Gap and Old Navy to split into separate companies

Gap Inc. is dividing itself into two separate, publicly traded companies — Old Navy, and an unnamed new company comprising the Gap brand, Athleta, Banana Republic, Intermix and Hill City.

Gap’s shares were up more than 20 percent on the news in after-hours trading Thursday. 

“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 Thursday.

Old Navy has hit its stride with a broad base of consumers as a low-priced apparel destination, while Gap and Banana Republic haven’t fared as well. 

“It makes sense to us that Old Navy spins off, with the edge in our view going to Old Navy, driven by Old Navy’s strong brand equity, newly increased focus, as well as increased management incentives,” said Wedbush analyst Jen Redding.  

He sees the split allowing Gap to focus on strengthening its core brand. “At the end of the day, Gap is still a struggling brand and needs to prove its relevancy to the consumer,” Redding said. 

Art Peck, president and CEO of Gap, said the split will give each company “a sharpened strategic focus and tailored operating structure. As a result, both companies will be well positioned to capitalize on their respective opportunities and act decisively in an evolving retail environment.”

Sonia Syngal will retain her title as president and CEO of Old Navy, according to a statement from Gap. 

Founded as The Gap in 1969, the retailer has specialized in denim, khakis, tees and button-downs for men, women and children. 

Analysts said the move was a long time coming. 

“The reality is that Old Navy’s strength has essentially been funding Gap and Banana Republic,” said Nomura analyst Simeon Avram Siegel. The move signals that execs are betting Gap would be healthier as a smaller company. “And if that’s the case,” said Siegel, “it makes sense to let Old Navy shine as a stand alone.”

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