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Gap Makeover: New CEO Murphy Faces "Vision" Test

CEO Glenn Murphy
CEO Glenn Murphy

The one and a half billion dollar stock buyback and earnings of nineteen cents per share were the headlines of Gap's second quarter financial results. The numbers seemed totally secondary on the company conference call though. Not surprisingly, the intrigue was surrounding just what the CEO Glenn Murphy would say about his vision for the company.

CNBC broke the story to you first back in July that the former Shoppers Drug Mart chain chief was going to be filling the spot left vacant by controversial CEO Paul Pressler. On Thursday, Murphy fielded his first earnings conference call. Since he's just four weeks into the job, Murphy himself did not discuss financials (interim CEO Bob Fisher and upper management fielded those questions) but he received a fair share of questions surrounding his vision for the company and whether his retail experience is relevant to the apparel industry. There weren't any real surprises on the conference call though--all of those questions have been raised in the press and by investors.

It was interesting to hear Murphy respond directly to the criticism that his experience selling "replenishment" items like drugs and books might not be applicable to the aesthetic driven merchandise of the apparel industry. Murphy's response: "there is enough common ground in retail between sectors that I can bring a nice complimentary skill set" to the existing design and merchandising team. The underlying message there: Murphy will be a corporate executive executing strategic and financial direction (real estate strategy, store execution, etc) but that he is more than aware that he needs to defer to the design team on issue of merchandising and the visual design of the branded product.

Khaki may not be king again like it was in the '90s but Murphy emphasized that he's giving the company's new design team creative freedom and support to fix the company's merchandising problems. He also highlighted that he's looking at retention of talent (he knows he needs the merchandising help.) Acknowledging this is key and seemed to reassure analysts as to the vision for turning around the struggling casual wear stores.

Earlier on the call, Bob Fisher did say that he considers the styling turnaround to be about 50% complete. Styling wise Fisher says that the casual weekend and work wear will involve more color and that they'll refocus on selling bottoms like denim and khaki to shoppers aged 24-34 (with sweet spot in late 20s.)

Wall Street seemed to like what it heard on yesterday's conference call. The share price rallied more than 2% in after-hours trading. Ultimately though, it will be up to customers not investors to determine whether Murphy is the right man for the job and whether Gap's makeover is as fashion forward as they need.

Questions? Comments? retaildetail@cnbc.com