Gap Inc is splitting into two.
The retailer on Thursday said that it is creating two independent publicly traded companies — low-priced juggernaut Old Navy and a yet-to-be named company, which would consist of the iconic Gap brand and Banana Republic, as well as lesser-known names Athleta, Intermix and Hill City.
The spin-off would enable each company to focus on flexibility and pare down costs, the San Francisco-based company said.
The company also said that it would be shuttering 230 Gap brand stores over the next two years.
A year ago, the Gap brand had 725 stores worldwide. After the closures, which also include the 68 stores it shuttered this year, the chain would be down to roughly 427 stores.
It expects to have more than 40 percent of Gap’s business coming from online after the restructuring.
Gap’s stock surged 25 percent in aftermarket trading.
The split, which followed a comprehensive board review, comes as Old Navy has been thriving, while Gap still has not been able to regain its footing, despite numerous attempts to fix the business.
Once the go-to place for casual clothing, Gap has been mired in a sales funk for years, hurt by increasing competition from the likes of Target Corp and Amazon.com Inc.
Analysts applauded the move.
“This is great news for Old Navy, no longer having its success consistently outweighed by sluggish performance by Gap,” Kantar Consulting senior analyst Tiffany Hogan said.
“But for the Gap, this seems like potentially a last significant effort to help the brand find its place in a market where it has lost relevance,” she said.
Gap’s overall sales at stores open at least one year were down 1 percent during the fiscal fourth quarter.
By division, the Gap brand posted a 5 percent drop, while that figure at Banana Republic was down 1 percent.
Old Navy posted sales that were unchanged from a year earlier, but that was on top of a 9 percent gain in the year-ago period.
“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,” Gap chairman Robert Fisher said.
Gap CEO Art Peck is to hold the same position at the new company after the separation, the company said.
Old Navy CEO Sonia Syngal is to continue to lead that brand as a standalone company, which has about US$8 billion in annual revenue.
The new company that Peck is to run has about US$9 billion in annual revenue.
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 separation deal is expected to close next year.
Gap’s shares rose US$6.50 to US$31.90 in extended trading after the split was announced.
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