Why Is Gap (GPS) Stock Plunging Today?

Retail clothing giant Gap (NYSE:GPS) is down big today following the departure of Old Navy CEO Nancy Green. Currently, GPS stock is down nearly 20% so far on the news.

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So, what do you need to know about Gap lately?

Well, on Thursday night, Gap leadership announced it was cutting its guidance for the fiscal first quarter, alongside news of Green’s departure. Management commented on the move in a press release, stating that “now is the right time to bring in a new leader with the operational rigor and creative vision to execute on the brand’s unique value proposition.”

Green has held the CEO role at Old Navy since 2019. However, amidst recent growth slowdowns for the brand, it seems the company has decided a change was in order. Per the press release, an “external search” is in progress to find her replacement.

GPS Stock Continues to Tank as Revenue Outlook Worsens

Today’s drop in GPS stock follows an overall brutal year for the company. The retailer has shed more than 64% off its stock price over the last 12 months. It doesn’t appear its troubles are easing anytime soon, either.

As noted in the press release, Gap now sees it Q1 sales slowing more than it had expected. Specifically, it foresees sales dropping by a “low- to mid-teen percentage,” which is more than the previously predicted drop of a mid- to high-single-digit percentage. Gap did not change its full-year adjusted profit expectations with the Q1 adjustment, however.

Apparently, much of Gap’s management of Old Navy has lead to significant holes in its revenue flows. Last August, Old Navy launched its “Bodequality” campaign. The initiative expanded its selection of women’s clothing sizes while maintaining identical costs. Despite the well-meaning intentions behind the plan, it likely ended up hurting the company’s inventory management. An anonymous insider offered Yahoo! Finance details on the failed campaign:

“The Bodequality caused them to have to reallocate square footage and SKU [stock keeping unit] reduction to offer all sizes in every SKU and that created a massive reduction in inventory productivity […] This issue will take the rest of the year to course correct, especially if they already committed to back-to-school with more aggressive inventory buys due to supply chain backup.”

As Gap continues its managerial transition, investors will surely be watching the discount retailer moving forward.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


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