Published: Mon, March 04, 2019
Money | By Bruce West

Gap shares surge 25 percent as Wall Street praises split

Gap shares surge 25 percent as Wall Street praises split

According to Gap, the Old Navy spinoff will have plenty of room to grow.

The yet-to-be-named company, now dubbed "NewCo", will encompass Gap, Banana Republic, Intermix, Hill City and the thriving Athleta brand while the other eponymously named one will be dedicated exclusively to Old Navy, which had a 3 percent increase in sales previous year and about $8 billion in revenues.

Officials with the San Francisco-based company said the spin-off will enable each company to focus on flexibility and pare down costs.

"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.

The move is created to allow Old Navy - which has grown to $8 billion in annual sales since it opened its first store in 1994 - to expand on its own.

The umbrella company containing Gap, Banana Republic and Intermix is expected to deliver around $9bn (£6.79bn) in annual revenue. They also plan to close 230 Gap locations over the next two years. "At the end of the day, Gap is still a struggling brand and needs to prove its relevancy to the consumer", Redding said. CEO Mickey Drexler in 1994, generates about $8 billion a year, big enough to make it a Fortune 500 company, and will continue to be headed by Sonia Syngal.

The "NewCo", what's left after Old Navy will have approximately $9 billion in annual revenue, a strong balance sheet, and a multi-store portfolio. Originally launched by Gap in 1994, Old Navy offers apparel that generally comes in at a lower price point than at Gap or Banana Republic.

Art Peck, president and CEO of Gap, said the split will give each company "a sharpened strategic focus and tailored operating structure". The chain posted a 3% same-store sales increase in 2018 - the best among Gap's big brands.

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.

Gap also warned that it expects the first half of 2019 to be more challenging than last year, due to a cold start to the year that weighed on all its businesses, particularly Old Navy. The retailer reported sales at its namesake stores fell 7% during the holiday quarter.

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