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KeyBanc Downgrades Gap After Flagship Brand Splits With CEO

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KeyBanc Downgrades Gap After Flagship Brand Splits With CEO
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Gap Inc (NYSE: GPS) parted ways Tuesday with Jeff Kirwan, CEO of the company's namesake brand. At least one Wall Street analyst felt the executive's departure necessitates a downgrade of the stock. 

The Analyst

KeyBanc Capital Markets' Edward Yruma downgraded Gap's stock rating from Overweight to Sector Weight with no assigned price target.

The Thesis

The retailer said in its decision to part ways with Kirwan that the core Gap brand has not seen "operational excellence and accelerated profit growth," Yruma said in the downgrade note. Kirwan has held his post since the end of 2014 and his departure creates some concerns that product, brand perception and store fleet issues will now be "difficult to fix," the analyst said. 

Old Navy continues to be a "relative standout" and posted a 4-percent comp growth in its third quarter, Yruma said. But comparisons in the fourth quarter will be more difficult after the brand posted 5-percent comp growth last year.

Gap's Athleta brand is also attractive and growing at a double-digit rate, but at $700 million in revenue, it is still relatively small and won't act as a meaningful earnings driver for some time, the analyst said. 

A bullish stance on Gap's stock is based on the core brand showing momentum, and any signs of improvements aren't going to be seen until 2019 at best, Yruma said. 

Price Action

Shares of Gap lost 5 percent on Tuesday and were trading flat early Wednesday morning.

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Photo from Wikimedia. 

Latest Ratings for GPS

DateFirmActionFromTo
Oct 2018Standpoint ResearchUpgradesHoldBuy
Oct 2018JP MorganDowngradesNeutralUnderweight
Oct 2018WedbushMaintainsNeutralNeutral

View More Analyst Ratings for GPS
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