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Oct 09, 2014
Gap CEO Glenn Murphy is to retire next February after seven years, to be replaced by its current digital leader Art Peck. News of the management shakeup came as the apparel retail giant also reported poor same-store sales in September and said weak sales in its signature brand were expected to hurt margins in Q3. The combined news sent its shares tumbling 7.4% to $38.80 in after-hours trading Wednesday.
Art Peck, 59, is currently president of its Growth, Innovation and Digital division and will take overall charge from February 1. He was the head of Gap’s North America operations in 2011 and 2012. Murphy and Peck have worked side-by-side for the brand since the latter joined in 2005.
Murphy, 52, said he made the decision to retire, because he could not commit to lead the company for the next several years. Murphy said he had no immediate employment plans… “I’m young and I will probably work somewhere again,” he said.
Under Murphy’s tenture, Gap has seen its market value almost triple while its earnings have more than doubled in that period.
“Today, Gap Inc is a formidable global fashion retailer with a strong foundation in place for long-term growth, therefore making this an appropriate inflection point for me to pass the baton to a leader who will take our portfolio of brands to even greater heights,” Murphy said. “With consumer expectations rapidly evolving, Art is the right leader at the right time to build on our success and ensure a compelling experience for our customers across both our physical and digital channels.”
Bobby Martin, lead independent director for Gap’s board, said of Peck: “We are pleased to have an internal leader with Art’s proven track record and management capabilities to chart the path for the company to further compete, win and grow.
“Art has created substantial value for the company over the past decade, and the Board is confident he will further increase long-term returns for our shareholders. The Murphy era at Gap Inc will be long remembered for successful global expansion, strategic investments in key growth areas, and the consistent shareholder returns that our management team delivered.”
As part of the transition, Bob Fisher, who has a 35-year history with the company founded by his parents, will become non-executive chairman, also effective February 1.
Meanwhile Gap reported sales for September rose just 1% to $1.48bn, which the retailer described as “disappointing”. Comp sales for the month unexpectedly fell 3% at its signature stores, on top of a 3% dip a year ago. Banana Republic Global comps rose 2% versus a 5% decline a year ago, while Old Navy Global comp sales rose 1% versus a 2% dip last year.
“September proved to be more challenging than we expected,” said Murphy. “While Old Navy and Banana Republic are performing well, we are working aggressively to ensure our entire portfolio of brands delivers to its potential.”
For the three months ended August 2, the company’s profit rose to $332m from $303m, as sales rose 3% to $3.98bn. Same-store sales at its Old Navy chain increased 4% during the period, and were flat at Banana Republic.
But growth at the core Gap brand – where sales fell 5% – has stalled after recording strong gains last year on demand for coloured jeans and other trends.
Comp sales at the Gap brand, which accounts for around 40% of total revenues, have been running negatively since May.
The company noted that it expects gross margins for Q3 are expected to be moderately below the prior year “driven by underperformance at Gap brand”.
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