Few consumer stocks with as much brand recognition as Gap (GPS 5.59%) have performed so badly on the stock market. Gap, which also owns Banana Republic and Old Navy, has been a staple of American casualwear for decades, but the stock has been anything but essential, down 78% over the past 10 years.
The retailer has been attempting to turn its business around for years. A plan to spin off Old Navy, historically the best-performing of its three major banners, was reversed before it came to fruition. Its partnership with Kanye West blew up in its face. Former CEO Sonia Syngal, who took the reins in 2020, was ushered out just two years later after failing to deliver the comeback many expected.
Now, with a new CEO on the scene, Gap may have its best chance for restoration in years.
Meet the new boss
After a yearlong search, Gap has named Richard Dickson, Mattel's chief operations officer (COO), as its next CEO. Dickson will join the retailer on Aug. 22. Gap stock got a jolt on the news, rising 7.7% on Wednesday on hopes that Dickson can lead its comeback.
Mattel, like the Gap, has largely struggled in recent years. Dickson is credited with reviving the Barbie brand, which is currently having a cultural moment, with Barbie the movie dominating the box office. Dickson has also helped drive growth at Mattel's top brands, like Hot Wheels and Fisher-Price, having joined Mattel back in 2000.
He's also known for developing and launching the Mattel Playbook, a brand-building strategy that has helped grow Mattel's "power brands," like Barbie and Hot Wheels, and accelerated its transformation.
Dickson joined Gap's board of directors last November and worked in a range of positions in the apparel industry, including as an executive at Bloomingdale's, prior to joining Mattel.
No easy feat
Turning Gap around won't be easy and will likely take several years, no matter what Dickson does, as the brand's cultural relevance seems to have peaked long ago. Over the last decade, the company has struggled against nimbler fast-fashion retailers like H&M, Zara, and Uniqlo.
Gap reported a 6% decline in revenue in its first quarter, with comparable sales down 3%. On the bottom line, its adjusted profit per share was just $0.01, though it was an improvement from a loss per share of $0.44 in the year-ago quarter as the company faced elevated freight and inventory costs back then.
As part of its cost-cutting efforts, Gap has announced multiple rounds of layoffs, recently letting go of 1,800 corporate employees, and continues to close stores. The company could also be forced to cut its dividend, which currently offers a 6% yield, as it reported a loss in fiscal 2022, which ended in January. A dividend cut would only send the stock spiraling again.
Gap seems to be in desperate need of a cohesive strategy and a vision for its brands. While Dickson may be a good choice for the position, it's worth noting that Mattel's financial performance has been mostly underwhelming despite the success of the Barbie movie.
Dickson was quoted as saying that "Gap Inc. is a portfolio of iconic brands, known for having defined American style with bold thinking and making quality fashion accessible to millions. But it's the work ahead that excites me most -- the chance to work hand-in-hand with the teams to evolve Gap Inc. for a new era."
There are a lot of different directions he can go in as CEO, including closing stores and focusing on the online channel, increasing marketing spend for a rebrand, or reshuffling the brand portfolio entirely with a sale, spinoff, or even an acquisition.
However, investors shouldn't expect immediate results. While it's certainly good news to have a permanent CEO at the company after a year with interim leadership, there is still a lot of hard work and difficult decisions that must be made for Gap to be a winner in the highly competitive, fragmented, and rapidly changing apparel industry.
