Gap Lifts Profit Forecast on Strong Namesake Brand Performance

Gap Inc. raised its annual profit forecast, signaling confidence that sustained momentum at its namesake brand can offset persistent weakness at its other major labels. The apparel retailer's shares rose approximately 11% in extended trading following the announcement.

By the Numbers

Gap lifted its adjusted annual earnings-per-share forecast by 5 cents to a new range of $2.35 to $2.45. However, the company slightly trimmed its full-year sales growth outlook to between 1% and 1.5%, down from a previous range of 1% to 2%.

For the second quarter ended August 1, the company reported:

• Revenue: $3.65 billion, a 2% decline that narrowly missed analysts' estimates of $3.69 billion.
• Adjusted Profit: 52 cents per share, beating expectations of 48 cents per share.

A Diverging Portfolio

Ad

The upgraded forecast was driven by the continued resurgence of the company's core brand. The Gap brand posted a 10% comparable sales increase in the second quarter, its tenth consecutive quarter of growth and ahead of the 8.8% rise analysts had expected, according to LSEG data.

This strength contrasted sharply with struggles elsewhere in the portfolio. Comparable sales at Old Navy fell 4%, while Athleta's comparable sales dropped 12%. In a move to address these challenges, the company appointed insider Michael Francis as the new CEO of Old Navy. "We have work to do at Old Navy, but we have a clear understanding of the factors that impacted performance," CEO Richard Dickson said in a statement.

Market Reaction and Context

Investors reacted positively to the improved profit outlook, seeing it as a sign that CEO Richard Dickson's turnaround efforts are bearing fruit in the company's most crucial division. The updated guidance reflects the company's view of current consumer trends and the broader economic environment but excludes a $95 million tariff refund received during the quarter.