By Neil J Kanatt and Danielle Kaye
Aug 27 (Reuters) - Gap named industry veteran Michael Francis as Old Navy's new CEO on Thursday to reinvigorate the struggling brand, while improved pricing led to a quarterly profit beat and strong forecast at the wider company.
Shares of the company soared 15% in extended trading on the leadership change at Old Navy, its biggest brand, and after the apparel retailer raised its annual profit forecast, partly on robust sales at the Gap brand.
The company, three years
into CEO Richard Dickson's tenure, has been trying to revive demand after a prolonged period of inconsistent sales across its banners, which also include Banana Republic and Athleta. Merchandise focused on current trends and expanded marketing campaigns have helped boost its brands' relevance, even as consumers curb discretionary spending.
Average unit retail price rose across all Gap Inc brands in the quarter, lifting the company's adjusted merchandise margin by 80 basis points, excluding a net benefit tied to the recovery of tariffs.
The Gap chain posted a 10% comparable sales increase in the second quarter, marking its eleventh 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.
New leadership at Old Navy will be "instrumental in unlocking the brand's full potential," Dickson said on a post-earnings call.
Old Navy's dresses, shorts and other summer apparel failed to generate strong sales in the second quarter - but the company expects its fall assortment, from sweaters to denim jeans, to draw in more shoppers, he added.
Dickson highlighted Old Navy's partnership with Grammy-winning rapper Cardi B, and its collaboration with YouTuber MrBeast on a back-to-school campaign, as examples of its expanded marketing push to reach younger shoppers.
The Old Navy leadership change signals the company's push to bring the same cultural relevance luring shoppers to Gap to its largest brand, eMarketer analyst Suzy Davidkhanian said.
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)
