Market Reaction

Shares of Gap jumped 12% in extended trading Thursday, according to CNBC, and rose about 13% on Friday, as reported by The Motley Fool. The stock trades at about 10 times the midpoint of this year's adjusted earnings-per-share outlook, with a dividend yield of about 3%.