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It's time.
After years of operational errors – and increased competition in the garment sector – which drove buyers elsewhere, Gap's board of directors became aware of the reality. In order to maximize shareholder value, choosing a combination of different brands with different business models is no longer the right decision.
<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The long-awaited course of action was finally taken: a rupture of Gap Inc. (GPS) "data-reactid =" 17 "> The long-awaited plan of action has finally been taken: a dissolution of Gap Inc. (GPS)
<h2 class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Split the gap"data-reactid =" 18 ">Split the gap
About 600 buyers are lined up in Little Rock, Arkansas. (AP Photo / Danny Johnston)
Gap revealed Thursday afternoon that the company would consider splitting into two publicly traded companies by 2020. Old Navy will be integrated into its own publicly traded company, putting it in competition to attract investors with retailers better managed clothes such as TJX Companies and Ross Stores.
"After a thorough review of Gap Inc.'s board of directors, it is clear that Old Navy's business model and its customers are increasingly divergent from our specialty brands. Every company now needs a different strategy to thrive, said Gap's president. Robert Fisher (son of Don and Doris Fisher, co-founders of Gap). "Recognizing this, we determined that separation was the most compelling way for our brands to create two distinct companies with distinct financial profiles, tailored operational priorities and unique capital allocation strategies, both of which placed to achieve their strategic objectives and create meaningful value. for our customers, our employees and our shareholders. "
Indeed, Old Navy executives will have a good story to tell potential investors during a tour. Old Navy has seen strong sales growth over two years as it has returned to the basics with affordable, stylish clothing. Same store sales increased for three consecutive years. The channel recorded a 3% increase in same-store sales in 2018 – the best of Gap's top brands.
Old Navy operates more than 1,100 stores in North America (its largest market) and Asia. The brand recorded sales of $ 7.8 billion last year, against $ 7.3 billion in 2017.
The new Old Navy audience will be led by current Brand CEO Sonia Syngal.
The brands Gap and Banana Republic are sleepy relics
In the meantime, the remaining companies called 'NewCo' – Gap, Intermix, Athleta, Banana Republic – will live as a separate entity. According to a Gap slide show, these brands generated $ 8.7 billion in sales last year. The sportswear brand Athleta is the jewel of the portfolio. It is not surprising to see a large retailer (such as VF Corp.) come in and pick it up before the split.
It will be difficult to spark enthusiasm for NewCo. Apart from Athleta, the Gap and Banana Republic brands are sleepy relics of the late 90s, endowed with considerable physical store networks. Both brands have struggled for years to generate consistent traffic and control costs.
To this end, Peck stated that the Gap brand was planning to close 230 stores over the next two years. He is supposed to be CEO of NewCo.
Peck was probably about to borrow as CEO, so cheeky move makes sense from this point of view. Gap shares have lost 30% since the takeover of Peck in October 2014. Stocks climbed 24% after trading hours on news of the break.
But the split also makes sense from the point of view of shareholder value. The real question is why it took so long.
<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Brian Sozzi is a senior editor at Yahoo Finance. Follow him on Twitter @BrianSozzi"data-reactid =" 41 ">Brian Sozzi is a senior editor at Yahoo Finance. Follow him on Twitter @BrianSozzi
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