CNBC and Reuters reported that The Gap, Inc. (NYSE:GAP) named retail veteran Michael Francis as president and CEO of Old Navy, effective November 2, succeeding Haio Barbeito, who will move into an advisory role.
The announcement came alongside second-quarter results showing Old Navy net sales fell 4% year over year to $2.1 billion, with comparable sales down 4% versus analysts’ expected 2.4% decline, marking the brand’s first negative comp in 12 quarters. Old Navy contributes nearly 60% of Gap’s total revenue. CEO Richard Dickson attributed the miss partly to summer marketing that “lacked a direct product message” but said the brand has already seen “significant improvement” in traffic and sales over the past month. Gap’s namesake brand posted 10% comparable sales growth in the same quarter, and Gap shares jumped as much as 14% after the report.
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Bull Case
Overall profitability far exceeded what the sales headline suggests since operating income more than doubled to $676 million from $292 million a year earlier, while net income more than doubled to $501 million from $216 million. These results show that Gap can significantly improve earnings even while Old Navy struggles.
The turnaround playbook is clearly working where it has been fully applied. The Gap, Inc. (NYSE:GAP)’s namesake brand delivered double-digit comparable sales growth this quarter. It shows that CEO Dickson’s broader strategy can succeed decisively when executed well, which strengthens confidence that it can eventually be applied successfully to fix Old Navy too.
Management also moved decisively rather than allowing the problem to linger. The appointment of Francis, who brings turnaround experience from Walmart, Target and JCPenney, triggered a 14% stock jump. Dickson said Old Navy had already seen “significant improvement” in traffic and sales over the past month. Early improvement could give Francis a stronger starting point when he takes over in November.
Bear Case
The Old Navy miss was larger than expected and ended a long streak of stability. Comparable sales fell 4% against an expected 2.4% decline, the brand’s first negative comp in 12 quarters, a bigger and more surprising deterioration than a routine soft quarter.
Old Navy’s weakness directly caps what the rest of the company can achieve, since it drives roughly 60% of The Gap, Inc. (NYSE:GAP)’s total revenue. The firm narrowed its full-year sales growth guidance to 1% to 1.5% from 1% to 2% specifically because of Old Navy’s underperformance, showing one brand’s problems constrain results for the whole company regardless of strength elsewhere.
Independent analysts dispute management’s stated explanation, suggesting a deeper problem than marketing execution. GlobalData’s Neil Saunders said “Old Navy did not give them enough reasons to buy” and that Gap “can no longer” treat the weakness as a minor misstep, a more structural read than the company’s own framing around underwhelming summer marketing.
The new CEO, Francis, does not start until November 2, leaving Old Navy under its current leadership during the critical run-up to the holiday season. That timing creates an execution risk because Francis will have limited time to influence the brand before its most important selling period. If Old Navy struggles through the holidays, investors could question whether the new leadership team can reverse the brand’s momentum quickly enough.
Hedge Fund Data
Insider Monkey’s database shows The Gap, Inc. (NYSE:GAP) was held by 36 hedge funds in the second quarter of 2026, up from 31 in the first quarter, with total holdings valued at $647.7 million. Among the rivals, Urban Outfitters was held by the same 36 funds, down slightly from 37, while American Eagle Outfitters was held by 36 funds, down from 43. Gap was the only one of the three retailers where the hedge fund count grew over the quarter.
Conclusion
Gap has a clear turnaround opportunity. But Old Navy’s huge size makes its recovery important to the whole firm. Strong profits and momentum at the main Gap brand provide a nice cushion, yet Old Navy’s deep sales drop and weak outlook raise the stakes for Michael Francis. Investors now want proof that his plan can boost Old Navy’s sales without hurting the profits Gap already secured.
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