DIpil Das
On January 16, Gap announced that it would no longer separate its Old Navy brand into a standalone company.
Key Points on Old Navy Separation Plan
- Management said that investors’ concerns regarding the complexity of an Old Navy spin-off, cash outlay to split the brands and softer business performance (particularly at Old Navy) decreased the company’s ability to create value from the separation strategy.
- The Old Navy brand has witnessed three straight quarters of comparable sales declines. The company expects investors to see the cessation of spin plans as a positive.
- The plan to pursue the separation of the Old Navy brand was announced by Gap in February 2019. The spin-off was designed to allow Old Navy to expand and help Gap Inc. to consolidate its heritage brands, such as Gap and Banana Republic, with newer brands such as Athleta and Hill City.
- Since it opened its first store in 1994, Old Navy has seen annual sales grow to $8 billion, contributing approximately 45% of Gap Inc.’s total revenues.
- The abandonment of the plan follows the departure of Gap Inc. CEO and President Art Peck in November 2019. Robert Fisher, the son of Gap’s cofounders and then Non-executive Chairman, stepped in as Interim President and CEO.
- Owing to better-than-expected promotional levels over the holiday period, especially at Old Navy, the company forecasts its full-year adjusted EPS to be moderately above its previous outlook of $1.70–1.75.
- Gap expects its full-year net sales and comps to be at the higher end of its prior guidance range of down low-single digits and down mid-single digits, respectively.
- Separately, Gap announced the departure of Neil Fiske (appointed in June 2018), the CEO and President of the Gap brand. The brand has been witnessing ongoing challenges, including persistent declines in comps and traffic.
- Mark Breitbard, CEO and President of Banana Republic, will now lead the company’s specialty brands: Athleta, Banana Republic, Gap, Hill City, Intermix, and Janie and Jack. Sonia Syngal, CEO and President of Old Navy, will continue to lead that business.
- The company’s board intends to appoint a new CEO to manage the full portfolio of its brands and corporate strategy.