Gap Q2 sales slip; new CEO named for Old Navy
Gap Inc. reported a mixed second quarter, with earnings that topped estimates and revenue that missed amid disappointing results from its largest division, Old Navy.
Old Navy had its first negative same-store sales figure since the second quarter of 2023, but the apparel giant’s namesake brand continued its momentum with another quarter of double-digit comparable sales.
“While top-line results in the second quarter were modestly below expectations, continued operational and financial rigor contributed to gross margin strength resulting in the company exceeding profit expectations,” said Gap Inc. president and CEO Richard Dickson. “We have work to do at Old Navy, but we have a clear understanding of the factors that impacted performance and are taking targeted actions that are already driving improved results”
On the same day that the apparel giant reported its earnings, it announced that retail veteran Michael Francis, who was appointed chief customer officer of Old Navy and head of marketing shared services at Gap Inc. in May, would take the reins from its current CEO, Haio Barbeito, effective Nov. 2.
“This was a planned and thoughtful transition,” Dickson told WWD. “Michael Francis has incredible experience that aligns really well with the phase we’re entering for Old Navy. He brings vast experience with some of the world’s largest consumer and retail organizations, Target, Walmart, entertainment companies like DreamWorks.”
Second Quarter
The company reported net income of $501 million and earnings per share of $1.38 for the quarter ended Aug. 1, compared with $216 million, or $0.57 per share in the year-ago period. Adjusted earnings per share were $0.52, excluding the net tariff recovery and related interest income, topping analysts estimates of $0.48 per share.
Gap Inc.’s operating income more than doubled to $676 million, from $292 million a year ago.
Net sales fell 2% to $3.65 billion, missing estimates of 43.69 billion. Comparable sales were down 1%. Store sales fell 3%; online sales decreased 1% and represented 35% of total net sales.
Gap Inc.’s comparative by division are listed below.
•Gap: Comparable sales were up 10%, with the brand's focus on “big ideas and culturally relevant” storytelling continuing to drive strong performance in destination categories including denim, fleece, and kids and baby.
•Old Navy: Comparable sales were down 4%, with unexpected pressure in the women's seasonal assortment and unanticipated slowdown in traffic.
“We didn’t execute well on our seasonal assortment,” Dickson said in the WWD report. “The categories that really represented the challenge were swim, shorts, and dresses. But we diagnosed it, and sales have improved in August as fall product set in.”
•Banana Republic: Comparable sales were up 3% as the brand continued to make progress in strengthening its assortment.
•Athleta: Comparable sales were down 12% as the brand remains focused “on disciplined execution to rebuild the brand profitably,” the company said.
Gap Inc. said it received $95 million of tariff refunds and related interest income of $5 million during the quarter, and used the funds to lower the costs of some of its goods. The remainder of its tariff refund and related interest income is expected in the third quarter,.
For the full fiscal year, the company narrowed its net sales growth outlook to between 1% to 1.5% down from between 1% and 2% due to the stumble at Old Navy. But the retailer raised its full-year expectations for adjusted earnings per share to $2.35 to $2.45 from its previous range of $2.30 to $2.40.
Gap Inc. ended the quarter with nearly 3,500 store locations in about 35 countries, of which 2,471 were company-operated.
