Gap to split in two, with top performing Old Navy gaining independence

Gap to split in two, with top performing Old Navy gaining independence

Troy Powers
March 2, 2019

Konik said separating Old Navy, which is the primary driver of profit for Gap, would also make the budget brand as attractive as off-price retailers such as TJX Co Inc and Ross Stores.

"Old Navy continues to outpace Gap Brand and Banana Republic and is one the fastest-growing major apparel brands with comparable stores of 3% in 2018 growing to over $7.8bn in 2018".

Old Navy runs more than 1,100 stores in North America (its largest market) and Asia. In 2018, Old Navy's comparable sales were up three percent.

That leaves 742 Gap stores globally.

It emerged as new figures revealed that like-for-like sales at Gap continued to fall while Old Navy's revenue rose.

About 130 of those closures will happen this year, according to Gap.

Peck said that he expects both companies will be strong enough as standalone entities to manage the large supply chains and relationships that keep them running.

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.

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Gap Inc closed all eight of its Banana Republic stores in the United Kingdom in 2016.

The gains in the stock set it up for its best day in more than 10 years and added about $2 billion to the company's market capitalization.

"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.

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".

"We are focused on value creation and have no sort of emotional attachment to a particular combination of these businesses", Peck told an analyst conference call.

Gap splitting into two.

As part of the separation, Gap shareholders will receive a pro-rata stock distribution and own equal shares of both Old Navy and the new company. The transaction is expected to be completed in 2020, if it gets approval.

Gap shares were up 24.9 per cent at $31.72 (S$43) in afterhours trading.