(Reuters) – Shares of Gap Inc. jumped 25 percent on Friday, as many Wall Street analysts praised the company's decision to separate its more successful Old Navy brand.
The company, which was once a pioneer with its hooded sweatshirts with the casual logo of Khaki freighters, struggled to keep up with its rivals such as Zara and H & M.
In recent years, Old Navy has been the only bright spot for the company, relieving the poor performance of its namesake brands, Gap and Banana Republic, where sales have also suffered fewer fewer new models.
"We have argued in recent years to separate Old Navy into an autonomous society. This allows the market to properly value Old Navy for its high margins and cash flow, "said Randal Konik, an analyst at Jefferies.
Konik said the separation of Old Navy, which is the main profit factor for Gap, would also make the brand in the budget as attractive as non-price retailers such as TJX Co Inc. and Ross Stores.
"We are buyers," said Konik.
Gap announced Thursday that Old Navy would be sold to its shareholders, while the other entity would be composed of the brand Gap, Athleta, BR, Intermix and Hill City.
"Santa did not bring the sales, he gave the name Old Navy," said Kate Fitzsimons, an RBC analyst.
At least four brokerages raised their price target on the stock, with Telsey being the most bullish by raising its price from $ 6 to $ 40, well above the median of $ 30.
The company also announced that it would close hundreds of underperforming Gap stores over the next two years and increase investments in its online businesses, as they attempt to adapt to an environment. more modern retail sales.
He has already closed his huge flagship store on Fifth Avenue in New York earlier this year.
Although analysts were encouraged by Thursday's announcement, some said concerns about the Gap brand, which was losing money, would remain.
"While we are encouraged by this decision, we note that the company's brands continue to face intense competitive pressure, particularly in the United States," said Robert Drbul, an analyst at Guggenheim.
Gap shares have lost a fifth of their value over the past 12 months, while the broader S & P 500 Apparel Retail index has risen 13%. The title was up 21% before the opening bell on Friday.
Report by Nivedita Balu in Bengaluru; Edited by Sweta Singh and Saumyadeb Chakrabarty