Gap Momentum Encouraging, Old Navy Weakness Seen Continuing, BofA Says

01:03 PM EDT, 08/28/2026 (MT Newswires) -- Gap's (GAP) momentum is encouraging, but pressure within the Old Navy brand will likely continue amid a tough macroeconomic backdrop, BofA Securities said in a note Friday. The apparel retailer late Thursday reported a comparable sales decline of 1% in the fiscal second quarter, with the Gap brand posting 10% growth, while Old Navy declining 4%. Old Navy's print was weaker than BofA's estimate that called for a 2% drop. Gap attributed the comparable sales decline at Old Navy to pressure in the women's seasonal assortment, as well as an unexpected slowdown in traffic. "We are encouraged by momentum at Gap but remain concerned that Old Navy's lower-end customer will continue to be pressured by the tough macro climate," BofA analysts Lorraine Hutchinson and Mary Sport said. Gap named Chief Customer Officer Michael Francis as CEO of Old Navy, effective Nov. 2. Francis succeeds Haio Barbeito, who will step into an advisory role. "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," Gap CEO Richard Dickson said in a statement. Gap's shares jumped 13% intraday Friday, reducing year-to-date losses to 8.5%. Management is investing in sharper pricing in the second half to improve Old Navy's value proposition, "which should help to stabilize sales," Hutchinson and Sport said. The company's adjusted earnings per share for the quarter ended Aug. 1 totaled $0.52, exceeding the FactSet-polled estimate of $0.48 and BofA's $0.50. Net sales declined 2% to $3.65 billion, missing the Street's view of $3.69 billion. "While not the revenue outcome we wanted, continued operational and financial rigor contributed to gross margin strength," Dickson said during the earnings call on Thursday, according to a FactSet transcript. "We also maintained market share, reflecting the continued resonance of our brand portfolio." Second-quarter adjusted gross margins improved 20 basis points year on year, excluding the $417 million benefit from tariff refunds, according to the note. BofA raised its price objective on Gap's stock to $27 from $26, and retained its neutral rating. For fiscal 2026, the company raised adjusted EPS guidance to between $2.35 and $2.45 from $2.30 to $2.40 previously expected. It narrowed net sales growth outlook to 1% to 1.5% annually from 1% to 2%. Analysts expect EPS of $2.41 and revenue growth of 1.1%. The brokerage raised its fiscal 2026 EPS estimate by 2% to $2.39 and the 2027 outlook by 4% to $2.58. "As we move into the third quarter, the headwind from summer categories becomes much less significant," the CEO told analysts. "This gives us a clear runway for improvement, as key categories like denim, active, sweaters and knits drive the business." Earlier this week, apparel retailer Abercrombie & Fitch (ANF) raised its full-year outlook as tariff-related refunds propelled its fiscal second-quarter results above Wall Street's expectations. American Eagle Outfitters (AEO) is slated to announce its results next month. Price: 23.49, Change: +2.70, Percent Change: +12.96