Gap Inc. reported double-digit comparable sales growth in Q2 2024, but the numbers reveal a dependency problem: Old Navy, the division representing $6.7 billion in annual revenue and roughly 40% of parent-company sales, is not participating in the turnaround. The Athleta and Gap brands are driving current momentum. Old Navy is not. Gap Inc. brought in Michael Francis, former Target chief merchant and Michaels Stores CEO, to lead Old Navy in late 2023. He inherits a division that once approached $9 billion in sales before consecutive years of merchandise missteps and inventory bloat.
The structure of Gap Inc.'s business makes Old Navy's underperformance a math problem, not just a brand problem. When a single division accounts for two-fifths of revenue, corporate growth requires either that division to grow or the remaining portfolio to grow fast enough to offset the drag. Gap and Athleta are not large enough to sustain double-digit parent-company growth rates if Old Navy remains flat. Francis has publicly outlined a shift toward "value and newness" in merchandising, moving away from the promotional saturation that defined Old Navy's 2021-2023 period. The division is testing smaller store formats in suburban markets and pulling back SKU count by an estimated 15-20% to improve inventory turn.
For allocators, this is a capital deployment question. Gap Inc. is investing in Old Navy's supply chain recalibration and store-fleet optimization while simultaneously funding the Gap brand's collaboration-driven cultural strategy. The company has not disclosed specific capex splits by division, but store-fleet comments in recent earnings calls suggest Old Navy is receiving disproportionate infrastructure spending relative to its current sales contribution. The risk is timing: if Old Navy's repositioning takes 18-24 months to translate into positive comps, Gap Inc. must maintain momentum elsewhere without the cash flow contribution from its largest unit.
The comparison point is Target's own turnaround under Brian Cornell, where Francis served as chief merchant. Target's 2015-2017 repositioning required $7 billion in cumulative capex and store remodels before comparable sales turned positive. Old Navy does not have that capital cushion, and Gap Inc. does not have Target's balance sheet. Francis is running a compressed version of that playbook: fewer stores, faster inventory turns, tighter merchandising guardrails. The division closed 15 locations in fiscal 2023 and is expected to close another 10-12 in 2024, focusing spend on high-traffic suburban and exurban centers where value-driven family shopping still concentrates.
Operators in retail-anchored real estate and family-oriented hospitality should watch Old Navy's store-traffic patterns in Q3 and Q4 2024. If Francis's merchandising shift begins showing in basket size and frequency metrics, it confirms the value-fashion customer is still reachable at scale. If comps remain flat despite inventory and assortment improvements, it suggests the division's customer base has structurally migrated to off-price and e-commerce, which changes Gap Inc.'s long-term portfolio calculus. The company's next earnings call in late November will include holiday-season guidance, the first full quarter under Francis's assortment strategy.
Gap Inc. trades at 12x forward earnings, a modest premium to off-price peers but a discount to specialty apparel. The market is pricing in Old Navy stabilization, not Old Navy growth. If Francis delivers the latter by mid-2025, the parent company's valuation gap closes. If he delivers the former, Gap Inc. becomes a two-brand story with a $6.7 billion anchor weighing on multiple expansion.