Gap shares rose 11% after the company reported second-quarter earnings of $0.52 per share, above the $0.48 analyst consensus. Quarterly revenue came in at $3.65 billion, slightly below Wall Street’s $3.69 billion estimate. The stock gain came despite the top-line miss, with the quarter’s strength concentrated in profitability: adjusted gross margin expanded 20 basis points year over year to 41.4%.

The stronger-than-expected results came alongside a leadership reshuffle at Old Navy. Michael Francis, who currently serves as Old Navy’s chief customer officer, has been named incoming CEO of the brand, effective November 2. He will replace Haio Barbeito, who has led Old Navy since 2022.

Old Navy — the largest of Gap Inc.’s four brands, which also include the Gap banner, Banana Republic and Athleta — accounts for about 60% of the company’s total revenue and remained a weak spot in the quarter. The brand posted $2.1 billion in sales, down 4% from a year earlier. Comparable store sales also declined 4%, worse than the Street’s expectation for a 2.4% drop and a reversal from the 2% comparable sales growth Old Navy posted in the prior year.

A Wall St Engine post on X summarized the company’s results as follows:

$GAP Q2’26 EARNINGS HIGHLIGHTS Revenue: $3.7B (Est. $3.69B) ; -2% YoY Adj. EPS: $0.52 (Est. $0.48) Adj. Gross Margin: 41.4%; +20 bps YoY Gap Comp Sales: +10% YoY Raises FY Guide: Adj. EPS: ~$2.35-$2.45 (Est. $2.34) CapEx: ~$650M (Est. $641M) … — Wall St Engine (@wallstengine) August 27, 2026

Old Navy’s underperformance has been a growing issue for the company, given the brand’s large share of consolidated revenue. Gap said the management change is part of its effort to address that challenge. Francis’s November 2 start date places him in the role ahead of the holiday shopping season, typically the most important selling period of the year for apparel retailers.

Gap’s consolidated comparable sales fell 1% in the quarter, while physical store sales declined 3%. The company also lowered its full-year sales growth outlook to a range of 1% to 1.5%, from its previous forecast of 1% to 2%, citing continued pressure at Old Navy.

At the same time, management raised its full-year adjusted earnings per share guidance to $2.35 to $2.45. The opposing guidance moves point to an earnings outlook being carried by margin strength, tariff refunds and buybacks rather than sales growth.

The company said it received $95 million in tariff refunds during the quarter, which it used to support selective price reductions in certain merchandise categories. Gap said additional tariff refunds are expected in the third quarter. Tariff costs have been a persistent pressure across the apparel industry, where retailers import a large share of their merchandise, and the timing of such refunds can materially affect quarterly results.

UBS raised its price target on GAP to $42 from $40 and reiterated its Buy rating. The firm said it expects earnings per share growth of 23% in fiscal 2027, following projected growth of 12% in 2026 and a 3% decline in 2025.

UBS said that outlook could support an expansion in Gap’s price-to-earnings multiple from 8 times to 13 times. The stock currently trades at about 8.5 times earnings.

The firm also pointed to Gap’s expanding beauty and accessories businesses as possible growth drivers and noted that the company’s share buyback program has exceeded initial expectations.

While UBS acknowledged Old Navy’s weaker comparable sales performance in the first half of 2026, it said it expects the company to address those issues over the next two quarters — a window that covers Francis’s first months as Old Navy CEO and the holiday shopping period.

Analyst sentiment on Gap is currently Moderate Buy, based on 15 analysts over the past three months, including seven Buy ratings and eight Hold ratings. The average price target is $26.36, which implies about 27% upside from current levels.