Gap in management shake-up, slashes year-end outlook, shares hit

Gap issued a profit warning late Thursday alongside major leadership changes at its signature and Banana Republic brands. The US apparel retail giant also said a highly competitive Holiday season would again be all about discounting. Unsurprisingly, its shares fell nearly 5% in after-hours trading.

Jeff Kirwan, 48, has been promoted to global president of the Gap brand, succeeding Stephen Sunnucks, who will leave on December 19. Kirwan was most recently president for the brand in Greater China.

Over at Banana Republic, Andi Owen is promoted to global president, replacing Jack Calhoun. Owen, 49, who currently leads the Gap outlet division, takes up his new post on January 5 while Calhoun will depart after eight years on February 1.

New CEO Art Peck, who will succeed Glenn Murphy in February, said he was eager to improve the performance of the Gap brand, following a string of weak results.

“Jeff and I have a high degree of urgency about the situation at Gap,” Peck said. “I’m anxious to get him in there working with the team to get the brand back on track.

In a general statement, Peck said: “We’ll start 2015 with a management team comprised of both established executives and the next generation of brand leaders ready for the next generation of customers.”

He noted that the transition period allows the teams to deliver a “successful Holiday season while gearing up for a future where great product, showcased seamlessly across physical and digital experiences, consistently delights our customers.”

Despite the upbeat message, the company slashed its fiscal year earnings to $2.73-$2.78 a share from $2.95-$3 a share. It also cut its capital spending outlook by $50m to $700m.

All that comes about as the group’s quarterly profit fell to $351m/80 cents a share from $337m/72 cents a year ago, ahead of analysts’ expectations by a penny.

Sales for the period flattened at $3.97bn, up rose 1% currency neutral. Analysts had expected revenue of $4.04bn. Total online sales, however, rose 5.4% to $621m.

Overall same-store sales fell 2% and, by division, were down 5% at Gap stores against a 1% rise a year ago; Banana Republic was flat verses a 1% dip last time; and rose just 1% at Old Navy against a flat performance a year ago.

Operating margin also shrank to 13.9% from 14.5%.

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