The recent announcement of Gap Inc’s CEO, Sonia Syngal, stepping down has triggered speculations regarding the future of the struggling apparel retailer. Due to declining sales and shrinking margins, analysts believe that Gap Inc may be compelled to sell off one or more of its brands. Notably, Gap Inc owns popular brands such as Old Navy, Gap, and Banana Republic.

As a result of Syngal’s departure and the warning of weaker margins, Gap Inc’s shares have experienced a 6% drop in premarket trading. At least six brokerages have already lowered their price targets for the company. This development has raised the possibility of Gap exploring strategic alternatives or making significant cuts to its selling, general, and administrative expenses (SG&A).

It is worth mentioning that Gap Inc had previously contemplated spinning off its Old Navy brand in 2020, but ultimately decided against it due to increased costs and complexities. However, analysts now believe that the company may revisit the idea of a spin-off, potentially including its popular Athleta brand.

Initially, investors praised Syngal for her efforts in guiding Gap Inc through the challenges imposed by the pandemic. Her focus on inclusivity, launching the Yeezy line in collaboration with Kanye West, and forming partnerships with Walmart Inc and European franchisees garnered positive attention. However, the company faced setbacks, particularly with its Old Navy brand, due to issues in the supply chain, fashion missteps, and high inflation, which hindered the brand’s recovery.

Analysts predict that the problems at Old Navy will persist into the next year, impacting the company’s margins. Gap Inc has already witnessed a decline in margins in recent quarters and has forecasted lower gross margins for fiscal year 2022 compared to the previous year.

Some analysts believe that Gap had the potential for a strong comeback in 2022, but the persistent issues at Old Navy have undermined the company’s credibility. Consequently, the upcoming steps taken by Gap Inc will be closely monitored by investors, who anticipate potential changes such as brand divestments or cost-cutting measures to revive the company’s fortunes.

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