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With Comp Sales Declining, Gap Inc. CEO Steps Down, To Be Replaced by Gap Founder’s Son

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Coresight Research

What's Inside

With comps flagging, Gap Inc. announced President and CEO Art Peck would step down to be replaced by the founder’s son. Comparable sales have been declining, particularly at Gap Global, for the last couple of fiscal years.

  • Gap global comparable sales for the third quarter ending November 2, 2019 were down
  • Banana Republic Global Brands’ comps also fell – but were up in the same period last year
  • Old Navy Global comps slid as well, also following an increase in the same period last year

Key Points

On November 7, 2019, the Gap Inc. board of directors announced that Art Peck, President and Chief Executive Officer (CEO), will step down from his position after a brief transition.

  • Effectively immediately, Robert J. Fisher, the company’s current Nonexecutive Chairman of the Board, will serve as President and CEO on an interim basis.
  • The Board of Directors appointed Bobby Martin, chair of its compensation and management development committee, as lead independent director.
  • For 3Q, the company reported lower comparable sales of (4)% compared to flat in the same period last year. Comp sales were down in each of the company’s brands for the quarter, and the company lowered adjusted 2019 diluted earnings per share guidance to $1.70-1.75 versus the previous guidance of $2.05-$2.15.

On November 7, 2019, Gap Inc. announced the Art Peck, President and CEO, will step down from his position after 15 years, following a brief transition. Effective immediately, Robert J. Fisher will serve as President and CEO on an interim basis. Fisher has a 35-year history with Gap and is part of the founding family: His parents opened the first Gap store in 1969. Fisher has served as Nonexecutive Chairman since 2015, has served on the board of directors since 1990, and has over 35 years with the Gap in various positions, including interim President and CEO.

The board of directors appointed Bobby Martin, chair of its compensation and management development committee, as lead independent director. Martin has served on the board since 2002 and as lead independent director from 2003 to 2015.

Comparable Sales Have Been Declining, Particularly at Gap Global

In conjunction with the announcement, the company reported comparable sales for the third quarter, ended November 2, 2019, were down (4%) versus flat for Gap Inc. The company reported the following comparable sales by brand:

  • Gap Global: (7)% compared to (7)% last year
  • Banana Republic Global Brands: (3)% versus 2% last year
  • Old Navy Global: (4)% compared to 4% last year

As shown in the table below, the company’s comparable sales have been declining since FY18, particularly in its Gap Global banner.

Source: Company reports

 

The Gap’s Game Plan, Presented at 2019 Investor Day

At the company’s Investor Day on September 12, 2019, Peck reported the company’s strategy moving forward was to rally its iconic brands, Gap and Banana Republic, and improve profitability. See figure 2, below, for details on the company’s plan.

At the Gap brand, Peck said the company planned to “lead with denim” and improve the fit and style by leveraging product operating model transformation to reduce waste. The company also highlighted its fleet optimization goal, as it had also outlined in its March 2019 earnings call. The company announced plans to close 230 Gap stores in the next two years, mainly in North America.

Source: Company reports

 

On February 28, 2019, Gap announced it would create two independent publicly traded companies: Old Navy, its category-leader in clothing and accessories; and, another business called NewCo to include Gap, Banana Republic and other brands such as Athleta and Hill City. The separation was expected to be completed by 2020 at the time of the announcement, and management did not update this information at the time it announced the change in leadership. The company has a regularly scheduled board meeting next week.

Gap Lowers Guidance

The company now expects 2019 adjusted diluted earnings per share guidance range of $1.70-1.75 versus previous guidance of $2.05-2.15.

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