Gap and Old Navy to split into separate companies

Gap to split off Old Navy 230 stores to close

One of the companies will contain Old Navy, while the other yet-to-be-named business, now called NewCo, will comprise Gap, Banana Republic and other brands, including Athleta and Hill City. Gap's market cap before the news Thursday was a mere $9.6 billion. In a statement, Gap chairman Robert Fisher said that after a review of the company by its board of directors, it was clear that Old Navy's business model and customer base had diverged from the Gap's other specialty brands.

Getting out from under the sinking ship that is Gap (GPS) is good news for Old Navy.

In the latest quarter - the critical holiday period - Old Navy's same-store sales were flat, while Gap and Banana Republic sales were both negative. The business battled traffic challenges at its stores, which Gap CEO Art Peck blamed on macroeconomic conditions and self-inflicted product miscues. Sonia Syngal, CEO of Old Navy, will keep running that company.

A good number of the closures are expected to happen throughout 2019, and the remaining closures will happen in 2020 as leases for the rental properties expire.

Additionally, the company announced a plan to restructure the specialty fleet, including the closure of about 230 Gap specialty stores over the next 2 years.

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Gap Inc.is spinning off fast-growing Old Navy as a standalone company. "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 Inc. will shutter 230 stores by the fourth quarter and spin off its best-performing brand, Old Navy, into a separate publicly traded company.

"More and more often, you're coming up with different answers", List-Stoll said. Same-store sales decreased 1 percent, while overall sales fell 7 percent to $4.6 billion - slightly less than Wall Street predicted.

Analysts called the split a smart one - and one the struggling parent company should have considered long ago. "We settled on this largely due to the business logic at the end of the day", Peck said referring to the split.

Old Navy had a strong two-year stretch of sales as it got back to basics in offering affordable, yet stylish clothing.

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