Gap Inc. To Spin Off Old Navy

Gap Inc. (NYSE: GPS) has made the surprising announcement that it will soon break into two companies. The Old Navy brand will be spun off as a separate company from Gap’s remaining brands, which will be held under a yet-to-be-named business that is currently being called NewCo. According to the announcement, Sonia Syngal will remain CEO of Old Navy while Gap CEO Art Peck will be the leader of NewCo. Gap expects the split to be completed in 2020.

The move appears to be designed to let Old Navy thrive on its own. For fiscal year 2018, the brand saw sales at stores open at least a year grow 3 percent year-over-year, rising from $7.3 billion in 2017 to $7.8 billion last year. It’s seen its same-store sales increase for three years straight now. Old Navy currently has more than 1,100 stores in North America and Asia.

The other company will contain the Gap, Banana Republic, Athleta, and Hill City brands. Athleta is Gap’s new women’s athleisure chain, while Hill City is its new men’s athleisure brand. Altogether, the brands that will be held under NewCo will have roughly $9 billion in annual sales.

As part of the process, the company is planning on shuttering about 230 “specialty” Gap stores worldwide over the next two years, representing roughly 50 percent of locations. The stores that are struggling the most are expected to be closed by the end of 2019. Other locations will be closed as their leases expire.

Chief financial officer Teri Stoll said that the company will begin by closing stores that are not delivering, are in the “wrong locations”, or are not a “strategic fit.” The company believes that it will realize savings of $250 million and $300 million before taxes from its closure plans over the next two years. Most of the store closures will be in North America.

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