Gap Inc says it will split in 2 companies, close 230 stores

Gap Is Spinning Off the Stronger Old Navy Brand Into Its Own CompanyMore
Gap Is Spinning Off the Stronger Old Navy Brand Into Its Own CompanyMore

02 March, 2019

In the announcement today, the company announced a restructuring that would close 230 Gap stores over the next two years, saving as much as $90 million in annual costs.

"Old Navy continues to outpace Gap brand and Banana Republic, and is one the fastest-growing major apparel brands", said Christina Boni, analyst at Moody's. The report also indicates that 7 North American Gap locations were closed at the end of August 2019, and 2 locations in Asia and Europe respectively. And without Old Navy to boost growth, those shares could struggle. Gap's market cap before the news Thursday was a mere $9.6 billion. Among the brick-and-mortar locations that will be shuttered are some of its flagship properties, company executives said.

About 130 of those closures will happen this year, according to Gap.

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Gap refusing to tell The Canadian Press exactly how numerous 230 stores it is closing will be in Canada, but says the majority of global network closures will be in North America. Outside of Athleta, the Gap and Banana Republic brands are sleepy relics of the late 1990s with sizable physical store networks. "Board of Directors, 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", said Gap Inc. board chairman Robert Fisher.

After the separation, Art Peck, now the president and CEO of Gap Inc., will hold the same position with "NewCo", and Sonia Syngal, current president and CEO of Old Navy, will continue to lead the brand as a standalone company. "Brand health is good", Peck told Wall Street analysts on a conference call. "Recognizing that, we determined that pursuing a separation is the most compelling path forward for our brands - creating two separate companies with distinct financial profiles, tailored operating priorities and unique capital allocation strategies, both well positioned to achieve their strategic goals and create significant value for our customers, employees and shareholders". The deal is expected to close in 2020.

Gap plans to spend $750 million in 2019 on capital expeditures - including $100 million to build out its OH supply center and headquarters - and sell the main Old Navy office. That explains why shares of Gap spiked 24% in pre-market trading and is up 19% in early morning trading Friday.

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