Gap CEO’s exit again opens door to fallout talks

A basket of flowers hangs near the Gap Inc flagship retail store at the Powell Street cable car bend in San Francisco, California August 20, 2009. REUTERS/Robert Galbraith/

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July 12 (Reuters) – The abrupt exit of the chief executive of Gap Inc (GPS.N) due to falling sales and shrinking margins will likely push the struggling clothing retailer to sell one or more of its brands, said analysts.

The company, which owns brands including Old Navy, Gap and Banana Republic, said Monday CEO Sonia Syngal would step down and warned of lower margins. Read more

Shares of Gap Inc were down about 6% at $8.20 in premarket trading on Tuesday as at least six brokerages cut price targets.

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“The potential for Gap to announce that it is exploring strategic alternatives (potentially including an Athletica spin-off) or large-scale reduction in general and administrative costs increases significantly with the announcement of the CEO’s departure,” said Credit Suisse analyst Michael Binetti.

The company previously shelved plans to spin off Old Navy in 2020, citing the increased costs and complexity of spun off the brands.

Syngal was tasked with guiding Gap Inc to safety during the height of the pandemic and initially won praise from investors for doubling down on inclusivity, launching the Yeezy line with Kanye West, partnering with Walmart Inc ( WMT.N) to create a home decor brand, as well as partnerships with franchisees to run stores in Europe.

However, the fashion missteps of its Old Navy brand which accounts for more than half of the company’s sales, supply chain groans and decades-long high inflation have derailed any recovery in sales after the pandemic.

Several analysts said the problems at Old Navy will likely carry over into next year, with the company’s margins suffering from a lack of inventory of key styles, while having more seasonal or less popular styles and plus-size apparel on the shelves.

Gap has seen margins shrink in the past two quarters and in May forecast gross margin between 36.5% and 37.5% for fiscal year 2022, below 2021 levels.

“Gap had a major opportunity to once again turn into a compelling recovery story in 2022, however, Old Navy’s ongoing issues caused further loss of credibility,” Wells Fargo analyst Ike Boruchow said.

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Reporting by Praveen Paramasivam in Bengaluru; Editing by Shounak Dasgupta

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