GAP Will Be Closing 230 Store Locations Over The Next Two Years

Gap Is Spinning Off the Stronger Old Navy Brand Into Its Own CompanyMore

Gap Is Spinning Off the Stronger Old Navy Brand Into Its Own CompanyMore

Christina Boni, vice president at Moody's, the rating agency, said: "Old Navy is Gap Inc.'s leading brand comprising 47% of sales in 2018 with margins that lead its portfolio".

Gap will also close 230 stores across the country over the next two years, a decision expected to cost roughly $625 million, as well as some Banana Republic stores.

The remaining businesses named NewCo, which includes Gap, Intermix, Athleta, Banana Republic, will live as its own separate entity.

The moves announced Thursday are the latest signs of turmoil in the retail industry, as Sears and other chains struggle to stay afloat. Old Navy's momentum was evident in the breakdown of the separation, with the new, still unnamed company bringing in about $9 billion in annual revenue through its assorted brands and Old Navy, by itself, garnering approximately $8 billion. The three largest brands were meant to complement each other, with Old Navy pulling in families with discounts, Gap resonating with high school and college students and Banana Republic a go-to for young professionals. "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".

For Gap's full fiscal 2018, which ends in January, the entire company's global same-store sales were flat.

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The company's shares were up 17.7 percent at $29.89 in extended trading.

"It makes sense to us that Old Navy spins off, with the edge in our view going to Old Navy, driven by Old Navy's strong brand equity, newly increased focus, as well as increased management incentives", said Wedbush analyst Jen Redding. It expects to finish splitting the companies in 2020.

"More and more often, you're coming up with different answers", List-Stoll said.

Mark Cohen, director of retail studies at Columbia Business School, said Old Navy became a direct competitor for Gap, rather than a companion, as stores popped up within the same malls. "It's nearly as if they used Old Navy as a smokescreen to hide the absolute urgency to do some fundamental things with the other businesses". In November, Peck described Gap's store count as unprofitable.

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