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Shares of Gap (NYSE:GPS) are down about 6% in pre-market Tuesday after the company announced that CEO Sonia Syngal would step down from that role.
Syngal will be replaced by Bob Martin, GPS’s current executive chairman of the board, on an interim basis.
“While a search is underway, the Board has complete confidence in the formidable leadership team to guide the company through this transition. And I look forward to championing this incredible team as they continue to write Gap Inc’s next chapter with grit and passion,” Martin said in a press release.
Moreover, Gap also said it now expects “net sales in the second quarter fiscal 2022 to decline in the approximately high-single-digit range, relatively in-line with its prior expectations.”
However, a “more aggressive approach to assortment balancing” will have a negative impact on gross margin in the quarter, the company added.
“Furthermore, the company now anticipates second-quarter fiscal 2022 adjusted operating margin percentage to be zero to slightly negative.”
In the aftermath of the guide down and leadership transition, Wells Fargo analyst Ike Boruchow downgraded GPS stock to Equal Weight from Overweight with a $10 per share price target (down from $16).
“While the macro is far from good today, the majority of these issues appear to be self-inflicted and centered on Old Navy. As such, as we remain cautious on our space, we simply cannot continue to recommend a name that is juggling company-specific challenges on top of growing macro pressure. As the space is likely in just the early innings of fundamental decline, we simply need to rethink any fringe OW-rated names where our thesis is not reasonably intact,” Boruchow told clients in a note.
Similarly, BofA analyst Lorraine Hutchinson reiterated an Underperform rating on GPS shares and cut the price target to $8 from $9.60.
“We reiterate our Underperform on Gap Inc. as we expect continued challenges from assortment imbalances and a weaker macro environment… We are lowering our F22 EPS estimates by 26c to $0.12 to reflect the deeper than anticipated promotions in 2Q and continued weakening of the macro environment,” Hutchinson wrote in a research note.
