Gap Inc. is heading into the second half of 2026 with sharply different momentum across its major apparel brands. Gap comparable sales increased 10% in the second quarter, while Old Navy posted a 4% decline after weaknesses in women’s summer merchandise were compounded by pricing decisions and softer traffic.
The results come as Old Navy continues to reshape its Canadian store network. Several prominent locations have closed in recent years, including stores at CF Toronto Eaton Centre, CF Markville, Yorkdale Shopping Centre and Laurier Québec. At the same time, the retailer is preparing to open at Toronto’s Dufferin Mall and return to CF Chinook Centre in Calgary.
Old Navy continues to have a sizeable Canadian presence, with approximately 100 stores nationally based on a Retail Insider review of the company’s current store directories. The combination of closures and new investment points to a more selective approach to its physical footprint as management works to improve the performance of Gap Inc.’s largest brand.
Old Navy Sales Fall as Summer Assortment Misses Mark
Gap Inc. CEO Richard Dickson said Old Navy’s second-quarter problems were concentrated in women’s seasonal merchandise, particularly dresses, shorts and swim. Weakness in those categories accounted for approximately three percentage points of the brand’s comparable sales decline.
“We made some assortment and pricing decisions that impacted our value equation,” Dickson told analysts during the company’s earnings call.
Gap Inc. had anticipated pressure from the summer assortment, but the slowdown in traffic was greater than expected. Management also acknowledged that Old Navy’s marketing did not generate the traffic it had planned for as the quarter progressed.
The company used promotions to clear seasonal merchandise and said most of the affected inventory was behind it entering the third quarter. Dickson pointed to improving August sales as fall products reached stores, with denim, activewear, sweaters and knits becoming more important to the assortment.
Old Navy had recorded six consecutive quarters of positive comparable sales before the latest decline. Management expects sequential improvement during the second half as the seasonal merchandise pressure recedes and its fall initiatives take hold.
Old Navy Expands Denim, Activewear and Beauty
Denim remains one of Old Navy’s stronger categories. The retailer is adding fashion and choice around newer silhouettes including baggy and low-rise styles while continuing to emphasize family denim and accessible pricing.
Activewear is receiving a larger platform through Old Navy Sport, which will become the retailer’s dedicated active brand. The initial launch includes approximately 40 shop-in-shops in selected stores, with a greater emphasis on technical products and dedicated merchandising.
Old Navy is also expanding into beauty. Old Navy Beauty Co. rolled out broadly in August following an earlier pilot, combining private-label products with merchandise from more than 30 third-party brands.
Management sees beauty as a potential traffic driver and a longer-term growth category. Old Navy is also expanding its partnership with Fanatics through licensed sports merchandise.
Marketing has been reworked around the fall assortment. A denim campaign featuring Cardi B launched in August, alongside a separate back-to-school partnership with MrBeast.
Dickson said the Cardi B campaign has become Old Navy’s most-viewed campaign to date and has contributed to improved traffic and stronger conversion in women’s denim. Gap Inc. said August results were tracking within its expectations for a substantially better third quarter.
Michael Francis to Lead Old Navy
The merchandise and marketing changes will be followed by a leadership transition.
Michael Francis will become Old Navy Brand President and CEO effective November 2, succeeding Io Barbado, who will move into an advisory role during the transition.
Francis joined Gap Inc. in May and has previously worked with companies including Target, Walmart and DreamWorks. Dickson said he has already been closely involved with Old Navy’s second-half plans and has influenced the marketing and product storytelling now reaching customers.
The appointment comes as Gap Inc. looks to regain momentum at a brand that has added nearly US$500 million in annual revenue since the company’s wider transformation began.
Prominent Canadian Old Navy Stores Have Closed
Old Navy’s latest operating changes follow several years of adjustments to its Canadian store portfolio.
In January 2024, the retailer closed its approximately 25,000-square-foot CF Toronto Eaton Centre store along with its location at CF Markville in Markham. Old Navy said at the time that it regularly evaluated its real-estate portfolio as part of maintaining a healthy store fleet.
The Eaton Centre closure removed the retailer from one of Canada’s busiest shopping centres. Winners subsequently expanded into the former Old Navy space.
The chain’s long-running Yorkdale Shopping Centre store also closed in 2025, ending a presence of approximately two decades at the Toronto mall.
In Quebec City, Old Navy closed its 15,990-square-foot Laurier Québec location at the end of February 2025 after deciding not to renew its lease. L’Équipeur subsequently took over the space.
The changes have left Stock Yards Village as Old Navy’s sole operating store within Toronto’s municipal boundaries, according to the retailer’s current store directory. That is set to change later this year.
Old Navy Opening at Dufferin Mall, Returning to CF Chinook Centre
Old Navy is preparing to open at Dufferin Mall in Toronto in space previously occupied by Toys “R” Us. The store is expected to open in November 2026, giving the retailer two locations within the city.
The company is also returning to CF Chinook Centre in Calgary, where Old Navy previously operated before closing its former location.
The new Chinook store is part of the ongoing redevelopment and re-leasing associated with the former Nordstrom space. Gap Inc. recruitment materials have identified Chinook as a new store, while Old Navy signage has appeared at the property.
The return to Chinook adds an important dimension to the Canadian real-estate picture. Old Navy continues to operate at major regional malls and is reinvesting selectively even after closing some long-standing locations.
Its current Canadian network includes stores at Square One, Scarborough Town Centre, Vaughan Mills, Upper Canada Mall, West Edmonton Mall and CF Market Mall, along with numerous power centres and outlet properties.
Retail Insider’s review of Old Navy’s current provincial store directories puts the Canadian network at approximately 100 operating locations. Recent changes indicate store-by-store portfolio management within a large national network rather than a wider exit from Canada.
Gap Extends Turnaround With 10% Sales Gain
The Gap brand is delivering a considerably different performance.
Comparable sales increased 10% in the second quarter and net sales rose 9%, extending Gap’s streak to 11 consecutive quarters of positive comparable sales.
Women’s merchandise led the quarter, men’s delivered solid results and kids and baby accelerated. Denim and fleece remained key categories, while the company reported continued market-share gains and lower discounting.
Gap’s customer file also continued to expand. Dickson said the company has been attracting Gen Z shoppers while retaining its multigenerational customer base.
A recent collaboration with Hailey Bieber reworked two Gap denim silhouettes, with the Hailey Jean selling out quickly and helping generate traffic across the wider business.
Gap is now looking for growth beyond its traditional apparel assortment. The company relaunched its fragrance collection in July and is preparing to introduce bags in September, with beauty and accessories viewed as longer-term opportunities.
Gap’s Momentum Gives Old Navy Financial Flexibility
Gap’s performance is also helping Gap Inc. absorb some of the corrective action underway at Old Navy.
Adjusted merchandise margin increased 80 basis points during the quarter. Gap’s stronger sell-through and lower discounting gave the company room to promote Old Navy’s weaker seasonal assortment while still delivering an increase in merchandise margin overall.
CFO Katrina O’Connell said the company has revisited Old Navy’s second-half assortment with particular attention to category mix, fashion and value. Gap Inc. is using some of the margin strength elsewhere in its portfolio, along with tariff-related benefits, to support pricing and promotional adjustments at Old Navy.
Adjusted gross margin increased 20 basis points during the quarter despite the additional promotional activity at Old Navy.
Gap Inc. Shifts From Store Closures to Investment
The Canadian store changes are unfolding as Gap Inc. moves into a different phase of its broader real-estate strategy.
The company spent several years reducing its physical footprint, including a restructuring program involving approximately 350 store closures. O’Connell said Gap Inc. has now largely completed the process of eliminating underperforming locations and has begun modestly opening stores.
Capital expenditures are expected to reach approximately US$650 million in fiscal 2026, primarily for new stores and remodels at Gap and Old Navy, along with technology and supply-chain investments.
Gap expects to complete approximately 35 remodels this year, bringing roughly one-quarter of its North American specialty fleet into its latest concept by year-end. Dickson said remodeled Gap stores are outperforming the rest of the fleet.
The company is also increasing investment in technology, artificial intelligence and supply-chain capabilities.
The change in capital priorities is significant for a company whose physical-store strategy was dominated by closures and fleet rationalization earlier in its turnaround.
Banana Republic Improves, Athleta Remains Challenged
Banana Republic recorded a 3% comparable sales increase, marking its fifth consecutive quarter of positive growth. Men’s and women’s merchandise contributed to the result, with outerwear, sweaters, denim and linen among the stronger categories.
Athleta remained under pressure, with net sales and comparable sales declining 12%.
Gap Inc. is keeping Athleta inventory conservative while testing new products and reducing its reliance on promotions. Management expects that approach to limit near-term sales improvement as it assesses customer response and works to rebuild the brand.
Gap Inc. Raises Profit Outlook
Gap Inc. generated US$3.7 billion in second-quarter net sales, down 2% from a year earlier, while company-wide comparable sales declined 1%.
The retailer exceeded its profit expectations and raised its adjusted operating margin and earnings outlook. Full-year net sales are now expected to increase between 1% and 1.5%.
Gap comparable sales are forecast to increase in the high-single-digit to low-double-digit range for the year, while Banana Republic is expected to produce low-single-digit growth. Old Navy is forecast to finish between flat and down 1%, and Athleta is expected to remain around its first-half trajectory.
Adjusted earnings per share are now expected at between US$2.35 and US$2.45, representing year-over-year growth of approximately 10% to 15%.
For the third quarter, management expects Old Navy comparable sales to be roughly flat to down 1%, a considerable improvement from the 4% decline recorded in the second quarter.
The next several quarters will show whether Old Navy’s revised assortment, pricing and marketing can restore the growth it generated before the summer slowdown. Gap’s sustained improvement provides a useful benchmark within the same portfolio as management works to strengthen Old Navy.
In Canada, that work is occurring alongside continued changes to a sizeable national store network. Several prominent legacy locations have disappeared, while the upcoming Dufferin Mall store and return to CF Chinook Centre show that Old Navy continues to invest selectively in physical retail as it determines where its stores can perform most effectively.
