Gap Inc. (NYSE:GAP) just delivered one of its more contradictory quarters in years on August 27. Total sales fell 2%, yet the company raised its full-year profit and earnings guidance anyway. The reason sits inside the brand breakdown: the namesake Gap brand is having one of its best stretches in over a decade, and it’s carrying a portfolio where Old Navy just stumbled, and Athleta is still struggling to find its footing.
A Brand Firing On All Cylinders
The Gap brand posted a 10% jump in comparable sales, its eleventh straight quarter of growth, with strength spread across women’s, men’s, and kids and baby, where the brand climbed to the number four market share spot from number six. Denim and fleece keep leading the way, and a Hailey Bieber collaboration sold out fast enough to lift traffic across the wider business. Management is now pushing beyond apparel entirely, relaunching Gap’s fragrance line and adding an accessories category with bags arriving this September. Store remodels are already outperforming the rest of the fleet, with about a quarter of the North American specialty stores upgraded to the newest format by year-end.
Banana Republic is quietly stacking wins too, posting a fifth straight quarter of positive comps at 3% growth under new brand CEO Donald Kohler. That combined strength is why Gap Inc. raised its adjusted operating margin outlook to 7.4% to 7.6% and lifted adjusted earnings per share guidance to $2.35 to $2.45, backed by a 20 basis point gross margin gain and roughly $600 million in year-to-date buybacks. Management also pointed to improving August trends at Old Navy as fall marketing and product take hold.
Old Navy And Athleta Weigh On The Portfolio
The offset is Old Navy, where comparable sales dropped 4% after the company misjudged its women’s summer assortment in dresses, shorts, and swim, a stumble management says cost about 3 points of comps on its own. CEO Richard Dickson admitted the bigger surprise was marketing that fell short “in driving traffic.” That miss lands during a leadership change, with Michael Francis set to take over as Old Navy’s CEO in November. Athleta remains the weaker spot in the portfolio, with comparable sales down 12% as the brand’s turnaround stays in its early, deliberately cautious phase. At the company level, adjusted operating margin actually fell 70 basis points year over year as SG&A deleveraged from growth spending, and adjusted earnings per share slipped to $0.52 from $0.57. Inventory units also rose 4%, tied partly to in-transit goods caught up in geopolitical disruptions, a reminder that supply chains remain a live variable.
Market Sentiment On Gap
Hedge fund ownership climbed to 36 funds holding the stock from 31 the prior quarter, suggesting institutional buyers were adding rather than trimming. That optimism sits awkwardly next to a short position equal to 15.17% of the float, a level that signals real, organized skepticism rather than routine hedging. Meanwhile, the stock trades at a forward price-to-earnings ratio of just 8.29 as of August 31, cheap even for a mall retailer, which means the market isn’t pricing in much of the Gap brand’s turnaround continuing.
Conclusion
Gap is a company of two speeds right now, with one brand accelerating and two others still finding their footing. For the bulls, the case rests on whether the Gap brand’s momentum and new beauty and accessories categories can keep offsetting the rest of the portfolio. For the skeptics, the heavy short interest and Old Navy’s marketing miss suggest the market wants proof the fall reset actually works before it reprices the stock.
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