Gap Inc. (NYSE: GAP) saw its shares jump 13.8% to $23.66 in premarket trading on Friday, following the release of its second-quarter fiscal 2026 earnings report. The surge added roughly $1.03 billion to the company's market value compared to Thursday's close, reflecting investor optimism about the turnaround at the company's namesake brand.
The apparel retailer reported adjusted earnings per share of $0.52, beating the consensus analyst estimate of $0.48. Adjusted operating margin came in at 7.1%, supported by favorable pricing and improved merchandise margins. Excluding tariff recoveries, adjusted merchandise margin expanded by 80 basis points.
Revenue for the quarter totaled $3.65 billion, a 2% decline year-over-year. The results were mixed across brands: Gap brand sales rose 9% to $844 million, with comparable sales up 10%. Old Navy, the company's largest brand, saw sales fall 4% to $2.1 billion, with comparable sales down 4%. Athleta continued to struggle, with sales down 12% to $264 million, while Banana Republic posted a modest 1% sales increase and 3% comparable sales growth.
Chief Executive Richard Dickson expressed pride in the momentum at the Gap brand, but acknowledged that Old Navy still requires improvement. The company has appointed Michael Francis as president and CEO of Old Navy, effective November 2. Francis joined Gap in March after advisory work for Walmart and executive roles at Target.
Management raised its adjusted full-year earnings per share guidance to a range of $2.35 to $2.45, up from the previous $2.30 to $2.40. The company also lifted its expected adjusted operating margin to between 7.4% and 7.6%. However, the full-year sales growth forecast was narrowed to 1% to 1.5%, down from the prior 1% to 2% range. For the third quarter, sales are expected to increase by 1.5% to 2.5%.
The reported results included a $417 million benefit from tariff recovery, which was excluded from adjusted figures. Management noted that full-year gross profit is expected to include approximately $15 million in additional tariff relief. Gap ended the quarter with $2.5 billion in cash and short-term investments. The company has returned $726 million to shareholders since the start of the year and has $399 million remaining under its repurchase authorization.
Wall Street sentiment remains mixed. Among 20 analysts, the consensus rating is Buy, with an average price target of $25.97. Eight analysts rate the stock as Buy or Strong Buy, while twelve assign a Hold rating.
Key risks include ongoing weakness at Old Navy and Athleta, consumer spending fluctuations, higher energy prices, and potential changes in tariff policy. The premarket rally leaves little room for execution missteps. Investors will be watching whether fall merchandise can stabilize Old Navy, as even a modest rebound there would have a greater impact on earnings than further robust growth from the smaller Gap brand.
