Gap Inc.’s namesake Gap brand continued to outperform the broader company during the second quarter of fiscal 2026, posting double-digit comparable-sales growth and providing one of the clearest signs of momentum across the retailer’s portfolio.
Gap brand net sales increased 9% year-over-year to $844 million from $772 million.
Comparable sales increased 10%, accelerating from 4% growth in the prior-year quarter.
Management attributed the strong performance to its emphasis on large product and marketing ideas, culturally relevant brand storytelling and continued momentum across destination categories including denim, fleece, kids and baby.
The strength at Gap was particularly notable because companywide results were considerably softer.
Gap Inc. generated second-quarter net sales of approximately $3.65 billion, down 2% year-over-year, while consolidated comparable sales declined 1%.
Old Navy, the company’s largest brand, reported $2.06 billion of sales, down 4%, with comparable sales also declining 4%.
Banana Republic generated $478 million of net sales, up approximately 1%, with comparable sales increasing 3%.
Athleta remained under pressure, with net sales falling 12% to $264 million and comparable sales declining 12%.
The divergence makes the Gap brand’s 10% comparable-sales increase an important positive indicator within the portfolio.
Gap’s momentum also contributed to underlying merchandise-margin improvement.
Reported company gross margin reached 52.8%, an increase of 1,160 basis points year-over-year. However, 1,140 basis points of that improvement reflected the net benefit associated with expected recovery of IEEPA tariffs.
Gap recorded approximately $512 million of tariff refunds, partially offset by approximately $95 million of appreciation commitments for certain vendors.
Excluding that unusual benefit, adjusted gross margin reached 41.4%, still up 20 basis points year-over-year.
Adjusted merchandise margin increased 80 basis points. Management specifically cited strength at the Gap brand as a driver, partially offset by increased promotional activity at Old Navy.
Average unit retail increased across all brands.
Adjusted operating income reached $259 million, producing a 7.1% adjusted operating margin.
Adjusted net income was $190 million, or $0.52 per diluted share, excluding the tariff recovery and related interest income.
The company’s balance sheet also remained strong. Gap ended the quarter with $2.5 billion of cash, cash equivalents and short-term investments, up 2% from the prior year.
Year-to-date operating cash flow reached $550 million, while free cash flow totaled $261 million. Inventory remained flat at approximately $2.3 billion despite ongoing investment across the portfolio.
Gap Inc. has also been aggressively returning capital.
The company returned $262 million through share repurchases and dividends during Q2 and $726 million during the first half.
Year-to-date shareholder returns included $601 million of share repurchases and $125 million of dividends.
Following the quarter, management increased its full-year adjusted operating-margin outlook to approximately 7.4% to 7.6% from 7.3% to 7.5%.
The company’s outlook for the Gap brand improved as well. Gap comparable sales are now expected to increase in the high-single-digit to low-double-digit range for fiscal 2026, compared with the prior expectation for high-single-digit growth.
While work remains at Old Navy and Athleta, the namesake Gap brand is showing that the company’s efforts around product, merchandising and cultural relevance can translate into substantial comparable-sales growth.
KEY QUOTES:
“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.”
“We are particularly proud of the momentum at the Gap brand, which posted another quarter of double-digit comparable sales.”
“We remain focused on disciplined execution and performing while we transform in order to win in the second half.”
Richard Dickson, President and Chief Executive Officer of Gap Inc.
