Gap to spin off Old Navy into its own company

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.

On an earnings call Thursday evening, said Teri List-Stoll, Gap's chief financial officer, said the company had been grappling with "what's right for Old Navy versus what's right for the other brands", whether with online strategies or technology tools.

"Following a comprehensive review by the Gap 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", Chairman Robert Fisher said in Gap's announcement.

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 refusing to tell The Canadian Press exactly how numerous 230 stores it is closing will be in Canada, but says the majority of worldwide network closures will be in North America.

Old Navy sales increased 3%, however, while Gap brand declined 5%, and Banana Republic rose 1%.

Gap said Thursday that it would break into two companies.

Gap Inc shares surged as much as 24 percent on Friday as a number of Wall Street analysts lauded the company's decision to separate its better-performing Old Navy brand. Old Navy will be spun off into its own public company.

Old Navy has hit its stride with a broad base of consumers as a low-cost apparel destination, while Gap and Banana Republic haven't fared as well. The three largest brands were meant to complement each other, with Old Navy pulling in families with discounts, Gap resonating with high school and college students and Banana Republic a go-to for young professionals.

"As we look ahead to 2019 and beyond, we know what we need to do to win and, 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", Peck said. The business battled traffic challenges at its stores, which Gap CEO Art Peck blamed on macroeconomic conditions and self-inflicted product miscues. It expects to finish splitting the companies in 2020. "We settled on this largely due to the business logic at the end of the day", Peck said referring to the split.

At Old Navy, the fashion is already more resonant with the latest styles, with blouses and dresses priced as cheap as $30.

  • Eleanor Harrison