Strong Gap brand sales offset weakness at Old Navy, while investors welcomed new leadership.

  • Gap’s Q2 adjusted EPS of $0.52 beat estimates, helped by stronger margins. 
  • The Gap brand led with 10% comparable-sales growth, while Banana Republic rose 3%. 
  • Gap has appointed Michael Francis as Old Navy’s president and CEO, effective Nov. 2.

Gap Inc. (GAP) stock surged over 13% overnight after the apparel retailer reported stronger-than-expected second-quarter (Q2) adjusted earnings and raised its full-year EPS outlook. The company’s namesake brand delivered 10% comparable-sales growth, helping offset weakness at Old Navy and Athleta. Investors also welcomed plans to revive Old Navy and the appointment of Michael Francis as its next CEO. 

Gap’s Q2 Profit Beats Estimates Despite Revenue Miss 

The retailer earned more profit than expected in Q2, helped by better margins and strong sales at Gap. However, weaker sales at Old Navy and Athleta hurt overall revenue. 

Gap reported $3.65 billion in Q2 revenue, down 2% from last year. Comparable sales declined 1%. Despite the softer top line, net income reached $501 million, and adjusted EPS was $0.52 per share. While revenue missed the analysts’ consensus estimate of $3.69 billion, EPS beat the expectation of $0.48 per share, according to Fiscal.ai data. 

The company’s namesake label remained the strongest part of the portfolio, with comparable sales increasing 10%. Banana Republic also extended its recovery, posting a 3% comparable-sales gain and its fifth consecutive quarter of positive results.

Gap stock traded over 13% higher overnight on Thursday and is on track for its best day in one year, if the levels hold. 

Gap Bets On Denim, Activewear And New Leadership At Old Navy 

Gap CEO Richard Dickson said in the earnings call that the retailer is entering the second half of the year with a mixed performance across its brands. “While not the revenue outcome we wanted, continued operational and financial rigor contributed to gross margin strength.” 

Old Navy recorded a 4% decline in comparable sales as women's seasonal merchandise weighed on demand. Customer traffic also slowed more than expected. 

“At Old Navy, as we previewed on last quarter's call, seasonal categories continued to weigh on performance. While we took actions to address this as the quarter progressed, we also experienced a slowdown in traffic, which led to a modest miss versus our expectations.”

Dickson said Old Navy expects seasonal pressure to ease in the third quarter. The retailer plans to focus more heavily on denim, activewear, sweaters and knits. Old Navy ranks as the country's third-largest denim brand, and the CEO sees additional opportunity from styles such as low-rise and baggy jeans. The brand also plans to expand its activewear business with Old Navy Sport this fall.

Gap is also moving ahead with a leadership change at Old Navy. Michael Francis will become the brand’s president and CEO on November 2, replacing Haio Barbeito. Gap reduced its full-year revenue growth outlook to 1%-1.5% from an earlier range of 1%-2%. At the same time, it increased its adjusted EPS guidance to $2.35-$2.45 from $2.30-$2.40.

GAP Stock: Retail Stance 

On Stocktwits, retail sentiment around the stock improved to ‘extremely bullish’ from ‘bullish’ territory the previous day. 

A user said, “Would love a pullback to 22$, that would be a good entry price for me INMHO. Can see this going to 25$ tomorrow.”

Another user said, “OLD Navy is like Foot Locker just terrible!” 

GAP stock has declined 18% year-to-date. 

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