Gap to shut shops and hive off Old Navy

02 March, 2019, 10:01 | Author: Mary Valdez
  • Gap Is Spinning Off the Stronger Old Navy Brand Into Its Own CompanyMore

Gap Inc. will separate Old Navy into its own publicly-traded company and create a new, now unnamed firm to house the remaining brands in its portfolio, including Gap and Banana Republic.

Gap announced yesterday it will break into two companies.

Old Navy has been the only bright spot for the company in the past few years, cushioning it from the weak performance of its namesake Gap and Banana Republic brands, where sales have also taken a hit from fewer additions of new designs.

The moves, which followed a comprehensive board review, came with Old Navy thriving and Gap and Banana Republic struggling.

Gap plans to restructure its brand speciality fleet and revitalize brand health, and that includes the closure of approximately 230 Gap specialty stores over the next two years.

Gap's shares were up more than 20 percent on the news in after-hours trading Thursday.

Art Peck, president and chief executive of Gap Inc, said: "Combined with the separation we announced today, we will be well positioned to leverage the power of our brands and the talented teams that lead them to accelerate the pace of change, improve execution and deliver profitable growth".

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Old Navy has been the strongest brand for the parent company, accounting for almost half of annual revenues.

Getting out from under the sinking ship that is Gap (GPS) is good news for Old Navy. It will have annual revenue of about US$9 billion, compared to Old Navy's US$8 billion, the company said.

Ironically, lack of same-store sales growth at Old Navy hurt fourth-quarter overall sales. Old Navy would have been too valuable for Gap to simply sell off.

"Recognizing that, we determined that pursuing a separation is the most compelling path forward for our brands - creating two separate companies with distinct financial profiles, tailored operating priorities and unique capital allocation strategies, both well positioned to achieve their strategic goals and create significant value for our customers, employees and shareholders". Old Navy posted sales that were unchanged from a year ago.

He sees the split allowing Gap to focus on strengthening its core brand.

"In no way shape or form I'll just say it again do I view Old Navy as sick in any way shape or form".

Plus, closing 230 stores signals that Gap "must have seen that there was too much waste in its business model".



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