Gap shares jumped as much as 24.1% to a four-month high on Friday after the apparel retailer named Michael Francis as CEO of Old Navy, putting a veteran executive in charge of its biggest brand as it seeks to revive a business that has struggled to attract shoppers.
The stock was last trading 15% higher at $23.95, which would add about $1.14 billion to Gap's market value if the gains hold.
The sharp rally came despite continued weakness at Old Navy, suggesting investors were encouraged by Gap's higher annual profit forecast and the prospect of a fresh push to turn around its largest brand.
Old Navy has struggled to gain traction in select women's apparel categories in recent quarters. While CEO Richard Dickson has revamped Gap's leadership and marketing since taking charge in 2023, helping improve performance at Gap and Banana Republic, Old Navy has remained a weak spot.
"It is true that the family demographic that Old Navy serves is under pressure, but Old Navy did not give them enough reasons to buy," said Neil Saunders, managing director of GlobalData. He added that the weakness points to a broader problem that Gap can no longer pass off as a "modest range misstep".
Francis joined Gap in March as Old Navy's chief customer officer and brings more than four decades of experience in marketing, commercial operations and business transformation, including roles at Target and Walmart.
"The appointment of a new Old Navy leader underscores management's focus on stabilizing performance at the company's largest banner," Jefferies analysts said in a note.
The leadership change comes as Gap tries to build on gains elsewhere in its portfolio. Company-wide comparable sales rose about 10% in the quarter, but Old Navy's comparable sales fell 4%, its first decline in 12 quarters.
Gap still raised its annual profit forecast after quarterly results beat expectations, although it narrowed its fiscal 2026 sales growth target, citing economic uncertainty.
The market's reaction also highlights the importance of Old Navy to Gap's broader turnaround. The brand is the company's biggest banner, meaning a sustained recovery could have an outsized impact on overall sales and earnings.
Investors are also valuing Gap at a relatively modest multiple. Its forward 12-month price-to-earnings ratio stood at 8.33, compared with 8.94 for American Eagle Outfitters and 11.93 for Urban Outfitters.
"Gap should be able to end the full fiscal year on a positive sales note, but it needs to get the big engine of Old Navy whirring again to keep advancing at a convincing pace," Saunders said.