Gap’s Turnaround Now Hinges on Old Navy

Since his arrival in 2023, Gap Inc. chief executive Richard Dickson has managed to mount a comeback at the company’s flagship brand. Now, it’s Old Navy’s turn.

Alongside its earnings results Thursday, Gap Inc. offered its most definitive signal yet of plans to get its largest banner back on track, naming Michael Francis, its chief customer officer since March, as the stagnant brand’s next chief executive.

Old Navy remains a trouble spot in Gap Inc.’s otherwise improving business. The company reported mixed second-quarter results Thursday, with net sales down 2 percent, slightly missing expectations, while adjusted earnings of 52 cents per share surpassed estimates. Performance varied widely across its portfolio: comparable sales fell 4 percent at Old Navy and 12 percent at Athleta, while surging 10 percent at the namesake Gap brand and rising 3 percent at Banana Republic. Gap Inc. also raised its full-year earnings outlook, sending shares climbing more than 14 percent in after-hours trading.

Market watchers went into Thursday’s results focused particularly on Old Navy, which accounts for roughly 57 percent of Gap Inc.’s revenue and has recently lost momentum even as the smaller Gap brand (23 percent of total revenues) has recaptured its place in the zeitgeist. The quarter underscored those concerns: Old Navy’s comparable sales decline marked its first negative quarter after six consecutive quarters of growth.

Dickson has made restoring Gap’s cultural relevance a central focus of his turnaround, said Guggenheim Securities analyst Simeon Siegel, pointing to splashy campaigns like the one fronted by Katseye fall 2025 and partnerships like last month’s denim collaboration with Hailey Bieber. But a full financial turnaround for Gap Inc. is contingent on Old Navy’s success.

“Gap may be the loudest concept, but Old Navy is the largest concept,” said Siegel.

Dickson told investors during the earnings call that the company had “clearly identified the drivers” of Old Navy’s challenges, which included declines in dresses, shorts and swimwear, that he says reflected a disconnect in the brand’s assortment and pricing decisions. The company, he added, has already taken “ targeted action to strengthen execution in the second half. With those troubled seasonal categories largely cleared, he said sales have improved in August as it shifts its emphasis to denim, active, sweaters and knits.

Both brands have something left to prove: Gap must demonstrate that its newfound cultural relevance can translate into sustained growth, Siegel said, while Old Navy must show that its recent stumble is indeed an execution problem — and that new leadership can get its recovery back on track.

“As with many other retailers this quarter, Gap’s headline profit numbers are heavily flattered by the tariff refund,” GlobalData analyst Neil Saunders, wrote in a distribution note. “Stripping this out provides a much more sober picture, although the underlying margin performance was still respectable given the troubles at Old Navy.”

What’s Working at Gap

A bevy of high-profile activations have served Gap Inc.’s namesake brand well since Dickson took the helm, and the numbers show it’s not all hype: Gap comps rose 10 percent in the second quarter, marking its 11th consecutive quarter of positive comps. The company also raised its full-year comp outlook for the brand to high-single to low-double-digit growth, from its previous expectation of high-single-digit growth.

The imperative now, Siegel said, is for Dickson to prove the gains are specific to the work happening at Gap: “Richard has to show that Gap’s performance was because of idiosyncratic initiatives, rather than having benefited with the rest of the retail market and tariff-driven price lifts.”

On Thursday’s call, Dickson pointed to recent wins such as its sold-out Bieber collab, but emphasised that the strategy goes beyond one-off campaigns and tie-ups — citing a “pipeline of product innovation, culturally relevant collaborations, and brand activations.”

“Women’s led performance in the quarter, while men’s also delivered solid results,” Dickson told investors. “Kids and baby also accelerated as customers continued to respond positively to our more elevated product aesthetic.”

Gap is also now becoming a “regular store for younger consumers as opposed to somewhere they visit occasionally for the odd on-trend item,” Saunders said. “It suggests that Gap’s revival has put down some deep roots that will sustain growth in the quarters and years ahead.

In the second half, Dickson said the brand will continue to invest in other categories with an eye to longer-term growth. The brand relaunched its fragrance line at the end of the second quarter, with Dickson saying early customer response has been encouraging, and will make a bigger push into accessories this fall, beginning with a bag collection overseen by designer Reed Krakoff, set to be unveiled during New York Fashion Week. Dickson described beauty and accessories as longer-term “growth accelerators” that aren’t expected to make a meaningful financial contribution this year.

The Plan to Get Old Navy on Track

Dickson acknowledged that Old Navy’s performance was disappointing, with comparable sales down 4 percent, though he added the company was optimistic it had identified assortment and execution problems it could address.

Some analysts are more cautious about whether the issues will prove to be a quick fix.

“Because this problem has been embedded in the business for a while, we think it is reducing visit frequency – which may now make it challenging for the brand to rebuild quickly,” Saunders wrote. “This is now quite a serious challenge that the group needs to correct and cannot simply dismiss as a modest range misstep.”

The playbook to get Old Navy back on course hinges on Francis’ leadership as well as a series of changes already in motion.

Francis will take over from Haio Barbeito in November, with Barbeito transitioning into an advisory role. Francis’s résumé includes a decades-long career at Target and a strategic advisory role at Walmart, but critically Dickson said he has already had a hand in some of the changes underway at Old Navy.

“He’s already had a meaningful impact, including sharpening our product storytelling [and] the marketing execution you see happening right now,” said Dickson, adding that its recent Cardi B campaign is “our most viewed campaign in Old Navy’s history” and has translated into improved traffic and stronger conversion in women’s denim.

The brand has also released a back-to-school campaign with YouTube star MrBeast and is rolling out Old Navy Sport, a new activewear identity that will initially include dedicated merchandising experiences in about 40 stores.