Gap to spin off Old Navy into its own company

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The moves, which followed a comprehensive board review, came with Old Navy thriving and Gap and Banana Republic struggling. 'But for the Gap, this seems like potentially a last significant effort to help the brand find its place in a market where it has lost relevance'.

Old Navy posted sales that were unchanged from a year ago.

Gap's president and chief executive, Art Peck, will stay at the helm of the new company.

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.

The company also said it would close hundreds of underperforming Gap stores in the next two years and would increase investments in its online business as they try to adapt to a more modern retail environment. After the closures, which also include the 68 stores it shut this year, the chain will be down to roughly 427 stores.

For Gap's full fiscal 2018, which ends in January, the entire company's global same-store sales were flat.

Gap Inc closed all eight of its Banana Republic stores in the United Kingdom in 2016.

Old Navy has had a better success than the Gap brand in recent years as a wide range of budget apparel has made it more appealing to a broader base of consumers.

Christina Boni, vice president at Moody's, the rating agency, said: "Old Navy is Gap Inc.'s leading brand comprising 47% of sales in 2018 with margins that lead its portfolio".

"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", Gap Chairman Robert Fisher said. The companies belonging to the new company reel in $9 billion in annual revenue.

"We are focused on value creation and have no sort of emotional attachment to a particular combination of these businesses", Peck told an analyst conference call.

"As we look ahead to 2019 and beyond, we know what we need to do to win and, combined with the separation we announced today, we will be well positioned to leverage the power of our brands and the talented teams that lead them to accelerate the pace of change, improve execution and deliver profitable growth", Peck said. The deal is expected to close in 2020. 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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