The Gap, Inc.

Gap Inc. reported second-quarter net sales of $3.7 billion, down 2% year over year, with comparable sales down 1%. Reported gross margin was 52.8%; adjusted gross margin was 41.4%, up 20 basis points. Reported EPS was $1.38, and adjusted EPS was $0.52 versus $0.57 last year. By brand, Gap net sales rose 9% and comps rose 10%; Old Navy net sales and comps declined 4%; Banana Republic net sales rose 1% and comps rose 3%; Athleta net sales and comps declined 12%. For full-year fiscal 2026, the company now expects net sales growth of 1% to 1.5%, adjusted gross margin slightly up year over year, adjusted operating margin of 7.4% to 7.6%, and adjusted EPS of $2.35 to $2.45. For Q3, it expects net sales growth of 1.5% to 2.5% and gross margin up 25 to 75 basis points.

Richard Dickson emphasized that Gap Inc. is still in transformation mode but is seeing real operating improvement, especially at Gap and Banana Republic. He said the company continues to expand into beauty, accessories, fashiontainment and technology while maintaining a disciplined focus on execution and shareholder returns through dividends and buybacks. His tone was confident but candid about Old Navy, repeatedly framing the second-half plan as a fixable execution issue rather than a structural setback.

Katrina O'Connell highlighted that the quarter’s profit strength came from disciplined pricing, inventory management and strong gross margin, despite mixed revenue trends. She cited adjusted gross margin of 41.4%, adjusted operating margin of 7.1%, SG&A of $1.3 billion or 34.3% of sales, and adjusted EPS of $0.52. She also noted $154 million of capex in the quarter, $289 million year to date, expected full-year capex of about $650 million, $62 million of dividends paid, over $600 million of year-to-date buybacks, and quarter-end cash of $2.5 billion. On inventory, she said cost was flat year over year while units were up 4% due to in-transit inventory tied to geopolitical disruptions.

Analysts pressed on Old Navy’s weak quarter, asking how management would measure improvement, whether seasonal inventory was cleared, and how marketing would be different going forward. Dickson said the seasonal issue is now largely behind the brand, August sales improved, and the new fall campaign led by Cardi B is driving better traffic and conversion; he also pointed to the MrBeast back-to-school campaign and the upcoming Old Navy Sport, Beauty Co. and Fanatics launches. Other questions focused on whether pricing actions at Old Navy were enough and if the company had enough markdown reserve; O'Connell said the $40 million reserve tied to tariff-related pricing flexibility is being deployed at Old Navy, with additional support coming from Gap’s stronger discounting and sell-through. Questions on buybacks and inventory confirmed the company is still evaluating capital return opportunistically and is keeping Athleta inventory conservative while chasing inventory at Gap.