Gap ousts CEO amid sales slump
Gap Inc., which ousted its chief executive Monday, faces major challenges as the nation’s largest specialty retailer seeks to win back customers who once flocked to its stores.
In the months ahead, the San Francisco-based parent of 3,200 Gap, Old Navy and Banana Republic stores needs to wrench the company from an extended and brutal sales slump.
“Whoever they bring in is really going to have their work cut out for them,” said Timothy Allen, an analyst at Jefferies & Co. in New York. “Whoever it is -- male or female -- when they get there, it’s really a matter of the work just beginning.”
The retailer announced Monday that Paul Pressler would step down and Chairman Robert J. Fisher, son of the company’s founders, would become interim CEO while the company searched for a replacement.
Pressler, 50, who was head of Walt Disney Co.'s theme parks and resort division before joining Gap in September 2002, left with $36 million.
“Paul and the board agreed that it was in the best interest of the company and employees for Paul to leave at this time,” Gap spokesman Greg Rossiter said.
“We obviously pointed to the fall and holiday season as the key season for a turnaround, particularly for the Gap and Old Navy brands,” he said. “Unfortunately, the seasons did not turn out as we had hoped.”
Neither Pressler nor Fisher were available for comment.
In recent weeks, Gap reportedly hired investment bank Goldman Sachs Group Inc. Possible outcomes could include a sale to a strategic buyer, a leveraged buyout or a spinoff of Gap’s brands. The company has declined to comment.
Joseph Beaulieu, an independent equity analyst at Morningstar in Chicago, urged caution.
“I wouldn’t uncork the champagne yet if I were a shareholder.... The company still has a couple of big problems that it has to fix, those problems being Gap and Old Navy.” The two troubled divisions account for about 80% of the retailer’s sales.
In a recent interview, Robert Buchanan, an analyst at A.G. Edwards & Sons Inc. said, “For whatever reason, the Gap has lost a considerable amount of talent, both in senior and more junior positions. Retailing is a momentum business. When negative momentum is established -- and it clearly is in this case -- it’s really hard to reverse course.”
“At least if you brought in a career retailer, that person might have a chance to turn around Old Navy,” Buchanan added. Gap, however, has struggled for so long, and its competition has grown so formidable that “anyone’s going to have a hard time turning that business around,” he said. “Anyone.”
Analysts, however, were encouraged by Gap Inc.'s statement Monday that it would search for a new chief with, among other things, “deep retailing and merchandising experience ideally in apparel.”
Sales at stores open a year or more, a key indicator of a retailer’s health, have fallen or been flat in 29 of the last 31 months. Revenue has failed to advance for seven consecutive quarters, and profit has slipped for five quarters in a row.
Same-store sales fell 8% in both November and December compared with the previous year. In November, all divisions lost ground.
In December, only Banana Republic advanced, eking out a 2% gain.
The announcement came after markets closed Monday. Gap’s stock, which jumped this month on speculation that Pressler was on his way out, rose to $20.40 in after-hours trading. The stock had slipped 10 cents to $19.90 in regular trading.
Gap shares have risen 66% since Pressler was named CEO in September 2002.
By contrast, a Standard & Poor’s index of 27 major clothing retailers has surged 102% in the same period.
Fisher, 52, praised Pressler in a statement for improving the company’s operations, strengthening its balance sheet and improving its “standing as a global corporate citizen.”
Fisher has worked for Gap for nearly three decades. He has been chief operating officer, chief financial officer and president of both Gap and Banana Republic. His parents, Donald and Doris Fisher, co-founded the company 38 years ago. The Fisher family controls at least 33% of the shares.
Analysts weren’t surprised at Monday’s news, given Pressler’s inability to concoct the magic that would pull shoppers back into Gap and Old Navy stores.
Rumors that he might leave had swirled intermittently for more than a year amid the downturn in sales and earnings.
As the company logged sales declines in November and December, the grousing from analysts intensified and more of them began questioning how long he would stay.
Pressler will leave with about $36 million, representing two years’ salary, a potential 2007 bonus of as much as $1.5 million, accelerated vesting of $9.5 million in stock options and about $22.3 million in so-called vested stock options, which can be sold at any time. Pressler must exercise these options within three months of leaving the company, spokesman Rossiter said.
Pressler’s parting payments, though generous by many standards, pale in comparison with those going to other ousted CEOs such as Home Depot Inc.'s Robert Nardelli, who will take home $210 million. Bruce Karatz of KB Home, who recently resigned in the wake of a stock option scandal, stands to get as much as $175 million.