Class Action: Gap Misled Investors by Failing to Disclose Old Navy ‘BODEQUALITY’ Inventory Setbacks

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A proposed class action claims Gap, Inc. and its top executives misled investors by issuing several deceptive statements throughout 2021 and 2022 regarding the condition of its size-inclusivity campaign at Old Navy stores, BODEQUALITY.

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The 17-page case alleges the apparel retailer’s former chief executive officer, Sonia Syngal, and current chief financial officer, Katrina O’Connell, disseminated several false reports to the investing public that omitted certain execution missteps and inventory risks relating to Old Navy’s BODEQUALITY campaign in 2021. Since the statements did not accurately reflect the company’s financial condition, Gap artificially inflated the market price of its securities and financially damaged investors, the lawsuit argues.

Following the launch of BODEQUALITY in 2021, Syngal stated in a press release that Old Navy’s “inclusive shopping experience,” which introduced up to size 28 at Old Navy stores, was expected to be one of the company’s “key drivers of long-term sustainable growth,” the complaint relays. 

A press release from November of the same year reported that the campaign had doubled Old Navy’s extended-size customer file during the third quarter and that 15 percent of customers who shopped for extended sizes were new to the brand, the case relays. Moreover, a press release from March 2022 claimed that Old Navy’s fourth quarter 2021 net sales were “muted in part due to supply chain impacts,” but that the brand remained “well-positioned,” the suit reads.

Per the case, the subsequent reports filed with the U.S. Securities and Exchange Commission (SEC) and approved by Syngal and O’Connell in connection with the press releases provided risk statements that did not accurately reflect the inventory issues Gap was facing at the time. In actuality, global supply chain disruptions were preventing Gap from properly stocking appropriately sized BODEQUALITY clothing, which adversely affected its sales, the case claims.

A May 2022 article published by the Wall Street Journal details the company’s apparent inventory miscalculation, according to the complaint:

The suit argues that Gap has run afoul of federal regulations stipulating that a company’s SEC filings must “[d]escribe any known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations."

Per the suit, Gap announced on April 21, 2022 that Old Navy CEO Nancy Green had stepped down, after which the company’s stock price plummeted 17 percent. Stock prices fell another seven percent following the publication of the May 2022 Wall Street Journal article, the case says.

After Gap’s May 27 SEC report accurately revealed that its quarterly results were impacted by “execution missteps in size and assortment at Old Navy related to BODEQUALITY,” its stock price fell another 4.9 percent, financially damaging investors even further, the complaint relays.

As the case tells it, investors would not have purchased Gap’s securities had they known the company had misrepresented its business and financial operations. 

The lawsuit looks to cover anyone who acquired Gap securities publicly traded on the New York Stock Exchange between November 24, 2021 and July 11, 2022 and was damaged.

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