Aug 27, 2026 earnings call — Old Navy fixes and margin outlook raised
Narrowed full-year net sales growth to 1% to 1.5% while raising margin and EPS outlook.
Revenue $3.7B (est $3.7B) · EPS $0.52 (est $0.48)
Key quotes
"As we execute on our fall plans, we are separately announcing this afternoon that we are advancing a planned leadership transition with the appointment of Michael Francis as Old Navy's new Brand President and CEO, succeeding Haio Barbeito, effective Monday, November 2."
"Gap delivered another excellent quarter. Comparable sales increased 10%, marking its 11th consecutive quarter of positive comps."
"Following the Section 301 announcement on July 23, 2026, we are now extending that 10% assumption through the end of August, which provides approximately $15 million of incremental net tariff relief to the year."
Analyst Q&A 9
Old Navy seasonal product and marketing
Q (Dana Telsey · Telsey Group): The analyst asked what markers will show Old Navy is improving: whether the women's seasonal category is fixed, if inventory is cleared, and how lower store traffic and marketing activations differ from the past.
A: They said Old Navy missed on the summer seasonal assortment but sales improved in August as fall product set and seasonals are behind them. They rewired fall marketing; the Cardi B campaign is the most viewed in Old Navy history and traffic and conversion are improving, and they also launched a MrBeast back-to-school campaign.
"As it relates to Old Navy, we just didn't execute well on our seasonal assortment." — Richard Dickson (CEO)
Margins and profitability by brand
Q (Alexandra Straton · Morgan Stanley): The analyst asked how the company maintained strong profitability despite Old Navy's weaker comp, and requested detail by brand.
A: They reported gross margin up 20 basis points year-over-year and merchandise margins up 80 basis points, with 30 basis points from tariff that funded fuel headwinds. They said strength at Gap, Banana Republic and Athleta gave room to promote at Old Navy to clear seasonals, and ROD delevered about 60 basis points partly due to timing.
"So as you noted, we were very pleased to deliver gross margin up 20 basis points year-over-year, and that was higher than the expectation that we had previewed." — Katrina O'Connell (CFO)
Gap strength versus Old Navy outlook
Q (Matthew Boss · JPMorgan): The analyst asked about the difference between Gap and Old Navy performance, whether Gap stayed double-digit in August, and the timeline to stabilize and reaccelerate Old Navy.
A: They said Gap continues to execute the playbook with double-digit comps this quarter and broad strength across women's, men's, kids and baby, plus partnerships and a growing Gen Z customer file. For Old Navy, they said they missed on the summer seasonal assortment and marketing, but entering the third quarter product and campaigns like Cardi B and MrBeast are driving improved traffic and conversion and they are encouraged about the back half.
"But as I've shared and we've diagnosed, we missed the mark on our summer seasonal assortment, which we also previewed last quarter." — Richard Dickson (CEO)
Old Navy pricing and $40m reserve use
Q (Brooke Roach · Goldman Sachs): The analyst asked what was learned about Old Navy customer price sensitivity and what changes are being made, and how the $40 million reserve for pricing is being used in 3Q versus 4Q and if more reserve exists.
A: They said value is perception and when they deliver the right product at the right price the customer responds; Old Navy's seasonal categories lacked the right style, quality and price and they have adjusted the fall assortment. They said the $122 benefit (the $40 million held) is being used for Old Navy, utilized pretty equally between quarters, and they are also leveraging Gap's lower discounting to support value at Old Navy.
"We've utilized the 122 pretty equally between quarters." — Katrina O'Connell (CFO)
Share buybacks and capital return
Q (Jay Sole · UBS): The analyst asked if they might continue share buybacks, whether they would increase authorization, and if the board has discussed timing.
A: They said they repurchased year-to-date $600 million or 26 million shares and that the goal was slight earnings accretion, which resulted in mid-single-digit accretion. They noted $0.05 of the EPS raise was attributable to the repurchase and that $400 million remains on the current authorization, and the Board will keep evaluating capital return.
"As you said, we did repurchase year-to-date $600 million or 26 million shares." — Katrina O'Connell (CFO)
Beauty and accessories plans
Q (Robert Drbul · BTIG): The analyst asked what they've learned so far about beauty and accessories and what to watch for in the next quarters into 2027.
A: They said these categories are just getting started: Gap relaunched its heritage fragrance in July with strong customer response and they have more product drops planned. They rolled out Old Navy Beauty Co. nationwide with private label and over 30 third-party brands, and they will introduce Gap bags this fall, but they do not expect meaningful financial contribution this year while these categories develop.
"This week, we also rolled out Old Navy Beauty Co. nationwide which we also believe will be a traffic driver for Old Navy." — Richard Dickson (CEO)
Inventory control by brand
Q (Lorraine Maikis · BofA): The analyst asked about inventory: whether Old Navy receipts were altered as planned, the approach at Athleta, and if Gap is able to chase strong demand.
A: They said total ending inventory was flat and units were up 4%, largely in transit, and they remain disciplined. They said they purposely cleared seasonal product at Old Navy and reworked fall and holiday assortments; at Athleta they are conservative on inventory which constrains top line but helps near-term profitability; and at Gap they are chasing into what is working.
"On Old Navy, we were very purposeful about ensuring that we were clearing through the seasonal product to make sure that we were clean as we headed into the third quarter." — Katrina O'Connell (CFO)
Old Navy leadership change and outlook
Q (Mark Altschwager · Baird): The analyst asked what would change if Michael formally takes the Old Navy role in November and how confident they are Old Navy returns to consistent low single-digit comps beyond fall.
A: They said the leadership transition was planned and thoughtful; Michael joined in May, has already sharpened product storytelling and marketing, and will assume the role officially in November while Haio moves to an advisory role. They reiterated they have the right playbook, product and programs for the back half and expect to execute to win.
"Michael joined us in May, and I've been working very closely with him on our fall plans." — Richard Dickson (CEO)
ROD deleverage and investments
Q (Irwin Boruchow · Wells Fargo): The analyst asked why ROD delevered in the quarter and what investments or fixed costs are increasing occupancy dollars per foot.
A: They said ROD deleverage reflects two things: they mostly finished closing underperforming stores so the prior closure benefit has abated and they are modestly opening stores, and capital is stepping up which increases depreciation. They said capital is expected to grow $650 million for openings, remodels, technology including AI and supply chain work, and the model expects ROD to leverage on mid-single-digit sales growth.
"First of all, we've largely concluded closing our underperforming stores." — Katrina O'Connell (CFO)