Aug 28 (Reuters) - Gap's shares rose about 14% premarket on Friday after the apparel retailer named industry veteran Michael Francis as CEO of Old Navy, a move aimed at reinvigorating the brand in a challenging spending environment.
Old Navy, Gap's biggest brand, has struggled to gain traction in select women's apparel categories in recent quarters, a key hurdle in the company's turnaround.
Since CEO Richard Dickson took charge in 2023, Gap has revamped its leadership and marketing, boosting Gap and Banana
Republic, but Old Navy continues to lag.
"It is true that the family demographic that Old Navy serves is under pressure, but Old Navy did not give them enough reasons to buy," said Neil Saunders, managing director of GlobalData, adding that the weakness points to a broader problem that Gap can no longer pass off as a "modest range misstep".
Some retailers are bringing on board new leaders to revive their struggling brands. Tapestry's Kate Spade last month appointed renowned designer Jonathan Saunders as executive creative director.
"The appointment of a new Old Navy leader underscores management's focus on stabilizing performance at the company's largest banner," Jefferies analysts said in a note.
Gap lifted its annual profit forecast after topping quarterly estimates, helped by stronger pricing and Gap brand sales.
It, however, narrowed its fiscal 2026 sales growth forecast to 1%-1.5% from 1%-2%, citing economic uncertainty.
Gap beat second-quarter comparable sales estimates with 10% growth, while Old Navy posted its first decline in 12 quarters, down 4%, after several quarters of sluggish sales.
The company's forward 12-month price-to-earnings ratio stood at 8.33, compared with American Eagle Outfitters' 8.94 and Urban Outfitters' 11.93.
"Gap should be able to end the full fiscal year on a positive sales note, but it needs to get the big engine of Old Navy whirring again to keep advancing at a convincing pace," Saunders said.
(Reporting by Anuja Bharat Mistry and Angela Christy M in Bengaluru; Editing by Shinjini Ganguli)
