Dhaka, Monday, 20 May 2019

Gap and Old Navy splitting up

2019-03-13
Gap and Old Navy splitting up

Staff Reporter: World famous American clothing and accessories retailer The Gap Inc. commonly known as GAP will be split into two independent publicly traded companies— one comprised of its Old Navy brand, and the second a yet to be named, may be New Co that includes its other brands like Banana Republic and Athleta. Wall Street cheered the split decision as Gap (GPS) stock was up 25% in after-hours trading.

Gap's Board Chairman Robert Fisher told the media that following a review by Gap's 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.

The separation is a tale of two vastly different businesses: Old Navy has thrived in recent years, and sales at stores open at least a year grew 3% in 2018. Meanwhile, the Gap has struggled— its sales fell 5% last year. Banana Republic has been closing stores, which has helped the company improve sales. On the other hand, Old Navy continues to outpace Gap and Banana Republic, and is one of the fastest-growing major apparel brands. It brings in about $8 billion in annual sales by itself. Old Navy has been successful in targeting shoppers on a budget, rivaling off-price channels like T. J. Maxx and Ross Stores.

Gap said the new company, which it's currently referring to as NewCo, should have roughly $9 billion in annual sales. It will include the namesake Gap brand, Banana Republic, Intermix, and athleisure lines Athleta and Hill City. Current CEO, Art Peck will remain at the company and become chief executive of NewCo.

Meanwhile, Sonia Syngal, currently president and CEO of Old Navy, will lead the new public, stand alone Old Navy company.

The spinoff should help both companies operate with "a sharpened strategic focus and tailored operating structure," Art Peck said in a statement. He added that the transaction is expected to be completed in 2020,

According to The Gap Inc., it plans to shut 230 of the namesake brand's locationsover the next two years. Most of those stores will be in North America. About 130 of those closures will happen this year. The company also plans to open Old Navy and Athleta locations.

Athleta, which will be part of the new Gap company, is a women's athleisure chain that has been a success. Hill City launched last year as Gap's men's athleisure brand. Chief Financial Officer Teri Stoll added that the company focused on stores that were not delivering, were in the wrong locations or were not a strategic fit.

Analysts said, separating Old Navy to a standalone company is what many people have argued for over the past few years. Jefferies' Randal Konik said in a research note, "Doing so allows the market to properly value Old Navy for its high margins and strong cash flows. They said, at Gap, which is more troubled, there's still value in the brand's outlet stores and e-commerce business, so distorting business here makes a lot of sense.

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