In the latest quarter, Old Navy delivered a year-over-year comparable sales increase of 9.7%, marking its seventh consecutive quarter of mid- to high-single-digit growth. The brand’s strong performance was fueled by a 12% uptick in activewear and athleisure categories, and a 15% increase in women’s casual tops. Old Navy’s gross margin expanded by 120 basis points, supported by disciplined inventory management that reduced end-of-season markdowns by 18%. These results lift the consolidated segment margin for Old Navy to 8.4%, up from 7.1% in the prior year period.

Athleta’s reset efforts have yet to regain the momentum seen pre-reset, with comparable sales falling 4.3% over the same period last year. The brand is implementing a strategic shift toward premium women’s performance apparel, cutting promotional activity by 25% and closing underperforming doors—26 locations were shuttered this quarter alone. Operating margin for Athleta narrowed to 3.2%, compared with 5.5% in the prior year quarter, as investments in supply-chain optimization and new product development offset the benefit of reduced markdowns.

UBS raised its rating on the company from Neutral to Buy, citing confidence in management’s execution under CEO Richard Dickson. The firm highlighted the company’s plan to unlock $400 million in annual cost savings by fiscal 2025 through consolidation of back-office functions and improved logistics efficiency. UBS projection models anticipate consolidated operating margins expanding by at least 150 basis points over the next four quarters if Old Navy sustains its current trajectory and Athleta begins to stabilize. The upgrade reflects optimism that portfolio strength and margin recovery can offset ongoing reset costs.