Gap Inc. (NYSE:GAP) reported second-quarter fiscal 2026 net sales of $3.7 billion, down 2% from a year earlier, while comparable sales declined 1%. The retailer said it exceeded its profit expectations through pricing discipline, inventory management and gross-margin strength, even as performance varied sharply among its brands.
Chief Executive Officer Richard Dickson said Gap’s namesake brand and Banana Republic continued to gain momentum, while Old Navy faced seasonal assortment and traffic challenges and Athleta remained in a turnaround phase. The company narrowed its full-year sales outlook but raised its adjusted operating-margin and earnings-per-share forecasts.
Gap Brand Extends Momentum, While Old Navy Misses Expectations
Gap also gained market share, according to the company, while its customer file expanded and discounting declined. The retailer cited collaborations and marketing efforts, including a partnership with Hailey Bieber that reimagined two denim silhouettes. Dickson said the Hailey Jean sold out quickly and created a “meaningful halo” across the broader business.
Gap relaunched its fragrance line at the end of the quarter and plans to launch bags during Fashion Week in September as it expands into accessories. The company expects to complete about 35 Gap store remodels this year, bringing roughly one-quarter of its North American specialty fleet into its latest store concept by year-end.
Old Navy, however, reported a 4% decline in both net sales and comparable sales. Dickson said women’s summer seasonal products accounted for about 3 percentage points of the comparable-sales pressure, with dresses, shorts and swim affected by assortment and pricing decisions that weakened the brand’s value proposition.
The company also experienced an unexpected slowdown in traffic as the quarter progressed. Dickson said Old Navy’s summer marketing did not generate the traffic management expected, prompting changes to fall marketing and product plans.
“We see value as a perception based on product and pricing,” Dickson said during the question-and-answer session. “When we deliver the right product at the right price, the customer responds.”
Old Navy’s fall assortment emphasizes denim, activewear, sweaters and knits, categories management said should become more meaningful as the summer seasonal headwind subsides. The retailer launched a denim campaign featuring Cardi B, which Dickson said was Old Navy’s most-viewed campaign in its history and was helping improve traffic and women’s-denim conversion in August. The brand also partnered with digital creator MrBeast for back-to-school content.
Old Navy launched its Beauty Co. collection nationwide and plans to introduce an exclusive licensed sports merchandise collection with Fanatics beginning with football season. Its activewear category will be marketed under the new Old Navy Sport brand, including about 40 shop-in-shops in select stores.
Gap announced that Michael Francis will become Old Navy brand president and CEO effective Nov. 2, succeeding Haio Barbeito. Barbeito will serve in an advisory capacity during the transition. Dickson said Francis joined the company in May and has already worked with leadership on Old Navy’s fall plans and marketing execution.
Banana Republic Gains, Athleta Remains Under Pressure
Banana Republic recorded a 3% comparable-sales increase and a 1% net-sales increase, its fifth consecutive quarter of positive comparable-sales growth. Management cited balanced strength in men’s and women’s, with outerwear, sweaters, denim and linen performing well.
The company said recently upgraded Banana Republic stores, including locations at Century City and Tysons Corner, are producing higher customer spending. Donald Kohler joined the brand as president and CEO in July.
Athleta’s net sales and comparable sales each declined 12%. The company said it tightly managed inventory while selectively testing new products, including the Journey Travel collection. Management is taking a conservative approach to inventory and marketing investment as it evaluates customer response to new merchandise.
Dickson said Athleta is focused on increasing newness, reducing its reliance on promotions and rebuilding customer engagement through better product and storytelling. While the approach could limit near-term sales improvement, the company said it is intended to rebuild the brand on a more sustainable and profitable foundation.
Margins, Cash Returns and Updated Outlook
Second-quarter reported gross margin was 52.8%, while adjusted gross margin was 41.4%, up 20 basis points year over year. The adjusted measure excluded a cost-of-goods-sold adjustment related to an expected net recovery of tariffs previously paid under the International Emergency Economic Powers Act.
Chief Financial Officer Katrina O’Connell said adjusted merchandise margin expanded 80 basis points, aided by Gap brand performance and partially offset by higher promotions at Old Navy. The company used promotional activity to clear seasonal Old Navy inventory, which O’Connell said is now largely behind it.
Adjusted operating margin was 7.1%, down 70 basis points from a year earlier, while adjusted earnings per share fell to $0.52 from $0.57. The company reported earnings per share of $1.38 on a reported basis.
- Second-quarter capital expenditures were $154 million, bringing year-to-date spending to $289 million.
- Gap expects about $650 million in capital expenditures for the full year, largely for store openings and remodels, technology and supply-chain investments.
- The company paid $62 million in dividends during the quarter, and its board approved a third-quarter dividend of $0.175 per share.
- Gap repurchased an additional $200 million of stock in the quarter, bringing year-to-date repurchases to more than $600 million, or 26 million shares. About $400 million remains under its authorization.
- Quarter-end inventory at cost was flat from a year earlier, while units increased 4% because of higher in-transit inventory tied largely to geopolitical disruptions.
For fiscal 2026, Gap now expects net sales growth of 1% to 1.5%, with comparable sales roughly in line. It forecasts Old Navy comparable sales to range from flat to down 1%, Gap comparable-sales growth in the high-single-digit to low-double-digit range, low-single-digit growth at Banana Republic, and Athleta trends similar to the first half.
The company raised its adjusted operating-margin forecast to 7.4% to 7.6%, compared with 7.3% last year, and expects adjusted EPS of $2.35 to $2.45, up 10% to 15% year over year. The higher outlook reflects an improved gross-margin view, including expected tariff relief, and a lower weighted-average share count following repurchases.
For the third quarter, Gap expects net sales growth of 1.5% to 2.5%, with comparable sales trailing net sales by about 50 basis points. Management said the quarter has started positively, supported by sequential improvement at Old Navy, although peak selling periods and the rollout of newer initiatives are still ahead.
About GAP (NYSE:GAP)
Gap Inc is a global specialty retailer renowned for its portfolio of apparel and accessories brands, including Gap, Banana Republic, Old Navy and Athleta. The company designs, sources and markets clothing across a broad price range and style spectrum, catering to men, women and children. Its offerings extend from everyday wardrobe essentials such as denim, tees and outerwear to performance and lifestyle pieces, reflecting each brand’s distinct identity and price point.
Founded in San Francisco in 1969 by Donald and Doris Fisher, Gap Inc has grown into one of the world’s largest apparel companies.
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