NEW YORK (TheStreet) -- Shares of two clothing companies are moving in opposite directions after an executive for one left to takeover for an icon at the other. NEWS: Last night, Gap (GPS) - Get Report announced that Stefan Larsson will step down as global president of Old Navy effective October 2. Larsson is leaving Gap to become the new Chief Executive Officer of Ralph Lauren (RL) - Get Report , replacing the man who founded the company that bears his name. The company said founder Ralph Lauren will continue to "actively drive the company's vision and strategy" as executive chairman and Chief Creative Officer.
SELL GAP: Following the executive change, at least three research firms downgraded Gap shares to sell or equivalent ratings. Among them is UBS analyst Michael Binetti, who said the Old Navy presidents unexpected departure reduces his conviction that Old Navy can maintain its momentum. Further, visibility into the turnarounds of the Gap and Banana Republic brands is now "significantly reduced" since Larsson's leadership and processes were at the centerpiece of those efforts, said Binetti, who cut his price target for Gap shares to $25 from $40. Of a similar mindset is Piper Jaffray analyst Neely Tamminga, who downgraded Gap to Underweight, citing the departure of Larsson and as well as the risk to earnings from higher promotional levels relative to last year. Tamminga lowered her price target for Gap shares to $28 from $34. Mizuho analyst Betty Chen also downgraded Gap to Underperform this morning and lowered her price target on shares to $26. Chen believes the departure of Larsson is a "bad omen" for Old Navy performance going forward and a major brain trust loss for the company as both Gap and Banana Republic struggle to refine design and supply chain processes.
BUY RALPH LAUREN: In addition to cutting his rating on Gap, UBS' Binetti upgraded Ralph Lauren to Buy this morning, saying new CEO Larsson brings a track record for optimizing operations quickly. Binetti also believes the stock is "inexpensive" following the 44% year-to-date pullback. Binetti cut his price target for Ralph Lauren shares, however, to $128 from $133.
PRICE ACTION: In early trading, Gap shares fell more than 7.5% to $27.92, while Ralph Lauren rose 10% to just above $114.45 per share.
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