Gap To Split Into Two Companies, With Old Navy As Separate Firm

An Old Navy store in New York’s Herald Square district

An Old Navy store in New York’s Herald Square district

The move is created to allow old navy to expand on its own.

On Thursday, the company said it will close 230 Gap stores over the next two years as part of its plan to "revitalize" the Gap brand.

Gap Inc said on Thursday it would separate its Old Navy brand into a publicly traded company, to focus on its struggling namesake apparel business, sending its shares up 18 percent.

"Santa didn't bring the sales but brought Old Navy spin instead", RBC's analyst Kate Fitzsimons said.

For years, Peck tried to apply the practices that led Old Navy to such success to other brands, but to no avail.

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Upon the separation, Gap Inc. shareholders are now expected to receive a pro-rata stock distribution in NewCo and Old Navy in equal proportion.

"We have made significant progress executing on our balanced growth strategy and investing in the capabilities to position our brands for growth", says Art Peck, president and CEO of Gap Inc., who will hold the same position with the new company.

The closures amount to almost a fifth of its total estate of Gap shops although the company has not said where stores will shut or how many jobs will be affected.

The restructuring is aimed at improving the profitability of Gap's brands, with a focus on building Gap's existing customer base.

Gap's shares lost a fifth of their value in the past 12 months, while the broader S&P 500 Apparel Retail index rose 13 percent.

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Meanwhile, the Gap has struggled - its sales fell 5% a year ago. Sonia Syngal, now president and CEO of Old Navy, will lead the new public, stand-alone Old Navy company.

Randal Konik, an analyst at Jefferies, has been arguing for an Old Navy separation for years.

The split up, which followed a comprehensive board review, comes as Old Navy has been thriving, while Gap still hasn't been able to regain its footing despite numerous attempts to fix the business. Meanwhile, the company can consolidate its older brands like Gap and Banana with its newer ones like Athleta and Hill City. The company also plans to open Old Navy and Athleta locations. The new company that Peck will run has about $9 billion in annual revenue. The retailer has tested partnerships with Lilly Pulitzer, Toms Shoes and Hunter Rain Boots and saw mixed results.

At the end of 2018 there were 1,242 company-operated Gap shops worldwide with 152 in Europe, the majority being in the UK.

"This could have been an opportunity for a fresh start for Gap", said Bob Phibbs, CEO of consultancy Retail Doctor.

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