Key Takeaways
- GAP shares rallied 11% following second-quarter earnings of $0.52 per share, exceeding analyst expectations of $0.48
- Quarterly revenue reached $3.65 billion, marginally missing the $3.69 billion consensus projection
- Old Navy, contributing approximately 60% of Gap’s total revenue, experienced a 4% year-over-year sales decline in Q2
- Michael Francis has been appointed as Old Navy’s new chief executive, succeeding Haio Barbeito starting November 2
- UBS analysts increased their GAP price target from $40 to $42 while reaffirming a Buy recommendation
The apparel retailer delivered second-quarter profit of $0.52 per share, surpassing analyst projections of $0.48. Quarterly sales totaled $3.65 billion, falling modestly short of the anticipated $3.69 billion. The positive earnings surprise triggered an 11% surge in share value.
The stronger-than-expected profit coincided with a significant executive reorganization at Old Navy. Michael Francis, who currently serves as the division’s chief customer officer, has been promoted to the CEO position, replacing Haio Barbeito effective November 2. Barbeito assumed leadership of the brand in 2022.
The Old Navy segment generated $2.1 billion in Q2 sales, marking a 4% decrease compared to the prior year period. Comparable store sales similarly dropped 4%, underperforming Wall Street’s forecast of a 2.4% decline. This contrasts with 2% comparable growth recorded in the same quarter last year.
Given that Old Navy represents close to 60% of Gap’s consolidated revenue, the segment’s persistent struggles have created ongoing challenges for the parent company. The leadership transition represents a strategic effort to address these performance issues.
Company Adjusts Annual Sales Forecast
Gap’s consolidated comparable sales declined 1% during the quarter, with physical store sales falling 3%. Management revised its full-year sales growth projection downward to a range of 1% to 1.5%, narrowing from the previous 1% to 2% guidance, primarily reflecting Old Navy’s ongoing weakness.
More encouragingly, the company elevated its annual earnings per share forecast to a range of $2.35 to $2.45.
Gap disclosed that it collected $95 million in tariff reimbursements during the quarter, which it deployed to reduce pricing on select merchandise. Additional tariff refunds are anticipated in the third quarter.
Wall Street Analyst Upgrades Price Outlook
UBS elevated its GAP price objective to $42 from the prior $40 target while maintaining its Buy recommendation. The investment firm projects 23% EPS expansion in fiscal 2027, accelerating from 12% growth in 2026 and a 3% contraction in 2025.
According to UBS, this earnings trajectory could expand Gap’s price-to-earnings multiple from 8 times to 13 times. Shares currently trade at approximately 8.5 times earnings.
The analyst highlighted Gap’s emerging beauty and accessories categories as potential catalysts for future growth. UBS also observed that the company’s share repurchase initiative has exceeded initial projections.
While acknowledging Old Navy’s subpar comparable sales performance during the first half of 2026, UBS anticipates management will resolve operational challenges within the coming six months.
Gap stock currently carries a consensus Moderate Buy rating among 15 Wall Street analysts, comprising seven Buy recommendations and eight Hold ratings issued over the past three months. The average price objective of $26.36 suggests approximately 27% potential upside from current trading levels.
UBS analysts view the current valuation as presenting an attractive risk-reward opportunity for investors.
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