I was a little surprised last week when it was revealed that John Luttrell, the CFO of teen clothing retailer Wet Seal, will be leaving his post to take up the CFO position at Gap's (NYSE:GPS) Old Navy division.

Wet Seal (Nasdaq:WTSLA) has definitely seen better days; however, it is expected to post profits both this year and next and its same store sales have recently been in the black. Old Navy, on the other hand, has seen its comparable store sales tank and its future has been questioned.



A Little Idle Speculation
When people leave what looks to be a relatively secure position, they usually only do so when they see sizable upside potential. Obviously, I can't speak for him, but here are my speculations at the potential he might see.

1) Quick turnaround - As mentioned above, Old Navy's same store sales have been dismal for some time now. So why not take a shot at joining in the midst of a turnaround? After all, the segment is aggressively trying to fix its merchandise mix!

2) Low expectations - Nobody is expecting much out of Old Navy. And sometimes, this is the best type of job to have. Any change for the better is likely to be warmly received by Gap's (NYSE:GPS) management and its shareholders.

3) Stock options - While the company did not elaborate, I speculate that he will be receiving Gap stock options as part of his compensation package. And with the stock trading well off its all time high, it may be a good bet.

4) Gap's new chief - He may have a lot of faith in Gap's new CEO, Glenn Murphy, and his ability to get the overall company back on track through cost cutting and other initiatives.

5) Bragging rights - It just looks good when you can put "Navy" and "Seal" close together on your resume.

Can Luttrell Tip The Balance?
As I alluded to in an article earlier this month, the stock is becoming more and more interesting thanks to Glenn Murphy's recent hire and the company's willingness to aggressively trim costs, and buy back its stock. (To read the full article, see Is The Gap Turnaround For Real?)

With Luttrell in the mix, it's tempting to say Gap could be setting up for a rebound. I could see the stock being flat over the short-term. However, later in the year, perhaps after Q3 results are released and it is clear whether Murphy is planning any end of year charges to earnings, Gap could possibly experience an upswing.

The Downside
With all of that said, there are still plenty of reasons why Gap may not be out of the woods just yet:

1) Wall Street Leery - It may take awhile for Wall Street to really warm to the story. I think Gap lost a lot of "(Wall) Street cred" over the last couple of years.

2) Clothes aren't drugs - There is no guarantee that Murphy will be successful in his efforts. Keep in mind that while he is said to have a sharp business mind, his background is in drug stores, not apparel.

3) Competition - I suspect that retailers will be heavily promoting, and in some cases discounting, their wares to make their numbers shine in the critical fourth quarter. This could stymie a comeback. (For more insight, check out Capitalizing On Seasonal Effects.)




The Bottom Line
I am warming to Gap's story more and more, and the Luttrell news only strengthens my opinion. Still, I think the critical factor with this stock is having the patience to wait until the time is right to pull the trigger.

To keep reading on this subject, check out Evaluating A Company's Management.

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Tickers in this Article: GPS, WSTLA

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