By Neil J Kanatt and Danielle Kaye
Aug 27 (Reuters) - Gap on Thursday appointed a new CEO for Old Navy to reinvigorate the struggling brand, after the apparel retailer raised its annual profit forecast on strong sales at its namesake banner.
Shares of the company soared 16% in extended trading on the Gap brand's better-than-expected results and the appointment of insider Michael Francis to helm Old Navy.
The company, three years into CEO Richard Dickson's tenure, has been trying to reinvigorate demand
after a prolonged period of inconsistent sales across its Banana Republic, Athleta and Old Navy banners. Merchandise focused on current trends and expanded marketing campaigns have helped boost its brands' relevance, even as consumers curb discretionary spending.
Gap's namesake brand posted a 10% comparable sales increase in the second quarter, marking its tenth straight quarter of growth. Analysts, on average, expected a rise of 8.8%, according to data compiled by LSEG.
Comparable sales at Old Navy fell 4% in the quarter, compared with a 2% increase a year earlier, while Athleta's comparable sales fell 12% after a 9% decline last year.
"We have work to do at Old Navy, but we have a clear understanding of the factors that impacted performance and are taking targeted actions that are already driving improved results," Dickson said.
Gap's mixed results underscore that "today's more intentional consumer needs a reason to spend on branded discretionary goods," said eMarketer analyst Suzy Davidkhanian.
The Old Navy leadership change signals the company's push to bring the same cultural relevance luring shoppers to Gap to its largest brand, she added.
Gap raised its adjusted annual earnings-per-share forecast by 5 cents at both ends to a range of $2.35 to $2.45. The outlook excludes tariff refunds of $95 million and related interest income of $5 million in the reported quarter, and any potential benefits from it in the current quarter.
The company revised its fiscal 2026 sales growth outlook to between 1% and 1.5%, from a range of 1% to 2% earlier. Analysts estimate a 1.1% increase.
Gap said the outlook considers consumer trends and the broader economic and geopolitical environment, while recognizing risks related to energy prices and U.S. tariffs.
Revenue for the quarter ended August 1 fell 2% to $3.65 billion, narrowly missing analysts' estimate of about $3.69 billion, while adjusted profit of 52 cents per share beat expectations of 48 cents.
(Reporting by Neil J Kanatt in Bengaluru and Danielle Kaye in New York; Editing by Leroy Leo)
