Gap Inc. said on August 27 that it is replacing the chief executive of Old Navy, its largest brand by revenue, hours after reporting a second quarter in which Old Navy comparable sales fell 4%. The company named Michael Francis president and chief executive of Old Navy effective November 2, 2026, succeeding Horacio “Haio” Barbeito.
The announcement landed at 4:15 p.m. Eastern time, alongside a results release that showed the parent company growing profit while its biggest brand kept shrinking. Gap Inc. reported net sales of $3.651 billion for the quarter, down 2% year over year, with total comparable sales down 1%.
Investors treated the combination of a leadership change and raised profit guidance as good news. Gap shares rose about 15% in extended trading, according to Reuters. The move puts a marketing veteran in charge of a brand that generates more than half of Gap Inc.’s revenue and most of its recent disappointment.
In short
- Old Navy has a new CEO. Michael Francis takes over on November 2, 2026, replacing Haio Barbeito, who moves to an executive advisor role through January 30, 2027.
- The trigger was performance. Old Navy posted $2.061 billion in Q2 net sales with comparable sales down 4%, against a Gap brand that grew comps 10%.
- Tariff recovery flattered the headline. A $417 million adjustment tied to IEEPA tariff recovery lifted reported gross margin to 52.8% from an adjusted 41.4%.
- Guidance moved both ways. Adjusted EPS guidance rose 5 cents at both ends to $2.35 to $2.45, while the sales growth range was trimmed to 1% to 1.5%.
- The market liked it. Shares gained roughly 15% after hours, per Reuters, on the combination of the raised profit outlook and the Old Navy change.
What exactly did Gap Inc. announce?
Gap Inc. issued two separate releases on the afternoon of August 27. The first announced a leadership transition at Old Navy. The second reported second quarter fiscal 2026 results. Read together, they describe a company willing to change management at its revenue engine while the rest of the portfolio improves.
Barbeito is stepping down as president and chief executive officer of Old Navy effective November 2, 2026. According to the company statement, he will continue to serve as an executive advisor to the company through January 30, 2027, which is the close of Gap Inc.’s 2026 fiscal year. That structure gives the incoming leader a full holiday quarter under his own authority while keeping the outgoing chief available through the fiscal year end.
Francis is not an outside hire. He joined Gap Inc. in March 2026 as chief customer officer for Old Navy and head of marketing shared services, roles that placed him inside the brand’s commercial decisions for roughly six months before the promotion. That internal runway matters, because a November 2 start means the new chief executive takes formal control after the holiday assortment and marketing calendar are already set.
How the company framed the change
Richard Dickson, Gap Inc. president and chief executive officer, said in the statement that “Michael is one of the most respected commercial, brand and customer leaders in retail.” Speaking to Reuters, Dickson said the new Old Navy leadership would be “instrumental in unlocking the brand’s full potential.”
Francis said he was “honored to lead this incredible team and excited by the opportunities ahead,” per the company release. Barbeito said that “leading Old Navy has been one of the great privileges of my career.”
The language is conventional for a retail succession release. What is not conventional is the timing: announcing a chief executive change in the same news cycle as an earnings report invites the market to read the two together, and in this case the market did exactly that.
Who is Michael Francis?
Francis brings four decades of commercial and marketing leadership across major U.S. retail brands, according to the company statement, which notes that he began his career on a retail sales floor. His resume is unusually weighted toward brand building rather than merchandising or supply chain operations.
The Target years
The centerpiece of his record is a 26-year career at Target, where he served as executive vice president and chief marketing officer for more than a decade. That period covers Target’s rise as a mass merchant that competed on design and brand affinity rather than price alone, a positioning problem that maps closely onto Old Navy’s current situation.
Old Navy occupies similar ground: a value-priced brand that has historically won on a mix of price, basics and cultural presence. The strategic question is whether a marketer can restore relevance to a brand whose product and pricing architecture is set well before any campaign runs.
The Walmart advisory decade
Francis also served as a strategic advisor to Walmart’s leadership for a decade, supporting growth of nearly $200 billion in revenue, according to the Gap Inc. release. The figure describes Walmart’s growth over that span rather than a contribution attributable to any individual, and the company statement does not break out his specific mandate.
Still, the exposure is relevant. Walmart’s apparel business has been one of the more effective value-apparel operations of the past several years, and it competes directly with Old Navy for the same trade-down customer.
DreamWorks and JCPenney
The company statement also lists prior roles at DreamWorks Animation and JCPenney. Gap Inc. did not detail tenure lengths or scope for either role in the release, and this article does not attempt to characterize them beyond what the company disclosed.
Analysts framed the appointment in brand terms. Suzy Davidkhanian of eMarketer said the leadership change signals Gap’s effort to bring “cultural relevance” to Old Navy, mirroring what has worked at the Gap brand itself. That framing is consistent with a company that has spent two years rebuilding its namesake banner through marketing and product styling rather than store expansion. The pattern of new leadership arriving with a reset mandate has become common enough across the sector that we have tracked retail’s 2026 CEO class resetting targets as a distinct trend.
Why did Old Navy need a change?
The second quarter numbers make the case. Old Navy generated $2.061 billion in net sales with comparable sales down 4%. Retail Dive described the brand as facing a series of quarterly sales misses, and quoted GlobalData managing director Neil Saunders saying that “in our view, this is now quite a serious challenge that the group needs to correct.”
The problem is one of concentration. Old Navy accounts for roughly 56% of Gap Inc.’s quarterly net sales, based on the reported brand splits. A 4% comparable decline at a brand that size is arithmetically difficult for the rest of the portfolio to offset, which is precisely what happened: total company comps fell 1% despite double-digit growth at the Gap brand.
Saunders also called the Gap brand the “star of the show,” noting that improved products and relevant styling are driving interest across core categories including fleece and denim. That contrast is the uncomfortable part of the quarter. The turnaround playbook is working somewhere in the building, just not at the brand that matters most to the top line.
Barbeito led Old Navy for about four years, according to Retail Dive. That is a full strategic cycle in apparel, long enough for a chief executive to have set assortment architecture, pricing ladders and store standards across at least three holiday seasons. Boards typically allow that much time before concluding the issue is structural rather than cyclical.
The decision to act now rather than after the fourth quarter is itself informative. Announcing in August with a November 2 effective date means Gap Inc. accepted the disruption of a leadership transition entering peak season, which suggests limited confidence that another holiday under the existing structure would change the trajectory.
The brand-by-brand split
The divergence across Gap Inc.’s four banners was unusually wide for a single quarter. Two brands grew comps, two declined, and the gap between best and worst was 22 percentage points.
| Brand | Q2 FY2026 net sales | Comparable sales | Share of total net sales |
|---|---|---|---|
| Old Navy | $2.061bn | down 4% | ~56% |
| Gap | $844m | up 10% | ~23% |
| Banana Republic | $478m | up 3% | ~13% |
| Athleta | $264m | down 12% | ~7% |
| Gap Inc. total | $3.651bn | down 1% | 100% |
Share-of-total figures are calculated from the reported brand net sales against the reported company total. Athleta was the weakest performer in percentage terms, with both net sales and comparable sales down 12% according to Retail Dive, but its $264 million base limits the drag on consolidated results.
How much did tariff recovery flatter the results?
A large share of the reported profit came from a tariff accounting event rather than from trading. Gap Inc. recorded a $417 million adjustment in the second quarter related to IEEPA tariff recovery. Per the company release, it received $95 million in refunds plus $5 million in interest during the quarter, with remaining amounts expected in the current quarter.
The effect on the reported margin line is large enough that the adjusted figures are the more useful read on the underlying business. Reported gross margin of 52.8% falls to 41.4% on an adjusted basis excluding the tariff recovery, a difference of 11.4 percentage points.
| Metric | Q2 FY2026 reported | Q2 FY2026 adjusted | Difference |
|---|---|---|---|
| Gross margin | 52.8% | 41.4% | 11.4pp |
| Operating margin | 18.5% | 7.1% | 11.4pp |
| Diluted EPS | $1.38 | $0.52 | $0.86 |
Net income for the quarter was $501 million on the reported basis. The adjusted operating margin of 7.1% is the number that describes how the stores and the e-commerce channel actually performed, and it sits well below the reported 18.5%.
Gap Inc. expects roughly $15 million in net tariff relief to full-year gross profit, a far smaller figure than the $417 million quarterly adjustment because the two measure different things: one is the recognition of a recovery receivable, the other is the net full-year profit effect after offsetting tariff costs. Readers should not treat the $417 million as recurring margin.
The distinction is easy to miss and consequential for valuation. An investor anchoring on reported EPS of $1.38 is reading a number that includes roughly $0.86 of tariff recovery effect, per the reported and adjusted figures Gap Inc. disclosed.
The cash timing is a separate question again. Of the recovery, $95 million in refunds plus $5 million in interest arrived during the quarter, with remaining amounts expected in the current quarter according to the company. Recognition and collection are running on different schedules.
Why the tariff line keeps appearing across apparel
Gap is not alone in booking a tariff recovery this reporting season. The pattern of off-price and specialty apparel retailers recognizing IEEPA-linked refunds has run through several August results, and how each company chooses to deploy that cash has become a differentiator. Burlington, for example, took a different route when it spent its $55m tariff refund on price cuts rather than letting it sit in reported margin.
The strategic choice matters for competitive dynamics in value apparel. A retailer that routes tariff recovery into lower shelf prices puts pressure on peers that bank it. Old Navy sits squarely in the segment where that pressure is felt first.
Why did the shares rise 15%?
Three things happened at once, and each was independently positive for the equity story.
First, adjusted earnings guidance went up. Gap raised its adjusted diluted EPS forecast by 5 cents at both ends, to a range of $2.35 to $2.45, per Reuters. Reported diluted EPS guidance for the year stands at $3.77 to $3.87, with the difference again reflecting tariff recovery accounting.
Second, the company addressed its most visible problem with personnel action rather than another quarter of patience. Markets generally reward a named change at an underperforming division, particularly when the successor is already inside the business and can start without a search process.
Third, the parts of the portfolio that were supposed to be fixed are visibly fixed. A 10% comp gain at the Gap brand and a 3% gain at Banana Republic support the argument that Dickson’s turnaround method transfers between banners.
The counterargument is that the share reaction responded to a signal rather than to results. Nothing about the second quarter itself improved when the leadership announcement was made, and the guidance change cut the revenue outlook at the same time it lifted the profit outlook.
What the guidance change actually says
| FY2026 guidance metric | Prior | Updated |
|---|---|---|
| Net sales growth | up 1% to 2% | up 1% to 1.5% |
| Adjusted diluted EPS | $2.30 to $2.40 | $2.35 to $2.45 |
| Adjusted operating margin | not restated here | 7.4% to 7.6% |
| Reported diluted EPS | not restated here | $3.77 to $3.87 |
The prior adjusted EPS range is derived from the reported 5 cent increase at both ends of the range, as described by Reuters. The sales range was narrowed at the top, from 2% to 1.5%, which is a downgrade to the revenue outlook happening in the same breath as an upgrade to profit.
That combination is worth naming plainly: Gap Inc. is guiding to less revenue and more earnings. For a company whose largest brand is shrinking, that mix is sustainable only for so long, and it puts a clock on the Old Navy recovery.
What does Francis inherit at Old Navy?
He takes over a brand with scale, distribution and a price position that should work in a trade-down environment. The 4% comp decline suggests the issue is not the value proposition in the abstract but the execution of product and cultural relevance against competitors including Walmart, Amazon private label and Shein.
The comparison with the Gap brand is instructive. Gap’s 10% comp growth came with what Saunders described as improved products and relevant styling in fleece and denim, which are the same core categories Old Navy sells. The recipe exists inside the company.
Francis also inherits a marketing organization he has been running. As head of marketing shared services since March 2026, he already owns the function most likely to be the lever he pulls. Consolidating brand marketing into broader commercial roles has been a live structural trend, and it echoes the wider pattern in which the standalone retail CMO seat is being absorbed into commercial leadership.
The constraint nobody can market around
Assortment and pricing decisions for the fourth quarter are already committed. Apparel buying cycles run months ahead, so a chief executive starting on November 2 has limited ability to change what is on the floor for holiday.
The realistic first window for a Francis-designed assortment is spring 2027. That timing should temper expectations for the next two reported quarters, and it is the single most important caveat for anyone reading the 15% share move as a near-term earnings signal.
What he can change quickly is narrower: marketing creative, promotional cadence, store presentation and the emphasis placed on particular categories within an existing assortment. Those levers can move traffic and conversion without requiring new product.
They can also move gross margin in the wrong direction if the answer to weak comps is deeper discounting. The tension between rebuilding comparable sales and protecting the 7.1% adjusted operating margin is the defining constraint of the first year.
How does this compare with peer apparel results?
Gap Inc.’s quarter fits a broader August pattern in U.S. apparel: tariff accounting dominating reported figures, wide divergence between banners within the same holding company, and management changes at the underperformers.
Specialty apparel peers reported into the same tariff environment during the same window, with several booking IEEPA-related recoveries or costs that materially changed their reported margins. Abercrombie & Fitch was among the names reporting in the same stretch, and we covered its quarter when Abercrombie’s Q2 landed against a tariff bill in late August.
The structural read is that reported profitability across U.S. apparel this quarter is a poor guide to operating health. Adjusted operating margin is the comparable metric, and on that basis Gap Inc.’s 7.1% for the quarter is the figure peers should be measured against, not the reported 18.5%.
Athleta is the other unresolved problem
Gap Inc. did not announce a leadership change at Athleta in this release, despite the brand posting the steepest decline in the portfolio at 12% for both net sales and comparable sales, per Retail Dive.
The asymmetry is defensible on arithmetic. A 4% comparable decline on Old Navy’s $2.061 billion base puts materially more absolute revenue at risk than a 12% decline on Athleta’s $264 million base. Management attention in a multi-brand portfolio tends to follow revenue weight rather than percentage severity.
That still leaves Athleta as an open question for the next several quarters. A brand shrinking at a double-digit rate eventually forces a decision about investment, repositioning or strategic alternatives, and nothing in the August 27 releases addressed which of those Gap Inc. intends.
The balance sheet gives room to act
Gap Inc. ended the quarter with $2.103 billion in cash and equivalents and generated $261 million in free cash flow over the 26 weeks. Year-to-date shareholder returns totaled $726 million.
That position means the Old Navy reset does not have to be financed by cutting elsewhere. A new chief executive with balance sheet support has more options on markdown strategy, marketing spend and store investment than one operating under a liquidity constraint.
Who is Old Navy actually competing with?
Old Navy’s competitive set has widened considerably since Barbeito took over roughly four years ago. The brand no longer competes mainly with other mall-based value apparel chains. It competes with general merchandisers, off-price chains and cross-border marketplaces that reach the same price-sensitive customer.
That matters for the leadership choice. Francis spent a decade advising Walmart’s leadership, according to the Gap Inc. statement, and Walmart’s apparel operation is among the most direct competitors for Old Navy’s core basket of basics, denim and fleece. Familiarity with how a mass merchant builds apparel credibility is a specific and relevant qualification.
The price floor problem
Value apparel has faced downward price pressure from cross-border marketplaces selling directly to U.S. consumers. That pressure has been partly offset over the past year by the removal of duty-free treatment for low-value imports, which raised landed costs for direct-to-consumer parcel models.
The net effect is a competitive environment that is less lopsided than it was in 2024, but still one in which Old Navy cannot win on price alone. A brand at its scale has structural cost advantages in sourcing, and the strategic argument for a marketer-led reset is that price parity is achievable while differentiation is not.
Off-price takes the trade-down customer
The other pressure comes from off-price. Burlington and TJX have absorbed a meaningful share of trade-down demand, and their model converts excess branded inventory into a value proposition that a vertically integrated brand cannot easily replicate.
When off-price competitors choose to deploy tariff recoveries into sharper retail prices rather than into reported margin, the squeeze on Old Navy tightens without Old Navy doing anything wrong. That is the dynamic Francis inherits, and it is largely outside his control.
What happens between now and November 2?
The transition period runs just over two months. During that window Barbeito remains chief executive of Old Navy, and the company has said he will then serve as an executive advisor through January 30, 2027.
Practically, that means the third quarter closes under existing leadership and the brand’s holiday execution is a shared inheritance. Gap Inc. will report third quarter results before the transition is complete in operational terms, which will give the market one more read on Old Navy under the prior structure.
The market already had a preview of the quarter’s shape. Our coverage ahead of the print looked at how Gap’s Q2 would meet its tariff cushion, and the actual recovery figure came in substantially larger than the reserved amount discussed going in.
What should retailers and suppliers watch next?
Four signals will indicate whether this transition is working, and none of them will be visible before the fourth quarter report.
- Old Navy comp trajectory. The relevant threshold is a return to flat or positive comps, not a smaller decline. A move from down 4% to down 2% would still leave the brand shrinking.
- Adjusted operating margin. With tariff recovery distorting reported figures, the adjusted line is where an Old Navy recovery would first appear at the consolidated level.
- Marketing spend disclosure. A marketer-led brand reset usually shows up as higher selling expense before it shows up in sales.
- Promotional intensity in value apparel. If peers deploy tariff recoveries into price, Old Navy’s margin recovery becomes harder regardless of who runs it.
For suppliers, the practical implication is a likely reassortment cycle for spring 2027 rather than immediate order changes. For competitors, the near-term read is that Old Navy is unlikely to turn aggressive on price before its new leadership is formally in place.
For landlords and mall operators, the signal is neutral in the short term. Gap Inc. announced no store closure program alongside the transition, and the balance sheet position gives the company latitude to hold its footprint while the brand reset plays out.
Frequently asked questions
Who is the new CEO of Old Navy?
Michael Francis. Gap Inc. named him president and chief executive officer of Old Navy effective November 2, 2026. He joined Gap Inc. in March 2026 as chief customer officer for Old Navy and head of marketing shared services.
Why did Haio Barbeito leave Old Navy?
Gap Inc. announced the change alongside second quarter results showing Old Navy comparable sales down 4%. Retail Dive reported the brand had recorded a series of quarterly sales misses. Barbeito led Old Navy for about four years and will serve as an executive advisor to Gap Inc. through January 30, 2027.
When does the Old Navy leadership change take effect?
November 2, 2026. Barbeito steps down as president and chief executive on that date, and Francis takes over the same day.
What were Gap Inc.’s Q2 fiscal 2026 results?
Net sales of $3.651 billion, down 2% year over year, with comparable sales down 1%. Reported diluted EPS was $1.38 and adjusted diluted EPS was $0.52. Net income was $501 million.
Why did Gap shares jump 15%?
According to Reuters, shares rose about 15% in extended trading after Gap raised its adjusted EPS guidance by 5 cents at both ends and announced the Old Navy leadership change. The Gap brand also posted 10% comparable sales growth.
How big is the tariff recovery in Gap’s numbers?
Gap Inc. recorded a $417 million adjustment in Q2 related to IEEPA tariff recovery, receiving $95 million in refunds plus $5 million in interest during the quarter. The recovery lifted reported gross margin to 52.8% from an adjusted 41.4%. The company expects roughly $15 million in net tariff relief to full-year gross profit.
Which Gap Inc. brand performed best in Q2?
The Gap brand, with comparable sales up 10% on $844 million in net sales. Banana Republic grew comps 3%. Old Navy fell 4% and Athleta fell 12%.
What is Gap Inc.’s guidance for fiscal 2026?
Net sales growth of 1% to 1.5%, adjusted operating margin of 7.4% to 7.6%, adjusted diluted EPS of $2.35 to $2.45, and reported diluted EPS of $3.77 to $3.87.
How soon could Michael Francis change Old Navy’s product?
Not before spring 2027 in any substantial way. Apparel assortment and pricing for the fourth quarter are committed months in advance, so a chief executive starting on November 2 inherits the holiday floor set rather than designing it.
The bottom line
Gap Inc. has acted decisively on its clearest problem, and the market rewarded the decisiveness. The underlying position is more mixed: a brand representing 56% of revenue is still contracting, the reported profit is heavily influenced by tariff accounting, and the revenue outlook was trimmed in the same release that raised the earnings outlook.
Francis arrives with a marketing record and an internal head start, into a brand where the product cycle limits how fast anyone can move. The 15% share reaction prices in a recovery that, by the structure of apparel buying calendars, cannot begin to appear in the numbers until spring 2027.
Further detail on the announcement is available on the Gap Inc. newsroom.