gap The company on Thursday announced a new CEO for the Old Navy banner, effective Nov. 2, as the company seeks to turn around the brand’s struggling sales performance.
Michael Francis, who was named Old Navy’s chief customer officer in May, will serve as an advisor to the company, taking over from current CEO Haio Barbeito. Barbeito has been serving in this position since 2022.
Gap CEO Richard Dixon told CNBC that the move is a “planned and thoughtful transition” to better equip Old Navy for its next chapter.
“Our strategy remains unchanged as we have been working from correcting fundamentals to building momentum and ultimately accelerating growth,” Dixon said in an interview. “We just continue to execute better and continue to improve our core business as we move forward with some accelerators that we’re really looking forward to.”
Gap stock rose 12% in extended trading Thursday.
In the company’s fiscal second quarter earnings report, Old Navy’s net sales were $2.1 billion, down 4% year-over-year. Comparable sales also decreased by 4%, compared to comparable sales growth of 2% in the prior year period. Wall Street analysts had expected a 2.4% decline in the latest period, according to Street Accounts.
This was the first negative same-store sales for Old Navy since the second quarter of 2023, which the company said was due in part to an “unanticipated slowdown in foot traffic.” The brand contributes nearly 60% of Gap’s overall revenue.
Dixon told CNBC that Old Navy had particularly disappointing summer marketing results, saying it “lacked a direct product message.” However, the brand added that it had already started seeing “significant improvements” in traffic and sales last month.
Incoming CEO Francis said in a statement that the brand “continues to strengthen our customer focus, strengthen the brand’s cultural relevance and improve the customer experience at every touchpoint, building on the momentum already underway.”
Overall, Gap reported mixed results in its second-quarter results, beating analysts’ expectations for earnings per share but lower-than-expected sales. Gap Inc.’s sales decreased 1% in the period, including a 3% year-over-year decline in store sales.
“Ultimately, the reason we narrowly missed out on Total Company was actually due to Old Navy’s seasonal product assortment,” Dixon said. “We know that seasonal products have not been successful, but if this is any good news, then seasonal products are over.”
Gap lowered its full-year net sales growth forecast from a 1-2% range to a 1-1.5% range, citing a slow start at Old Navy. Still, the company raised its full-year forecast for adjusted earnings per share to a range of $2.35 to $2.45 from a range of $2.30 to $2.40.
Here’s how the company performed for the quarter ended Aug. 1 compared to Wall Street expectations, according to a survey of analysts by LSEG.
Earnings per share: 52 cents adjusted, 48 cents expected; Revenue: $3.65 billion, $3.69 billion expected.
Gap reported net income of $501 million, or $1.38 per share, compared with $216 million, or 57 cents per share, in the year-ago period. Sales decreased slightly to $3.65 billion from $3.73 billion in the same period last year.
Adjusting for one-time items, specifically the impact of approximately $512 million in tariff refunds, Gap reported earnings of 52 cents per share.
“Overall, we run a very disciplined organization with a strategy that works,” Dixon said. “These things take time. When you point to Gap as a key success story in our strategy, you can see that we have the ability to really deliver on relevance and revenue. We’re well on our way.”
Gap’s eponymous sales rose 10% in the quarter, beating Wall Street expectations for 8.6% growth. Net sales increased 9% to $844 million. The company attributes these gains to “culturally relevant storytelling” in categories spanning denim, fleece, kids and babies.
As for Gap’s other brands, Banana Republic’s sales increased 3% in the quarter, with net sales reaching $478 million. Analysts had expected like-for-like sales to rise 2%, according to StreetAccount consensus metrics. The company said the brand’s assortment “continued to progress” during the quarter.
And Athleta’s sales for the quarter fell 12%, with net sales of just $264 million. Gap said Athleta “remains focused on disciplined execution to profitably rebuild the brand.”
The company also said the strong increase in gross profit in the fiscal second quarter was the result of an 11.4 percentage point gain due to “expected tariff recovery.” Without the impact of tariffs, Gap’s gross margin improved 0.2% year over year.
Gap said it received $95 million in tariff refunds during the quarter and used the funds to reduce costs on some products. The remaining duty refunds are expected in the third quarter, the company said.
Dixon added that the company continues to see a “resilient but discerning” consumer base and sales growth across all income groups.
