Gap on Thursday announced a new CEO for its Old Navy banner, effective Nov. 2, as the retailer tries to reinvigorate sluggish sales performance at the brand.
Michael Francis, who was appointed the chief customer officer at Old Navy in May, will take over the reins from current CEO Haio Barbeito, who will become an advisor to the company. Barbeito has held the position since 2022.
Gap CEO Richard Dickson told CNBC the move was "a planned and thoughtful transition" to better equip Old Navy for its next chapter.
"We've been working — from fixing fundamentals to building momentum and ultimately looking to accelerate growth, and so there's not a change in strategy," Dickson said in an interview. "We're just going to continue to execute better, continuously improve our core business, while we drive some accelerators that we're really excited about."
Shares of Gap jumped 12% in extended trading Thursday.
In the company's fiscal second-quarter earnings report, Old Navy posted net sales of $2.1 billion — down 4% year over year. Comparable sales were also down 4%, versus comparable sales growth of 2% during the same period last year. Wall Street analysts were expecting a decline of 2.4% for the most recent period, according to StreetAccount.
It marked Old Navy's first negative same-store sales figure since the second quarter of 2023 and was due in part to "unanticipated slowdown in traffic," the company said. The brand contributes nearly 60% to Gap's overall revenue.
Dickson told CNBC that Old Navy specifically saw disappointing results from its summer marketing, which he said "lacked a direct product message." But he added that the brand has already begun to see "significant improvement" in its traffic and sales this past month.
Incoming CEO Francis said in a statement the brand would "continue to sharpen our customer focus, strengthen the brand's cultural relevance, enhance the customer experience across every touchpoint and build on the momentum already underway."
Overall, Gap reported mixed results for its fiscal second quarter, beating analysts' estimates for earnings per share but underperforming revenue expectations. Gap Inc. comparable sales were down 1% for the period, including a 3% year-over-year decline in in-store sales.
"Ultimately, our slight miss on total company was really due to Old Navy's seasonal product assortment," Dickson said. "We know we didn't execute well on our seasonal product, but if there's good news in this, seasonal is behind us."
For the full fiscal year, Gap narrowed its net sales growth outlook from a range of between 1% and 2% to a range of between 1% to 1.5% due to the lag at Old Navy. Still, the company hiked its expectations for adjusted earnings per share from a range of $2.30 to $2.40 for the full year to a range of $2.35 to $2.45.
Here's how the company performed in the quarter ended Aug. 1 compared with what Wall Street was expecting, according to a survey of analysts by LSEG:
Earnings per share: 52 cents adjusted vs. 48 cents expected
Revenue: $3.65 billion vs. $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, the prior year. Sales sank slightly to $3.65 billion from $3.73 billion in the year-ago period.
Adjusting for one-time items — in particular the impact of tariff refunds of approximately $512 million — Gap reported earnings per share of 52 cents.
"On balance, we're running a very disciplined organization with a playbook that is working," Dickson said. "These things take time. I think, pointing to Gap as the lead success story of our playbook, you can see the ability for us to actually deliver relevance and revenue, and we're well on our way."
At the namesake Gap banner, comparable sales soared 10% for the quarter — outpacing Wall Street expectations of 8.6% growth — and net sales jumped 9% to $844 million. The company attributed those gains to "culturally relevant storytelling" in categories across denim, fleece and kids and baby.
As for Gap's other brands, Banana Republic saw its comparable sales up 3% for the quarter, with net sales reaching $478 million. Analysts were expecting comparable sales up 2%, according to consensus metrics from StreetAccount. The company said the brand "continued to make progress" in its assortment during the quarter.
And, Athleta's comparable sales sank 12% for the quarter, hitting net sales of just $264 million. Gap said that Athleta "remains focused on disciplined execution to rebuild the brand profitably."
The company also said a significant increase in gross margin during the fiscal second quarter was the result of a 11.4-percentage-point benefit from "expected recovery of tariffs." Absent that tariff impact, Gap's gross margin improved by 0.2% year over year.
Gap said it received $95 million of tariff refunds during the quarter and used the funds to lower the costs of some of its products. The remainder of its tariff refund is expected in the third quarter, the company said.
Dickson added that the company continues to see a "resilient but discerning" consumer with sales growth across all income cohorts.
