Gap’s Q1 Beat Cannot Hide The Old Navy Problem

Gap’s turnaround walked out of the first quarter with a sharper outfit, then tripped over the biggest rack in the store. The company reported net sales of $3.5 billion, up 1% from a year earlier, while comparable sales rose 2% and adjusted earnings came in at $0.38 per share. Gap also raised its full-year profit outlook, but shares closed down 15% Friday after the company cut its full-year sales forecast. Investors saw a retailer still making progress, just not evenly enough across the closet.

The best part of the quarter came from the namesake Gap brand, where a long-running nostalgia project is finally becoming a tangible comeback. Net sales at Gap rose 10% to $796 million, and comparable sales also increased 10%, one of the brand’s strongest performances in years. Banana Republic added a smaller but steady contribution, with comparable sales up 2%. That gave management something real to point to — better merchandising, stronger brand relevance, and a customer who is still willing to show up when the assortment feels fresh.

The problem is that Old Navy still carries too much of the company’s weight, and weakness in women’s dresses turned one bad aisle into a loose thread investors immediately started pulling. Old Navy’s net sales rose just 1% to $2.0 billion, and comparable sales were up only 1%. Athleta was an even bigger sore spot, with net sales down 12% and comparable sales falling 11% as the brand continues working through its rebuild. Gap’s portfolio is no longer a total mess, but the unevenness still shows when the company's biggest brand starts missing in categories shoppers are supposed to be buying right now.

That is why the lowered sales forecast overshadowed the earnings beat. Gap now expects full-year net sales to rise 1% to 2%, down from its prior forecast of 2% to 3%, even as adjusted earnings are expected to improve to $2.30 to $2.40 per share. Tariff relief and cost discipline can help protect profits, but investors still wanted a cleaner sales runway from a turnaround that had been gaining credibility. For now, Gap has proven it can make parts of the closet look good again. Wall Street just wants to know whether the whole store can get dressed without Old Navy showing up with its pants on backward.

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