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Gap Won't Spin Off Old Navy

The clothing company had announced the potential separation last February.
Source: Shutterstock
By
  • Cathaleen Chen

NEW YORK, United States — Gap Inc. will not be pursuing the spinoff of Old Navy as a separate public company, the retailer announced Thursday afternoon.

"While the objectives of the separation remain relevant, our board of directors has concluded that the cost and complexity of splitting into two companies, combined with softer business performance, limited our ability to create appropriate value from separation," Robert Fisher, Gap Inc. interim president and chief executive officer said in an announcement.

Gap announced the potential separation in February, touting Old Navy’s outperformance of its namesake brand. At the time, the company said the reason for splitting the entity was for the two brands, Gap and Old Navy, to focus on their unique business models. However, Old Navy faced challenges in 2019. According to its latest quarterly earnings report, the brand’s comparable sales fell 4 percent in the third quarter. That’s after seeing comp sales dip 5 percent in the second quarter and 1 percent in the first quarter.

"The work we’ve done to prepare for the spin shone a bright light on operational inefficiencies and areas for improvement," Fisher continued in the announcement. "We have learned a lot and intend to operate Gap Inc. in a more rigorous and transformational manner.”

The news comes at the heels of former chief executive Art Peck's abrupt departure from the company in November. His exit followed years of sluggish sales as the retailer failed to remain relevant among modern consumers and a growing playing field of younger, savvier online brands such as Everlane. The Gap label shrunk from $7.2 billion in sales 2004 to $5.16 billion in 2018.

“Gap Inc.’s plan to terminate its spin of Old Navy reflects the challenges presented by the cost and complexity of splitting the business in the face of weaker operating results,” credit agency Moody’s vice president Christina Boni said in an email statement. “A larger diversified platform is instrumental to Gap, Inc. not only in managing risk but leveraging investments in technology and logistics.”

Gap is still looking for a new CEO. As part of the announcement Thursday, the retailer said that Neil Fiske, president and CEO of the Gap brand will be leaving the company. Gap also updated its full-year 2019 guidance, projecting that comparable sales and net sales will be at the higher end of its previous estimate of down mid-single digits and down low-single digits, respectively. The chain also expects earnings for fiscal 2019 to be higher than its previous projection. Gap shares are up more than 10 percent following the news.

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