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Gap said late Thursday that it's creating two independent publicly traded companies - low-cost Old Navy and a yet-to-be named company, which will consist of the iconic Gap brand, Athleta, Banana Republic, Intermix, and Hill City.
Old Navy has been the strongest brand for the parent company, accounting for almost half of annual revenues.
Konik said separating Old Navy, which is the primary driver of profit for Gap, would also make the budget brand as attractive as off-price retailers such as TJX Co Inc and Ross Stores.
The company says it estimates an annualized sales loss of approximately $625 million as a result of these store closures.
"Separating Old Navy to a standalone company is what we have argued for over the past few years". Among the brick-and-mortar locations that will be shuttered are some of its flagship properties, company executives said.
What's new. Gap released earnings for the fourth quarter of 2018 on Thursday after the market closed.
The separation is a tale of two vastly different businesses: Old Navy has thrived in recent years, and sales at stores open at least a year grew 3% in 2018. The new company that Peck will run has about $9 billion in annual revenue. The business battled traffic challenges at its stores, which Gap CEO Art Peck blamed on macroeconomic conditions and self-inflicted product miscues.
The move is created to allow Old Navy - which has grown to $8 billion in annual sales since it opened its first store in 1994 - to expand on its own.
The split up, which followed a comprehensive board review, comes as Old Navy has been thriving, while Gap still hasn't been able to regain its footing despite numerous attempts to fix the business.
As part of the separation, Gap shareholders will receive a pro-rata stock distribution and own equal shares of both Old Navy and the new company. "I'm not so sure on NewCo; that's still going to take some time", said Jennifer Redding, Wedbush Securities analyst.
Mark Cohen, director of retail studies at Columbia Business School, said Old Navy became a direct competitor for Gap, rather than a companion, as stores popped up within the same malls. Instead, a clean split like this can help all companies better allocate resources and give Gap a window to double down on its main focus areas.
At Old Navy, the fashion is already more resonant with the latest styles, with blouses and dresses priced as cheap as $30.
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