Some analysts are telling Gap Inc. investors not
to worry about the departure of Old Navy president Stefan Larsson. But it’s
clear that some of them aren’t buying it. Shares of Gap fell as much as 8.6%
Wednesday morning following the announcement late Tuesday that Mr.
Larsson will become chief executive of Ralph Lauren Corp., taking the
reins from founder Ralph Lauren.
Meanwhile, Ralph Lauren’s stock rose as much as 15%
Wednesday to $119.14. Cantor Fitzgerald analyst Laura Champine said
that Ralph Lauren had plundered the Gap’s top talent. Mr. Larsson has been
credited with reviving sales and the fortunes of Old Navy since joining the
company in 2012. The Old Navy brand accounted for roughly 40% of the company’s
revenue last year.
Stifel Nicolaus analyst Richard Jaffe praised Mr. Larsson
for improving the selection of merchandise at Old Navy, its sourcing model
and for his role in increasing sales by over $1 billion in the past three
years. Both Mr. Jaffe and MKM Partners Roxanne Meyer said that his departure
shouldn’t affect the company’s performance over the near or medium term.
She admitted that she’s “highly disappointed” that Mr.
Larsson is leaving because he’s had a big impact on product, process, and
ultimately performance over the past two years. But she said that his influence
at Old Navy should endure. Mr. Jaffe also said that there is a deep bench
of talent at Old Navy that should continue to drive sales and “can continue to
flourish without Larsson.”
Ms. Meyer has had a buy rating on the stock ahead of this
week’s news, and she said she’s sticking to it. She called for investors
to be opportunistic in the wake of a Gap stock selloff Wednesday. She said she
still expects Old Navy’s strength to “offset weakness at both Gap and Banana
Republic.” Mr. Jaffe kept his buy rating on the stock but said that given the
recent leadership changes and weakness at Gap brand, the investment has become
more uncertain.
Cantor Fitzgerald’s Ms. Champine, who has a hold rating on
the stock, is more concerned. She lowered her price target to $29 from $35 and
called Mr. Larsson’s move bad news for Gap as Old Navy has been the company’s
lone bright spot for the bulk of his tenure as global president.
Gap’s stock has struggled over the past year. As of
Wednesday morning, Gap’s shares are down more than 30% for the year. And with
Wednesday’s big drop, it looks like some investors are siding with
Ms. Champine’s interpretation of the news.
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