Why Gap Inc. is putting Michael Francis in charge of Old Navy after 4% sales drop

Gap Inc. (NYSE: GAP) is handing control of Old Navy, its largest brand and roughly 57% of second-quarter group revenue, to veteran retail executive Michael Francis after a quarter in which Old Navy sales fell 4% even as the namesake Gap brand delivered double-digit comparable growth. The leadership change makes Francis one of the most important executives in Gap Inc.’s continuing transformation because improvement at Old Navy could determine whether the company can convert stronger margins and rising profit expectations into a broader, more durable sales recovery.

Francis will become president and chief executive officer of Old Navy on November 2, 2026, succeeding Haio Barbeito, who will move into an advisory role. The appointment comes only months after Francis joined Gap Inc. as Old Navy chief customer officer and head of marketing shared services, effectively turning what began as a customer and marketing mandate into direct operating responsibility for a brand that generated about $2.1 billion of Gap Inc.’s $3.7 billion in second-quarter sales.

The market initially welcomed the combination of the leadership change and Gap Inc.’s stronger-than-expected profitability. Reuters reported that the shares surged about 15% in extended trading after finishing the regular August 27 session at about $20.79, as investors digested both the Old Navy appointment and an increase in full-year adjusted earnings guidance. The reaction is particularly notable because the stock entered the announcement still well below its 52-week high of $29.36, suggesting investors were rewarding evidence that management is willing to intervene quickly when individual brands fall behind the broader transformation.

Why is Gap Inc. changing Old Navy leadership when the wider company is becoming more profitable?

The leadership change reflects a widening performance gap inside Gap Inc.’s portfolio rather than a company-wide breakdown. Old Navy reported second-quarter net sales of $2.1 billion, down 4% year over year, with comparable sales also falling 4% as weaknesses in women’s seasonal merchandise were compounded by an unexpected slowdown in customer traffic. Athleta was even weaker, with both net and comparable sales down 12%, but Old Navy’s vastly greater scale makes its deterioration more consequential for consolidated growth.

By contrast, the Gap brand generated $844 million in quarterly sales, up 9%, while comparable sales increased 10%. That represented an eleventh consecutive quarter of comparable-sales growth, according to Reuters, and exceeded the 8.8% increase analysts had expected. Banana Republic also moved in the right direction, with net sales up 1% to $478 million and comparable sales rising 3%.

The implication is significant. Gap Inc. is increasingly demonstrating that its turnaround methods can work, but those gains are not yet transferring consistently across the portfolio. Richard Dickson, the company’s president and chief executive officer, indicated that management understands the factors affecting Old Navy and is already taking targeted actions, while describing the Gap brand’s performance as evidence of continuing momentum.

Changing Old Navy’s chief executive therefore looks less like a wholesale strategic reset and more like an attempt to accelerate the replication of techniques that are already producing results elsewhere in the group. The central question is whether brand storytelling, merchandising discipline and cultural relevance can have the same commercial effect at Old Navy that they have recently produced at Gap.

What does Michael Francis bring to the Old Navy CEO role?

Francis brings more than four decades of consumer, marketing and retail experience, including a 26-year career at Target where he spent more than a decade as executive vice president and chief marketing officer. He subsequently held senior roles at DreamWorks Animation and JCPenney and spent about a decade advising Walmart’s senior leadership and board as the retailer expanded its omnichannel, e-commerce, membership and advertising businesses. Gap Inc. said Walmart added nearly $200 billion in revenue during the period in which Francis served as a strategic adviser, although that growth obviously reflects the work of Walmart’s broader management organization rather than any single adviser.

His unusually fast rise within Gap Inc. is arguably as important as his résumé. Francis was announced as Old Navy chief customer officer and head of marketing shared services in May, having joined the company during the spring, and is now moving into the brand’s top operating position only months later. That trajectory suggests Gap Inc. has seen enough from his initial work to widen his mandate substantially rather than conduct a prolonged external search.

Francis is expected to focus on stronger brand storytelling, a better omnichannel customer experience, improvements inside stores and deeper engagement with families. Those priorities closely match the areas that have helped revive Gap itself under Dickson, where more culturally relevant campaigns and stronger destination categories such as denim, fleece, children’s clothing and baby products have contributed to sustained comparable-sales growth.

That makes Francis a particularly revealing choice. Gap Inc. is not responding to Old Navy’s weakness by bringing in a traditional cost cutter or supply-chain specialist. It is giving the job to an executive whose career has centered on customers, brand positioning, marketing and commercial transformation, which suggests management sees Old Navy’s immediate problem primarily as one of product relevance, customer connection and demand creation rather than structural economics alone.

How important is Old Navy to Gap Inc.’s overall turnaround?

Old Navy remains the economic heavyweight of the portfolio. Using Gap Inc.’s reported second-quarter figures, its approximately $2.1 billion of sales represented around 57% of the company’s roughly $3.65 billion quarterly revenue. In practical terms, every one percentage point of Old Navy growth or contraction carries substantially more weight for the group than the same movement at Banana Republic or Athleta.

That scale explains why a 10% comparable-sales increase at the Gap brand was not enough to prevent consolidated net sales from falling 2% and company-wide comparable sales from declining 1%. Old Navy’s weakness effectively absorbed a meaningful part of the progress occurring elsewhere. This also creates a potentially powerful upside scenario, because stabilization rather than spectacular growth at Old Navy could materially improve Gap Inc.’s consolidated sales trajectory if Gap and Banana Republic retain their current momentum.

Gap Inc. said Old Navy has nevertheless expanded annual revenue by nearly $500 million since the broader transformation began, suggesting the latest quarter represents a setback within a longer improvement process rather than evidence that the entire strategy has failed. Barbeito will also remain available in an advisory capacity, allowing Francis to inherit operational knowledge rather than begin with a clean organisational break.

The more difficult issue is that Old Navy competes in a price-conscious part of apparel retail where consumers can easily move between mass merchants, online platforms and specialist chains. Marketing can bring shoppers to the door, but sustainable improvement will require the right assortment, pricing architecture, inventory availability and store execution once they arrive.

Why did Gap Inc. raise profit guidance despite weaker quarterly sales?

The financial picture gives Francis more breathing room than the headline sales decline might imply. Gap Inc. reported adjusted diluted earnings of $0.52 per share for the second quarter, ahead of the $0.48 expected by analysts cited by Reuters, even though revenue of approximately $3.65 billion was slightly below the roughly $3.69 billion consensus estimate.

Adjusted gross margin excluding the effect of tariff recovery reached 41.4%, rising 20 basis points from the prior year, while adjusted merchandise margin improved 80 basis points. Gap Inc. attributed the underlying expansion partly to strength at the Gap brand, though greater promotional activity at Old Navy created an offset. Average unit retail prices increased across all four major brands, indicating that profitability has not depended solely on pushing more units through stores at discounted prices.

The company consequently increased its fiscal 2026 adjusted earnings-per-share guidance to $2.35 to $2.45, adding five cents to both ends of the previous range. However, it narrowed expected full-year net sales growth to 1% to 1.5% from the previous 1% to 2%, with the revision reflecting a weaker outlook for Old Navy. Gap Inc. now expects Old Navy comparable sales to range from flat to down 1% for the year, compared with its previous expectation of flat to up 1%.

There was also a major accounting effect from tariffs. Gap Inc. recorded a $417 million adjustment to cost of goods sold associated with the expected recovery of tariffs imposed under the International Emergency Economic Powers Act, although its adjusted figures exclude that benefit. The company received $95 million of refunds and $5 million of related interest during the quarter, with further refunds expected in the third quarter.

That distinction matters for investors assessing the underlying business. The tariff recovery dramatically boosted reported gross margin and earnings, but the adjusted numbers show that operational profitability also improved independently of the refund. The harder task now is restoring top-line momentum at Old Navy so that future margin gains are supported by healthier customer demand rather than relying disproportionately on expense discipline and external cost developments.

What does Gap Inc.’s stock reaction say about investor sentiment?

Gap Inc. shares closed the August 27 regular session around $20.79, down approximately 1.7% on the day before the earnings announcement, but jumped sharply in extended trading as investors reacted to the leadership transition and stronger profit outlook. Reuters reported an approximately 15% after-hours surge, with other late-session market data showing the shares trading near $23.80 to $23.90 during the extended session.

Before that jump, the stock had already gained about 5.9% over one month but remained far from its 52-week high of $29.36. The 52-week low was $18.11, meaning even an extended-hours price near $23.90 would leave Gap Inc. roughly 19% below its annual peak while placing it about 32% above the annual low. That pattern supports a cautiously improving rather than unequivocally bullish sentiment reading.

Investors appear to be giving management credit for margin discipline, stronger Gap-brand momentum and willingness to address the Old Navy slowdown quickly. At the same time, the distance from the 52-week high reflects the unresolved question surrounding the durability of the wider turnaround, particularly when more than half of quarterly revenue comes from a brand whose comparable sales have just moved backwards.

The next important signal will therefore not simply be whether Francis produces a compelling marketing campaign. Investors will be watching whether Old Navy traffic stabilizes, whether women’s assortments improve, whether promotional intensity moderates and whether comparable sales return to positive territory without sacrificing the margin progress Gap Inc. has worked to rebuild.

Can Michael Francis turn Old Navy’s scale from a problem into Gap Inc.’s biggest opportunity?

The leadership change creates an unusually clear test of Gap Inc.’s transformation strategy. The company no longer needs to prove that every part of the portfolio is capable of growth because the Gap brand is already delivering that evidence. What it must prove is that the same combination of merchandising discipline, cultural relevance and sharper marketing can be transferred to the significantly larger Old Navy operation.

Francis inherits a brand with considerable advantages, including national recognition, enormous revenue scale and an established mass-market position, but he also takes responsibility at a moment when customer traffic and seasonal assortment execution have weakened. Because Old Navy represents well over half of quarterly group sales, even modest improvement could have a disproportionate impact on Gap Inc.’s consolidated growth rate.

That is why the appointment matters beyond executive succession. Gap Inc. is effectively putting one of its most experienced brand builders in charge of the portfolio asset with the greatest ability either to accelerate or constrain the overall turnaround. The initial share-price reaction indicates investors like the decision, but the more durable verdict will depend on whether Francis can convert Old Navy’s enormous scale back into consistent comparable-sales growth while protecting the improving economics underneath the business.