Gap Inc (NYSE:GAP) shares rose more than 13% in pre-market trading on Friday after the retailer reported second-quarter adjusted earnings above analyst expectations and raised its full-year earnings guidance.
Adjusted earnings per share came in at $0.52, exceeding the analyst consensus of $0.49 by $0.03.
Quarterly revenue was $3.7 billion, matching the consensus estimate but declining 2% year over year.
Gap raises fiscal 2026 earnings guidance
Gap increased its full-year adjusted earnings-per-share forecast to between $2.35 and $2.45 from its previous range of $2.30 to $2.40.
The midpoint of the revised guidance is $2.40, compared with the previous midpoint of $2.35.
Comparable sales declined 1% during the second quarter. The Gap brand recorded comparable sales growth of 10%, while Old Navy comparable sales fell 4%.
Adjusted operating margin reached 7.1%, while adjusted gross margin increased 20 basis points year over year to 41.4%. The company said merchandise margin expanded by 80 basis points.
“While top-line results in the second quarter were modestly below expectations, continued operational and financial rigor contributed to gross margin strength resulting in the Company exceeding profit expectations,” said President and Chief Executive Officer Richard Dickson.
Sales growth forecast narrowed
For fiscal 2026, Gap now expects net sales to increase between 1% and 1.5%, narrowing its previous forecast of growth between 1% and 2%.
The company raised its adjusted operating margin guidance to approximately 7.4% to 7.6% from its previous range of 7.3% to 7.5%.
The midpoint of the revised operating margin forecast is 7.5%, compared with 7.4% previously.
Bank of America maintains Neutral rating
Bank of America reiterated its Neutral rating on Gap following the results, saying it is “encouraged by momentum at Gap but remain concerned that Old Navy’s lower-end customer will continue to be pressured by the tough macro climate.”
The comments represent Bank of America’s assessment rather than company guidance.
Gap brand sales rise 9%
Gap brand net sales increased 9% to $844 million during the quarter, while Old Navy net sales declined 4% to $2.1 billion.
Banana Republic recorded a 1% increase in net sales to $478 million, while Athleta sales fell 12% to $264 million.
Gap returned $726 million to shareholders through share repurchases and dividends during the year to date, including $262 million in the second quarter.
The company ended the quarter with $2.5 billion in cash, cash equivalents and short-term investments.