Key Highlights
- Shares of GAP climbed 11% following second-quarter earnings of $0.52 per share, exceeding the $0.48 analyst consensus
- Quarterly revenue reached $3.65 billion, marginally short of the $3.69 billion Wall Street projection
- The company’s Old Navy brand, responsible for approximately 60% of total revenue, experienced a 4% sales decline versus the prior year
- Michael Francis has been appointed as Old Navy’s incoming CEO, succeeding Haio Barbeito starting November 2
- Investment firm UBS increased its GAP price target from $40 to $42 while reaffirming its Buy recommendation
The retail giant delivered second-quarter earnings of $0.52 per share, surpassing the Street’s $0.48 projection. Quarterly revenue totaled $3.65 billion, falling marginally short of the anticipated $3.69 billion. The positive earnings surprise triggered an 11% surge in share price.
The stronger-than-expected earnings coincided with a significant management transition at Old Navy. Michael Francis, who currently serves as the division’s chief customer officer, has been tapped to assume the CEO position, replacing Haio Barbeito effective November 2. Barbeito has led the brand since assuming the role in 2022.
During the second quarter, Old Navy generated $2.1 billion in sales, marking a 4% year-over-year decline. The brand’s comparable store sales also dropped 4%, underperforming the Street’s expectation of a 2.4% decrease. This represents a sharp reversal from the previous year when Old Navy achieved 2% positive comparable sales growth.
Given that Old Navy represents nearly 60% of the company’s consolidated revenue, its persistent underperformance has emerged as a significant challenge. The executive leadership change represents management’s effort to address this ongoing concern.
Company Refines Annual Projections
Gap’s consolidated comparable sales declined 1% during the quarter, with physical store sales dropping 3%. Management adjusted its full-year sales growth projection downward from a 1% to 2% range to 1% to 1.5%, attributing the revision to Old Navy’s ongoing challenges.
In more encouraging news, the company elevated its full-year earnings per share guidance to a range of $2.35 to $2.45.
Management disclosed that the company collected $95 million in tariff refunds during the quarter, which it deployed toward selective price reductions across certain merchandise categories. Additional tariff refunds are anticipated to arrive in the third quarter.
Wall Street Analyst Upgrades Target
UBS elevated its GAP price objective to $42 from its previous $40 target while maintaining its Buy recommendation. The investment bank projects earnings per share expansion of 23% in fiscal 2027, improving from 12% growth in 2026 and a 3% contraction in 2025.
According to UBS, this earnings trajectory could support a price-to-earnings multiple expansion from 8 times to 13 times. The stock presently trades at approximately 8.5 times earnings.
The investment firm highlighted Gap’s expanding beauty and accessories categories as potential growth catalysts. UBS also recognized that the company’s share repurchase program has exceeded initial projections.
While UBS acknowledged Old Navy’s underwhelming comparable sales results during the first half of 2026, the firm anticipates the company will address these challenges within the coming two quarters.
Analyst consensus on Gap stock stands at Moderate Buy, derived from 15 analysts with seven Buy ratings and eight Hold ratings issued over the past three months. The average analyst price target of $26.36 suggests approximately 27% appreciation potential from current trading levels.
UBS views the current valuation as presenting an attractive risk-reward opportunity for investors.
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