Old Navy has hit its stride with a broad base of consumers as a low-cost apparel destination, while Gap and Banana Republic haven't fared as well. Meanwhile, the company can consolidate its older brands like Gap and Banana with its newer ones like Athleta and Hill City.
Said Peck, "NewCo will have approximately $9 billion in annual revenue, a strong balance sheet and a significant opportunity to innovate, explore new ways to serve the customer and quite frankly what's on my mind is to write the next chapter for specialty retail. How much more can the strength of Old Navy prop up the rest of the business?" said Wendy Liebmann, chief executive officer of WSL Strategic Retail.
Peck will hold the same title with NewCo going forward. Sonia Syngal, who is now President and Chief Executive Officer of Old Navy and who has led it since 2016, will continue to lead the brand as a standalone company.
Gap's stock was up 18.6 percent in after-hours trading at $30.13 per share. In 2018, Old Navy's comparable sales were up three percent.
"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.
Founded as The Gap in 1969, the retailer has specialized in denim, khakis, tees and button-downs for men, women and children. Old Navy is the No. 2 clothing brand in the USA, according to Gap, as it has carved out a niche targeting shoppers with discount deals that compete against off-price clothing stores like T.J.Maxx. The move signals that execs are betting Gap would be healthier as a smaller company. Old Navy opened the year flat, while Gap saw a five percent drop during the end-of-year holiday season, according to USA Today.
During the call, Gap Inc. announced it was closing would be shuttering 230 Gap brand stores over the next two years after warning of closings, including some flagships, last year.
No word on whether the closures will be worldwide or focused on North Amerian locations.
However she cautioned that spinning off Old Navy "reduces the diversification the brand provides to the overall entity". Well, the company says it will be breaking its shares down into two new shares. Hill City launched a year ago as Gap's men's athleisure brand. It expects to finish splitting the companies in 2020. Outside of Athleta, the Gap and Banana Republic brands are sleepy relics of the late 1990s with sizable physical store networks. "It's simply putting the NewCo brands though the ringer for another cycle of rinse and repeat".