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Gap Breaks Up With CEO Art Peck After Rocky Q3

There’s a changing of the guard at Gap, Inc. as Art Peck steps down as CEO and non-executive chairman and Robert J. Fisher ascends to president and interim CEO.

The surprise move comes as the company provided an update on third quarter earnings, which the apparel firm said it will release on Nov. 21. But a closer review of updated guidance indicates that lackluster performance across all three key divisions–Gap, Banana Republic and Old Navy–was a significant factor for the C-suite shuffle.

Gap said Peck will depart from the company after a brief transition and Fisher’s move to interim CEO is effective immediately. The son of Gap co-founders Donald and Doris Fisher, Fisher has been involved with the company for 35 years and has also served on the board since 1990.

“On behalf of the entire board, I want to thank Art for his many contributions to Gap Inc., spanning a nearly 15-year career with the company,” Fisher said. “Under Art’s tenure as CEO, we have made progress investing in capabilities that bode well for the future such as expanding the omnichannel customer experience and building our digital capabilities.”

Peck more recently has been advancing sustainability efforts at Gap. And the company has been planning to spin off Old Navy as a standalone company early next year, although with Peck’s departure that could be in doubt now.

Gap’s board has also named Bobby Martin, chair of its compensation and management development committee, as lead independent director. A retail industry veteran and former CEO of Walmart International, Martin has served on the board since 2002.

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For the three months ended Nov. 3, comparable sales for the Gap, Inc. were down 4 percent versus flat last year. By brand, each division posted negative comparable sales. Gap Global was down 7 percent on top of a 7 percent decline in the same year-ago period. Banana Republic was down 3 percent, versus a 2 percent gain last year. Old Navy was down 4 percent, compared with a 4 percent increase a year ago.

For the quarter, Gap reported estimated diluted earnings per share at between 34 cents to 36 cents, with adjusted diluted EPS at between 50 cents to 52 cents. For fiscal year 2019, diluted EPS was guided to the range of $1.38 to $1.47, with adjusted diluted EPS at between $1.70 to $1.75, compared with prior guidance of $2.05 to $2.15.

Those estimates were below Wall Street’s consensus of third quarter adjusted diluted EPS of 55 cents, and at $2.07 for the year.

“This was a challenging quarter, as macro impacts and slower traffic further pressured results that have been hampered by product and operating challenges across key brands,” Teri List-Stoll, executive vice president and chief financial officer of Gap Inc., said.

While there has been progress in some areas, there is “more work to do to leverage the capabilities we have invested in and deliver the profitable growth we know these brands are capable of delivering,” she added.