Gap (GAP) shares rose about 17% in premarket trading on Friday after the apparel retailer named industry veteran Michael Francis as president and CEO of Old Navy.
Francis will take over the company’s largest brand on November 2, replacing Haio Barbeito.
The leadership change comes as Old Navy struggles to regain momentum, particularly in women’s apparel categories.
The brand reported a 4% decline in comparable sales in the second quarter, marking its first comparable-sales decline in 12 quarters.
Seasonal merchandise and a sharper-than-expected slowdown in customer traffic weighed on results.
Gap CEO Richard Dickson said the company was entering the second half with mixed performance across its brands.
He acknowledged that the company did not achieve the revenue outcome it wanted, although operational discipline helped support gross margins.
The retailer has revamped its leadership and marketing since Dickson became CEO in 2023, with Gap and Banana Republic showing stronger performance. Old Navy, however, has remained a key area of weakness.
Old Navy targets denim and activewear
Gap plans to address Old Navy’s performance by focusing more heavily on denim, activewear, sweaters and knits. Dickson said seasonal pressures are expected to ease in the third quarter.
Old Navy is the third-largest denim brand in the US, according to Gap, and management sees opportunities in styles including low-rise and baggy jeans. The retailer also plans to expand its activewear offering with Old Navy Sport this fall.
Analysts have pointed to the importance of the leadership change for the broader turnaround. Jefferies said the appointment highlights management’s focus on stabilizing performance at Old Navy, given its importance to the company.
Neil Saunders, managing director of GlobalData, said in a Reuters report that the brand’s customer base is under pressure but argued that Old Navy had also failed to provide consumers with enough reasons to shop.
Morgan Stanley also raised its price target on Gap to $23 from $21 while maintaining an Equalweight rating.
The firm cited better-than-expected second-quarter results, constructive trends at Old Navy and resilient margins, but said it wanted more evidence that the brand can improve during the second half.
Gap narrows sales outlook despite profit boost
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 previous range of 1%-2%, citing economic uncertainty.
At the same time, adjusted earnings-per-share guidance was raised to $2.35-$2.45 from $2.30-$2.40.
The contrasting guidance highlights the challenges facing Gap as it seeks to improve profitability while rebuilding sales momentum at Old Navy.
Saunders said Gap could finish the year with positive sales, but argued that the retailer needs its largest brand to regain momentum for the broader turnaround to progress convincingly.
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.
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