Gap, Old Navy split up

04 March, 2019, 04:28 | Author: Sally Reid
  • An Old Navy store in New York’s Herald Square district

Gap shares extended their gains Friday morning after the retailer said it would spin-off its Old Navy brand off into a standalone public company.

In addition to closing 230 locations over the next two years, the CBC also reported that the company has plans to split Gap Inc.in two.

The Old Navy company will have approximately $8 billion in annual revenue and will aim to deliver profitable growth as an independent company. Originally launched by Gap in 1994, Old Navy offers apparel that generally comes in at a lower price point than at Gap or Banana Republic.

"As a result, both companies will be well positioned to capitalize on their respective opportunities and act decisively in an evolving retail environment", said Gap CEO Art Peck. "Board of Directors, it's clear that Old Navy's business model and customers have increasingly diverged from our specialty brands over time, and each company now requires a different strategy to thrive moving forward", said Gap Inc. board chairman Robert Fisher.

That's what Kate Fitzsimons, an analyst at RBC Capital Markets, wrote in a note out late Thursday following Gap's announcement that it would make Old Navy a separate, publicly traded company.

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The company said the closure of 230 Gap stores over the next two years will cut sales by about $625 million annually. Gap expects to effect the separation through a spin-off that is meant to generally be tax-free to its shareholders.

Investors reacted favorably to the move as Gap shares rose 25.6% to $25.40 in after-hours trading Thursday.

Cheaper fast-fashion brands such as Zara, H&M and Forever 21 now attract younger shoppers and Gap's sales have been falling in recent years. By division, the Gap brand posted a 5 per cent drop, while that figure at Banana Republic was down 1 per cent. And without Old Navy to boost growth, those shares could struggle. (GPS.N) is spinning off the best part of its business - Old Navy. Sonia Syngal, Old Navy's president and chief executive, will take over that franchise. NewCo will have about $9 billion in annual sales.

"The remixing of the channel exposure is something that every retailer that has been dominent in the higher end of the specialty apparel segment is going to need to do", he said on the firm's earnings call. The company also plans to open Old Navy and Athleta locations.

Teri List-Stoll, EVP and CFO, said, "Athleta delivered another good quarter on top of last year's remarkable trends, resulting in a two-year comp of almost 30 percent positive".

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