The inherent charm of Art Peck that afforded him a cushy relationship for years with Gap’s founding family, the Fishers — three of whom are board members — finally was no longer enough to keep him in the C-suite, sources tell Yahoo Finance. Gap (GPS) stock has been tanking and it just recorded another God awful quarter.
Peck — Gap’s CEO since early 2015 — once and for all wore out his welcome with the board (though is still generally liked by the Fishers), sources say, ahead of Gap’s budget planning for 2020. Sources tell Yahoo Finance that data-driven Peck — known for taking modest swipes at brand teams on earnings calls and not filling key merchant positions — never truly recovered at HQ from a decision to slash employee bonuses last holiday season.
Peck hauled in an astounding $21.8 million in total compensation in 2018, according to Gap’s proxy filing, up from $15.6 million in 2017.
Meanwhile, a growing source of contention within the company was Peck’s decision earlier this year to spin off Old Navy into a public company. Sources say the move was more about Peck keeping his CEO job than creating value for shareholders.
There is strong merit to that idea.
Old Navy’s same-store sales — which were rather strong for most of 2017 and 2018 — began to decline in the first quarter of this year. Old Navy’s same-store sales fell 1% in the first quarter, dropped 5% in the second quarter and declined 4% in the third quarter Gap said Thursday evening in announcing Peck’s departure.
Yet, Peck continued to plow ahead with a spin off (the message mostly fell flat among Wall Street analysts after a September analyst/investor day in New York City) despite Old Navy’s newfound sales struggles. Attempting to spin off a retail brand with falling sales isn’t exactly a great idea in trying to extract shareholder value. One source tells Yahoo Finance it’s unlikely Old Navy will be spun off.
A regularly scheduled board meeting in a week is still a go. The decision to proceed on the breakup of the company will likely come from that meeting.
A Gap spokesperson didn’t respond to multiple requests for comment on Peck’s departure. Gap declined to make interim CEO and board member Robert Fisher available for a phone interview.
Gap shares fell 55% from the time Peck was announced as CEO in October 2014 to right before he was ousted on Thursday.
Gap under Peck’s helm
To say Peck’s tenure at Gap was less than stellar is an understatement.
Same-store sales at Gap have been on a material downtrend under Peck’s watch, plagued by a lack of exciting products and lower product quality. A source explained to Yahoo Finance the lack of having veteran merchants in the executive ranks has clobbered the Gap brand. Banana Republic’s same-store sales have been mixed at best, while Old Navy was seen as the star up until 2019.
Workout apparel brand Athleta continues to be a gem, but for some undisclosed reason Peck never truly pushed aggressively to expand the brand. In turn, rival Lululemon continues to put up mind-blowing quarterly sales gains.
Peck’s answers to stem the tide in sales was to close underperforming stores and make shipping products from stores available. He deserves high marks for those efforts, sources say, but in the end execution on the initiatives — and countless others — never was really best in class.
To be sure, Gap’s troubles persisted in the third quarter.
Gap’s same-store sales fell 7%, Old Navy declined 4%, and Banana Republic dropped 3%. The company slashed its full-year earnings outlook to $1.70 to $1.75 from $2.05 to $2.15
Gap’s stock plunged 10% in Friday trading.
The job of stabilizing Gap’s business and jump starting the culture now falls on Robert Fisher, non-executive chairman turn interim CEO and one of the sons of founders Doris and Donald Fisher. Doris Fisher, Robert Fisher and Robert’s brother John Fisher, who owns the Oakland Athletics, are on the board and collectively own about 12% of the stock, according to Bloomberg data.
Before starting the search for a permanent CEO, Gap’s board must decide what to do with Peck’s plans to split the company up. It then has to ride out what’s shaping up to be a very challenging holiday season for the company. A sale of the entire company is unlikely due to the company’s struggles, sources say.
It’s going to be a rough few months for this mall-based apparel staple.