Gap Shares Slide 14% as Old Navy Sales Miss Targets

Gap Inc. shares tumbled over 14% in extended trading Thursday after the retailer trimmed its annual sales outlook, citing a lackluster spring and summer product assortment at its primary Old Navy brand.

While Gap’s namesake banner delivered a stellar performance with a 10% jump in comparable sales, the company’s broader growth was throttled by Old Navy, which accounts for nearly 60% of total revenue. Old Navy saw comparable sales growth of just 1%, missing the 3% target projected by Wall Street. CEO Richard Dickson dismissed concerns over macroeconomic headwinds, telling CNBC that the shortfall was a result of specific seasonal product misses rather than a broader consumer spending crisis.

A Divergence in Profitability

Despite the top-line pressure, Gap raised its full-year earnings guidance, now projecting adjusted earnings per share between $2.30 and $2.40. CFO Katrina O'Connell credited this optimism to favorable tax rates and interest income, noting that the company is prudently buffering its outlook against potential promotional needs and fuel price volatility. The company reported a net income of $339 million for the quarter ending May 2, or 38 cents per share on an adjusted basis, narrowly beating analyst expectations of 37 cents.

Performance across the company's portfolio remained fragmented, reflecting a mix of turnaround successes and ongoing challenges:

• Gap Brand: Comparable sales surged 10%, significantly outperforming the 5.5% growth expected by analysts.
• Banana Republic: Comparable sales rose 2%, missing the 4% target, while the brand prepares for a new leadership chapter under incoming CEO Donald Kohler.
• Athleta: Comparable sales declined 11% as the athletic brand continues to struggle with its merchandise strategy under new leadership.

Looking ahead, management has adopted a "moderated view" for the remainder of the fiscal year. While the retailer has lowered its total sales growth expectations to a range of 1% to 2%, the focus remains on refining product assortments to better align with consumer demand across all income cohorts.