That didn’t take long.
Only one month after Old Navy boss Stefan Larsson left to become CEO of Ralph Lauren, the fortunes of Gap Inc’s (GPS) biggest and, until recently, only growing major brand started to turn.
Gap Inc said on Thursday after the stock market closed that comparable sales in December at Old Navy fell 7%, a drop that followed a decline in November, marking the company’s first back-to-back monthly decreases in nearly two years.
Investors, already skittish about how long it is taking the company to fix its ailing Banana Republic and Gap brands, sent shares down 12% on Friday morning. (They’ve fallen by nearly half since hitting a 52-week high last March.)
Gap Inc has come to rely on Old Navy, which generates more than 40% of its sales, to prop up overall results while it scrambles to fix its two sibling brands. (Comparable sales at Banana Republic were even worse, falling 9% last month.) And it has often touted Old Navy’s injection of fashion into its affordable clothes and its ability to react quickly to consumer tastes as models for Banana and Gap to better compete with fast-fashion chains like H&M. (Gap Inc also owns Intermix and Athleta.)
What’s more, the sharp drop came in the busiest month of the year for retailers. To be fair, the unusually warm weather in the Eastern half of the United States last month really pinched retailers. Planalytics, a firm that advises retailers on the effects of weather on their business, estimated that specialty retailers, which include stores like like Gap and American Eagle Outfitters (AEO), lost $500 million this holiday season as people postponed or canceled plans to buy winter clothing like sweaters and coats.
Still, Victoria’s Secret parent company L Brands reported big jumps last month, and J.C. Penney also reported strong numbers, meaning some retailers have figured out how to weather the warm winter. Gap Inc, unlike Macy’s, at least didn’t blame the weather.
Still, it is clear that Gap Inc’s Golden Child has begun to falter since Larsson’s departure, offering a legitimate reason for investors to fear for the company. In September, Gap Inc named Jill Stanton, an executive vice president at Old Navy, to lead the division in the interim.
Gap Inc CEO Art Peck has promised investors that the efforts to fix Gap and Banana will start to pay off this spring. The last thing he needs right now is for Old Navy to fall apart too.
