Gap shares fall after Ralph Lauren's CEO poach

Stefan Larsson's exit from Gap (GPS) to take the helm of Ralph Lauren (RL) drew a strong reaction from investors, with shares of his former company dropping sharply and those of his new venture rallying.

Citing concerns that Larsson's departure could have have on Gap's financial performance, UBS moved Wednesday to downgrade the retailer's stock from "neutral" to "sell." The bank lowered its 12-month price target on the shares to $25, from a previous level of $40.

The executive's "leadership and processes have been core to transformation of Old Navy over the past three years and are the centerpiece of plans to turnaround Gap and Banana Republic," UBS analyst Michael Binetti said in a research note.

Highly regarded by the investment community, Larsson was "at the helm of Old Navy during consistently strong performance for the last several years," Wedbush analysts Morry Brown and Taryn Kuida wrote in a note. "Larsson's departure lowers investor confidence in the potential turnaround at Gap."

Since joining Old Navy in 2012, Larsson has been lauded for the retailer's revived sales, with the Old Navy grand making up about 40 percent of Gap's revenue in 2014.

The reaction on Wall Street follows word late Tuesday that Larsson was departing his role of brand president at Old Navy to become chief executive of Ralph Lauren.

At 1:20 p.m. Eastern, shares of Ralph Lauren were up more than 12 percent to $117.06, while Gap shares were down 6.5 percent to $28.26.