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Gap’s Old Navy spinoff plans in doubt with CEO Art Peck out

Traffic passes by an Old Navy and GAP stores in Times Square, March 1, 2019 in New York City.

Drew Angerer | Getty Images

Gap Inc.‘s plans to spin off its once-star Old Navy brand are being called into question with the ouster of CEO Art Peck.

The San Francisco-based apparel retailer announced Thursday evening that Peck has stepped down from the position he had held since 2015. Peck has been replaced temporarily by Robert Fisher, son of Gap’s founders Donald and Doris Fisher.

With Peck’s abrupt departure, analysts are doubting a looming split of Old Navy and Gap will go through, especially with the Old Navy brand in such poor shape.

Gap shares were down around 7% by Friday morning, shaving more than $450 million off the retailer’s market cap from Thursday. The stock as of Thursday’s market close had tumbled nearly 30% this year. Gap is valued at roughly $6.32 billion.

Gap, however, told CNBC in an emailed statement that its board “continues to believe in the strategic rationale for the planned separation, and the preparation for separation continues as planned.”

It also said there will be a regularly scheduled meeting of its board next week, and it will provide an update when it reports quarterly earnings on Nov. 21.

The company announced in February it planned to split 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. The separation had been scheduled to be completed next year.

Until recently, Old Navy had been the star of Gap’s portfolio, bringing in about $8 billion in annual sales. It has been successful at offering basic apparel like white tees, jeans and logo hoodies at lower prices, rivaling the likes of T.J. Maxx and Ross Stores.

Today’s shoppers have countless options for finding less-expensive apparel online and at fast-fashion players like H&M, which recently reported a return to sales growth. Shopping at second-hand merchants and clothing rental options are also cutting into apparel sales.

Gap said Thursday that same-store sales fell 4% companywide in the third quarter, including a disappointing 4% drop at Old Navy.

“We have to think this new development will make the original timeline of the planned Old Navy separation extremely difficult,” Evercore ISI analyst Omar Saad said in a note to clients.

“An already skeptical market is going to have a hard time embracing [a] fundamentally challenged Gap/Banana Republic combination without a leader and clearly articulated turnaround plan,” he added.

“What about the spin?!” RBC Capital Markets analyst Kate Fitzsimons said. “With the CEO departure, while there is no update on the Old Navy spin planned for 2020, we think the board may be re-evaluating their options.”

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