Gap Inc To Split Into Two Separate Companies
- Author: Wendy Palmer Mar 02, 2019,
Mar 02, 2019, 0:40
The deal is set to be completed in 2020 and must receive final approval from Gap's board of directors.
It also revealed its plans to split into two publicly traded companies, one containing just Old Navy and the other including the rest of Gap's brands.
Same store sales were flat for Old Navy in fourth quarter but rose by 3% over 12 months. The companies belonging to the new company reel in $9 billion in annual revenue. Peck will lead NewCo.
Gap's stock surged 25 percent in after-market trading on Thursday. (GPS.N) is spinning off the best part of its business - Old Navy.
In its latest financial results, it said that like-for-like sales had fallen by 5% over the full year. Banana Republic has been closing stores, which has helped the company improve sales.
Old Navy will become its own company, distinct from a yet-to-be-named company made up of the Gap, Athleta, Banana Republic, Intermix and Hill City.
The Gap, which was founded in 1969, used to be the coolest brand in retail: It rode the mall boom in the back half of the 20th century, and its logoed sweatshirts and turtlenecks won over everyone from teens to moms and celebrities like Sharon Stone. Retailers such as Levi's, Target and fast-fashion sellers H&M and Zara lured away Gap's denim shoppers with cheaper prices and trendier styles. The move signals that execs are betting Gap would be healthier as a smaller company. Same-store sales decreased 1 percent, while overall sales fell 7 percent to $4.6 billion - slightly less than Wall Street predicted. Peck has been there most of the way, first taking charge of the Gap brand in North America in 2011.
Gap's overall same-store sales fell 1 percent in the fourth quarter ended February 2, compared to analysts' average estimate of 0.3 percent rise, according to IBES data from Refinitiv.
During a conference call with investors on Thursday, Peck called the separation a 'unique and catalyzing moment to simplify what we are doing and how we're doing it'. The brand hauled in $7.8 billion in sales past year, up from $7.3 billion in 2017.
Gap thinks it will save between $250 million and $300 million before taxes over the next two years because of its closure plans, according to a securities filing.
The hope is this split will allow both companies to thrive independently. "It's simply putting the NewCo brands though the ringer for another cycle of rinse and repeat".