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Gap to shut shops and hive off Old Navy
02 March 2019, 12:41 | Vera Richards
Gap on Thursday announced plans to split into two publicly traded companies putting Old Navy on a stand-alone path
Shares surged around 25 per cent in aftermarket trading following the announcement of the division into "Old Navy" and the unnamed "NewCo", which will comprise Gap, Banana Republic and the company's other brands.
Sonia Syngal, now CEO of Old Navy, will keep leading Old Navy when it becomes a standalone company.
The parent company of retailer Gap says it will close some stores in Canada as part of a global plan to shutter nearly half of the brand's locations over the next two years.
Old Navy has been the only bright spot for the company in the past few years, cushioning it from the weak performance of its namesake Gap and Banana Republic brands, where sales have also taken a hit from fewer additions of new designs.
In a statement, Gap Inc. said Old Navy and the rest of the Gap brands have been attracting different customers and require different strategies.
The retailer said the separation will be done through a spin-off that is meant to generally be tax-free to company shareholders for US federal income tax purposes. (GPS.N) is spinning off the best part of its business - Old Navy. The new company that Peck will run has about $9 billion in annual revenue.
After the separation, Art Peck, now the president and CEO of Gap Inc., will hold the same position with "NewCo", and Sonia Syngal, current president and CEO of Old Navy, will continue to lead the brand as a standalone company.
Old Navy will have to go it alone from now on.
The split up, which followed a comprehensive board review, comes as Old Navy has been thriving, while Gap still hasn't been able to regain its footing despite numerous attempts to fix the business. The business battled traffic challenges at its stores, which Gap CEO Art Peck blamed on macroeconomic conditions and self-inflicted product miscues. "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". As of the end of last quarter, there were 1,242 Gap stores worldwide.
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