CEO Sonia Syngal is the latest executive to leave Gap Inc.

The news: Sonia Syngal will step down as CEO of Gap Inc., the apparel company announced on Monday. Syngal is set to remain only for a brief transition. Meanwhile, board chair and former Walmart International CEO Bob Martin will step into the CEO role on an interim basis. There were no immediate plans announced for the addition of a permanent CEO at Gap Inc., which owns the brands Gap, Old Navy, Banana Republic and Athleta.

New leader at Old Navy: Along with Syngal’s departure, Gap Inc. announced that Horacio “Haio” Barbeito will become CEO of Old Navy, effective August 1. Barbeito comes to Old Navy from Walmart, where he worked for 26 years. Most recently, he served as CEO of Walmart Canada, and previously led the retailer’s Argentina and Chile business. Barbeito succeeds Nancy Green, who left the top role at Old Navy in April.

Key quote: “With an exceptional and industry-leading CEO for Old Navy now appointed, I am thankful to have the board’s support in stepping down, ushering in a new opportunity for fresh perspective and rejuvenated leadership to carry Gap Inc. forward,” Syngal said in the announcement.

The backstory: An 18-year veteran of Gap Inc., Syngal stepped into the CEO role in 2020 after herself leading Old Navy. She was credited with turning around that brand, which is Gap Inc.'s largest, during her time at the helm. But it is struggles at Old Navy that have marked her final months as CEO.

While Gap did not give a reason for the departure, issues at Old Navy were in focus on the company's first quarter earnings call. In the quarter ended April 30, the company reported that revenue was down 13% year-over-year overall, and a loss of $162 million. Online sales were down 17%. As a result, the company cut its outlook for the year. Gap Inc.’s recent challenges are a mix of internal and external factors:

• Inventory mismatch: Due in part to bottlenecks in the global transport system that moves goods, Old Navy ordered items earlier than usual to sync with longer lead times. But by the time many items arrived, they were out of fashion with a public that was trading fleece and activewear for items to return to work and social settings. This left the company with excess inventory, which it then had to steeply discount in order to move. At the time, Syngal outlined a plan to reset inventory for back-to-school and holiday shopping.
• Size inclusivity execution: Old Navy also mismanaged demand in the launch of a size-inclusive initiative called Bodequality, which offered every style of women’s clothing in sizes 0-30. This also resulted in having too much inventory that wasn’t in demand at some stores. Many shoppers bought middle sizes but the smallest and largest sizes remained on shelves. This led to further need to discount and rebalance inventory, even as all sizes remained available online.
• Inflation: The company also found inflation hurting demand in the first quarter, especially among lower-income consumers. While the CEOs on many first quarter earnings calls said they saw demand remain strong, Gap Inc. executives said it observed weakness in consumer spending. Inflation was a big reason that it reduced expectations for top-line growth.

The numbers: Along with the announcement of the personnel change, Gap Inc. laid out several projections Monday for the just-completed second quarter of 2022. As previously detailed, the company said it expects net sales to decrease in the high single-digit range, while incurring $50 million in costs for air freight and inflation. In new projections, the company expects that additional costs for promotion to rebalance inventory will have a negative effect on gross margin, while it now expects adjusted operating margin percentage to be zero to slightly negative. Full results will be reported on August 25.