Gap Spikes 15% as Raised Profit Outlook Overrides Trimmed Sales Forecast, Abercrombie & Fitch Ticks Up

A raised profit outlook is outweighing a trimmed sales forecast at Gap Inc. (NYSE:GAP | GAP Price Prediction) this morning, as margin discipline trumps top-line concerns. Gap stock is up 15% to $23.91 after second-quarter fiscal 2026 results landed Thursday evening. The move claws back much of a 17% year-to-date (YTD) decline and validates a report where the Gap brand’s 10% comparable sales and a raised full-year EPS range outweighed a Q2 2026 revenue miss and softer Old Navy performance.

Also, Abercrombie & Fitch (NYSE:ANF) stock is up 1% to $147.50, extending a rally that has lifted shares 16% YTD on brand momentum and tariff refunds. Kohl’s (NYSE:KSS) stock is up 0.2% to $18.19, holding modest gains after its own refund-boosted results earlier this week.

The SPDR S&P Retail ETF (NYSEARCA:XRT) is up 1% to $87.59, a modest lift that undersells the divergence inside the sector. Meanwhile, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is up 0.1% to $771.74, so mall-based apparel names are outrunning the broad market on the tariff-refund tailwind.

Profit Beat and Brand Divergence Drove the Move

The Gap’s quarterly revenue came in at $3.65 billion, down 2% year over year (YoY), missing the $3.69 billion analyst consensus. Adjusted diluted EPS of $0.52 topped the $0.48 expected beat expectations, while GAAP results were inflated by the tariff refund recognized in cost of goods sold.

The brand-level split explains the price action. At the namesake banner, The Gap’s net sales rose 9% and comparable sales climbed 10%, marking the brand’s 11th consecutive quarter of positive comps. Banana Republic comparable sales rose 3% for a fifth consecutive positive quarter, while Old Navy net sales fell 4% on comparable sales down 4% and Athleta comparable sales dropped 12%.

The Gap’s management trimmed the company’s full-year net sales growth range to 1% to 1.5% from a prior 1% to 2%, reflecting Old Navy full-year comparable sales now being expected flat to down 1% versus a prior flat to up 1%. The company raised adjusted diluted EPS guidance to $2.35 to $2.45 from $2.30 to $2.40, with Q3 2026 net sales expected to rise 1.5% to 2.5%.

Leadership Reset Gives Old Navy a Name and a Date

Richard Dickson, The Gap’s CEO, stated that “continued operational and financial rigor contributed to gross margin strength resulting in the Company exceeding profit expectations,” even as revenue came in modestly below plan. Dickson attributed the Old Navy shortfall partly to a concurrent slowdown in store traffic tied to marketing shortcomings, alongside anticipated weakness in the women’s seasonal assortment. That framing lets investors treat the sales cut as an identified problem with targeted actions underway.

Michael Francis becomes Old Navy’s president and CEO on November 2, succeeding Haio Barbeito. The concrete date gives investors a milestone for the turnaround plan, and it comes as Gap has trimmed its annual sales target because of Old Navy for the second consecutive quarter. Attaching a name and start date to the fix reframes the sales cut as a bridge rather than a running wound.

Peers reporting alongside the retailer benefited from IEEPA tariff refunds that flowed through cost of goods sold, lifting margins broadly this week. Abercrombie & Fitch layered underlying brand momentum on top of its own refund, while Kohl’s used its refund to fund value investments for the back half. The $417 million net recovery is the single biggest tariff recovery of the retail season so far.

The company ended the quarter with $2.5 billion in cash, cash equivalents, and short-term investments, and $399 million remaining under its buyback authorization after completing a $200 million accelerated share repurchase and $200 million in open-market purchases during the quarter. The board declared a Q3 dividend of $0.175 per share, up 6% YoY, and year-to-date buybacks now stand at $601 million.

What to Watch

Investors can watch for Old Navy comp trends heading into Q3, where guidance calls for flat to down 1% and back-to-school marketing can be tested. The Michael Francis start date on November 2 sets a checkpoint for Old Navy’s turnaround thesis, and the Q3 gross margin outlook calls for 25 to 75 basis points of expansion that can keep the profit story intact.

Momentum across ANF and the broader XRT complex suggests the tariff-refund tailwind can keep flattering retail earnings prints through the current reporting cycle. Sizing your retail exposure should account for the fact that these refunds are non-recurring, so second-half comparisons could look tougher without them.

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