Gap CEO fired after failing to rescue struggling retailer

Shares of Gap Inc. fell on Tuesday as rising costs and discounts thwarted Sonia Syngal’s turnaround after 2½ years as chief executive of the clothing retailer.

Chairman Bob Martin is taking over as interim CEO immediately, according to a statement late Monday, and the clothing retailer has lowered its second-quarter operating margin percentage expectations to a range of zero to slightly negative. . The shares, which fell 8.7% in New York trading, have lost more than half their value this year.

Syngal was hired just before the pandemic hit, which rattled demand and intensified the focus on online shopping amid mandatory store closures. Missteps such as a clumsy implementation of women’s enlarged sizes at the company’s Old Navy chain, whose top executive left earlier this year, have swelled inventory levels as demand may have reached its maximum.

“Several disappointing catalysts have now struck, the bullish case has been eliminated in the near to medium term,” Wells Fargo analysts led by Ike Boruchow said in a note.

In early 2020, Syngal stepped in to replace a CEO who left abruptly due to operational issues. Predecessor Art Peck left after a plan to spin off Old Navy was scrapped and a failed relaunch of sales growth. Syngal was the head of Old Navy, which generates more than half of the company’s revenue.

Syngal’s departure further reduces women’s representation at the top of US public companies. There are currently 33 female CEOs in the Standard & Poor’s 500 Index, according to data compiled by Bloomberg. The spread was removed from the index at the start of the year.

After taking over in March 2020, Syngal immediately had to navigate COVID-19. She oversaw the accelerated implementation of curbside collection and the expansion of e-commerce – moves that investors applauded.

However, she was unable to maintain the momentum. The business as a whole appears to be struggling to capitalize on rapid changes in clothing trends as offices reopen and consumers shift away from comfortable clothing, such as activewear, towards workwear. Gap’s upscale Banana Republic chain stood out last quarter, but that wasn’t enough to offset weakness in other divisions.

Additionally, a deal to produce apparel with Kanye West’s Yeezy brand failed to generate significant results. After announcing the project with fanfare, Gap executives remained silent on the matter.

The company’s missteps are untimely as the retail industry prepares for back to school, one of the biggest shopping times of the year. “As a family brand, it has a compound halo effect. When we don’t ship for moms, she’s less likely to come to Old Navy for her kids,” Syngal said on the latest earnings call. company.

Gap, which also operates Athleta in addition to its eponymous brand, expects $50 million in airfreight and other costs to offset operating profit in the fiscal second quarter.

The company sees Old Navy hitting $10 billion in sales by 2023. Old Navy added more plus-size women’s clothing to broaden appeal, but the move backfired when its size assortment was unbalanced, with too many of some sizes in stock and not enough of others. . This led to cuts in orders for the third quarter.

The announcement follows an earlier cut to its earnings outlook. The retailer expects to push through its inventory glut with deep discounts, which will weigh on its bottom line.

“Old Navy was going in the wrong direction and it can’t happen because it’s so critical to the whole business,” Morningstar analyst David Swartz said. “It’s clear that some of the strategies that Syngal herself was a proponent of had failed, such as the extended sizes.”

The clothing retailer has also hired Horacio “Haio” Barbeito as the new CEO of Old Navy. Barbeito will join Gap after a 26-year career at Walmart Inc., where he most recently served as CEO of the retail giant’s operations in Canada, its largest overseas market outside of Mexico. Prior to that, he led Walmart’s operations in Argentina and Chile.

— Bloomberg writers Brendan Case and Jeff Green contributed to this report.

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