Shares of Gap Inc. (GAP) surged as much as 17% in premarket trading Friday after the apparel retailer reported better-than-expected second-quarter earnings and announced a leadership change at its largest brand, Old Navy.
Gap posted adjusted earnings per share of $0.52, beating the consensus estimate of $0.48. Revenue came in at $3.65 billion, slightly below the $3.69 billion Wall Street had forecast. Overall comparable sales fell 1% in the quarter, including a 3% drop in in-store sales.
Old Navy remained the company's main trouble spot. The brand, which accounts for nearly 60% of Gap's total revenue, reported a 4% year-over-year decline in second-quarter sales to $2.1 billion. Comparable sales also fell 4%, marking the first comparable-sales decline in 12 quarters and missing the 2.4% decline analysts had expected. Gap said seasonal merchandise and a sharper-than-expected slowdown in customer traffic weighed on results.
Michael Francis, currently Old Navy's chief customer officer, will become president and CEO of Old Navy on November 2, replacing Haio Barbeito, who had led the brand since 2022. Gap CEO Richard Dickson said the company was entering the second half with mixed performance across brands and acknowledged the revenue outcome fell short of its goals.
The company narrowed its full-year sales growth forecast to 1% to 1.5%, down from a previous range of 1% to 2%, citing economic uncertainty. However, Gap raised its adjusted EPS guidance to $2.35 to $2.45 from $2.30 to $2.40. The retailer also said it received $95 million in tariff refunds during the quarter and used some of that money to cut prices on select clothing items.
Analysts responded with updated targets. UBS raised its price target on Gap to $42 from $40 and kept a Buy rating, arguing that EPS growth could accelerate from 12% in fiscal 2026 to 23% in fiscal 2027. Morgan Stanley lifted its target to $23 from $21 while maintaining an Equalweight rating, citing better-than-expected results and resilient margins but seeking more evidence of a second-half improvement at Old Navy.
Jefferies said the leadership change highlights management's focus on stabilizing Old Navy, while GlobalData's Neil Saunders noted the brand's customer base remains under pressure and needs stronger reasons to shop.
Gap shares ended the prior session up about 11%, and the stock traded around a forward price-to-earnings ratio of 8.33, below American Eagle Outfitters at 8.94 and Urban Outfitters at 11.93.
