Gap Shares Dive on Old Navy Spinoff Doubts

The surprise resignation of CEO Art Peck has Wall Street "wondering whether the split could be delayed or abandoned altogether."
Matthew HellerNovember 8, 2019
Gap Shares Dive on Old Navy Spinoff Doubts

Gap shares fell sharply on Friday after the surprise resignation of CEO Art Peck raised doubts about the struggling retailer’s plan to spin off its Old Navy brand.

According to Retail Dive, Peck had been “a cheerleader” for the planned split of Gap into two publicly-traded companies — Old Navy and Gap, which would still have been led by Peck and would include Banana Republic and athletic performance brands Athleta and Hill City

Gap announced Peck’s departure on Thursday as it reported another quarter of falling same-store sales and cut its guidance for the third quarter and for full-year 2019. At Old Navy, Gap’s lower-priced and most successful brand, same-store sales fell 4% in the third quarter, versus a rise of 4% a year ago.

“Old Navy’s spin-off was predicated on its out performance of Gap’s other brands, but Peck’s departure, after recent poor [Old Navy] sales in a flooded market, had Wall Street wondering whether the split could be delayed or abandoned altogether,” Reuters said.

In trading Friday, Gap shares were down 6.7% at $16.84.

“We think the Old Navy spin should be scrapped … it makes little sense to spin Old Navy until, at least, its sales have stabilized,” Morningstar analyst David Swartz said, noting that the brand has carried Gap for years and likely represents most of its enterprise value.

“We see little future for a Gap without Old Navy,” he added.

Peck joined Gap in 2005 and had held the top job since 2015. He had planned to spin off Old Navy next year as “he strove to revitalize Gap with the addition of Athleta athleisure wear, provide more online offerings, and close unprofitable stores,” Reuters said.

Gap said overall comparable sales dropped 4% in the third quarter, with the namesake brand down 7%. “This was a challenging quarter, as macro impacts and slower traffic further pressured results that have been hampered by product and operating challenges across key brands,” CFO Teri List-Stoll said in a news release.

Peck has been replaced temporarily by Robert Fisher, son of Gap’s founders Donald and Dorothy Fisher.