Gap Inc is running two companies at once. In the second quarter of fiscal 2026, the group's namesake Gap brand posted its eleventh straight quarter of comparable-sales growth, up 10 percent, while Old Navy — its largest banner — slipped 4 percent and Athleta fell 12 percent. The headline number, net sales of 3.65 billion dollars, was down 2 percent, yet adjusted gross margin expanded to 52.8 percent and net income hit 501 million dollars. The story of Gap in 2026 is not one turnaround but three at different speeds, stitched under one roof by a CEO who has spent three years rebuilding discipline.
The brand that finally found its voice
The Gap brand is the bright spot. Second-quarter net sales rose 9 percent to 844 million dollars, with comparable sales up 10 percent. Denim, fleece, and kids and baby led, powered by culturally relevant storytelling rather than discounting. Average unit retail rose across all banners, lifting the adjusted merchandise margin by about 80 basis points. After years of inconsistent identity, Gap is reading as confident again.
Banana Republic, the quiet middle child, posted net sales of 478 million dollars, up 1 percent, with comparable sales up 3 percent. Management credited more distinctive marketing and a stronger assortment across both men's and women's. It is not a breakout, but it is stable — and stability is a win for a brand that spent years drifting.
Old Navy's stumble and the leadership fix
Old Navy remains the group's heaviest weight, with net sales of about 2.1 billion dollars, but comparable sales fell 4 percent — its first negative quarter in nearly three years. Summer assortments, from dresses to shorts, failed to land, and traffic slowed unexpectedly. The miss is significant enough that Gap named industry veteran Michael Francis as Old Navy's new CEO, effective 2 November, succeeding Haio Barbeito.
Francis, who joined as chief customer officer in May, inherits the banner's full potential and its full risk. Management pointed to partnerships with Cardi B and a MrBeast back-to-school campaign as signs of a sharper youth push, and noted August trends had begun recovering. Whether a new chief can fix seasonal misalignment before the holiday quarter is the single biggest variable in the group's year.
Athleta's rebuild is earlier stage than the market hoped
Athleta posted net sales of 264 million dollars with comparable sales down 12 percent, after a 9 percent decline the prior year. The activewear label is in an early-stage rebuild following years of weakened brand equity. Gap is funding product and marketing to stabilize it, but the timeline is longer than the rest of the portfolio. In a market where activewear demand is resilient, a stalled Athleta is a conspicuous gap.
The tariff refund that flatters the math
Gap recorded a 417 million dollar adjustment to cost of goods sold tied to the recovery of tariffs previously collected under the International Emergency Economic Powers Act. The company received 95 million dollars in refunds plus 5 million in interest in the quarter, with the remainder expected later. Stripping the tariff effect, operating margin was about 7.1 percent — still ahead of expectations, but the reported 52.8 percent gross margin was helped materially by the one-off.
The broader backdrop matters: the Supreme Court's February 2026 ruling striking the IEEPA tariff authority unlocked roughly 166 billion dollars in refunds across importers. Gap's portion is a real cash benefit, but it is not a reason to buy a sweater — it is a reason the earnings beat looked larger than the underlying business.
What the raised guidance tells us
CEO Richard Dickson raised the full-year adjusted diluted EPS outlook to 2.30 to 2.40 dollars, up from a prior range, and lifted the full-year sales growth view to 1 percent to 1.5 percent. The confidence rests on Gap's streak and tighter cost control, even as Old Navy and Athleta lag. Shares jumped as much as 15 percent on the leadership change and profit beat.
For shoppers, the practical read is simple: the Gap brand and Banana Republic are worth a fresh look this season, while Old Navy's fall assortment — sweaters and denim — is where management expects the rebound. Building a wardrobe across dresses and knitwear from a brand in repair mode means buying the strong categories, not the struggling ones.
Frequently asked questions
How did Gap Inc perform in Q2 fiscal 2026?
Net sales were 3.65 billion dollars, down 2 percent. Adjusted gross margin reached 52.8 percent, net income was 501 million dollars, and diluted EPS was 1.38 dollars. Results were helped by a 417 million dollar tariff-refund adjustment.
Which Gap brand is growing?
The Gap brand posted 10 percent comparable-sales growth, its eleventh straight gain, while Banana Republic rose 3 percent. Old Navy fell 4 percent and Athleta fell 12 percent.
Who is the new Old Navy CEO?
Michael Francis became Old Navy's CEO effective 2 November 2026, succeeding Haio Barbeiro, after joining as chief customer officer in May.
Did tariffs affect Gap's results?
Yes. Gap recorded a 417 million dollar IEEPA tariff-recovery adjustment in the quarter, which flattered gross margin. Underlying operating margin was about 7.1 percent before that effect.
Sources
Data sourced from Gap Inc.'s second-quarter fiscal 2026 results release (gapinc.com) and subsequent earnings commentary. Additional context from Reuters and Manila Times reporting on the Old Navy leadership change and tariff update.
Editor's note: This analysis was researched and drafted with AI assistance and reviewed by the PHEFEE editorial desk. Market figures are cited from the sources above; data is as reported by the company and may be revised in later filings.