Gap shares surged after the retailer moved to address weakness at Old Navy while raising its annual profit outlook.

The company named Michael Francis as chief executive of Old Navy, putting an experienced retail executive in charge of Gap’s largest brand at a moment when its performance has become one of the biggest obstacles to the company’s turnaround.

Old Navy comparable sales fell 4% during the quarter, their first decline in 12 quarters.

That weakness stood in sharp contrast to the Gap brand, where comparable sales rose 10%.

Overall quarterly revenue fell 2% to roughly $3.65 billion, while adjusted earnings came in stronger than Wall Street expected.

Gap raised its full-year adjusted earnings outlook to $2.35 to $2.45 a share.

But there is another important number buried inside the quarter.

Gap recorded approximately $417 million in net tariff recovery tied to IEEPA duties.

The company says its adjusted outlook excludes the impact of that recovery, meaning investors should not simply treat the $417 million as evidence that Gap’s underlying retail operation suddenly became dramatically more profitable.

The market reaction reflects both sides of the story.

Shares jumped sharply because investors see stronger performance at the Gap brand, improved pricing discipline and a concrete attempt to fix Old Navy.

But Old Navy still matters enormously.

It is Gap’s largest banner, and the company’s broader turnaround will be difficult to sustain if Old Navy continues losing sales momentum.

The quarter therefore provides another example of why investors increasingly need to separate operating performance from temporary tariff-related financial benefits.

The real question for Gap is not how much tariff money came back.

It is whether the new leadership at Old Navy can get customers buying again.

JBizNews Desk | San Francisco

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