Old Navy, Gap's Cash Cow, to Become Its Own Separate Company

Meanwhile, Gap brand is closing 230 stores.
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Photo: Justin Sullivan/Getty Images

Photo: Justin Sullivan/Getty Images

Gap, Inc. made a big announcement alongside its Q4 earnings report on Thursday afternoon: It's going to split up into two separate publicly-traded companies. Old Navy is being spun off into its own company, while Gap brand, Athleta, Banana Republic, Intermix and Hill City will comprise the other company, which has yet to be named.

"Following a comprehensive review by the Gap Inc. 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 Robert Fisher, Gap Inc.'s Board Chairman. "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."

Gap, the brand, has been experiencing declining sales fairly consistently for years now. And throughout that time, lower-priced chain Old Navy has been picking up its slack. Or, perhaps more importantly, Gap was dragging down Old Navy's sales. Old Navy was making up nearly half of Gap, Inc.'s sales and was its second fastest-growing brand as of last quarter. Its performance lately has been impressive in general, not just compared to Gap, with brick-and-mortar traffic outpacing industry trends on top of accelerating online sales.

As separate companies, Old Navy has $8 billion in annual revenue while "NewCo" which is what the other company is being called temporarily, has $9 billion. Art Peck, CEO of Gap, Inc., will be CEO of NewCo; Sonia Syngal, current president and CEO of Old Navy, will remain in that role at the new, separated Old Navy.

This news coincides, probably not coincidentally, with some Gap brand news that's equally major: It will be closing 230 of its stores, which is estimated to result in a $625 million loss in annual sales. The move is part of an overall revamp of Gap's retail strategy, with 40 percent of sales expected to come from e-commerce post-restructuring. Gap will also undergo a "brand revitalization" that will somehow be different from the dozens of "revitalizations" it's undergone over the past decade. "Improving the product by recapturing the traditional Gap attributes of style, quality, fit and value is a top priority," reads the press release. We'll believe it when we see it. 

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