(Reuters) – Gap Inc said on Thursday it would separate its better-performing Old Navy brand into a publicly traded company and close about 230 stores of its struggling namesake apparel business, sending its shares surging about 25 percent.
FILE PHOTO: Customers arrive to shop at an Old Navy store in the Brooklyn borough of New York June 15, 2015. REUTERS/Brendan McDermid
Old Navy has been a bright spot for the company in recent years as its wide range of budget apparel made it more appealing to a broader base of consumers.
“It’s clear that Old Navy’s business model and customers have increasingly diverged from our specialty brands over time,” Gap’s Chairman Robert Fisher said.
In contrast, the Gap brand has struggled to keep up with competition from fast-fashion retailers, forcing its parent company to offer deep discounts to clear inventories.
The store closures will happen over the next two years, with about 130 in fiscal 2019, the company said, adding that nearly 40 percent of sales will come from online after the restructuring.
Gap, Athleta, Banana Republic and the remaining brands will be part of a yet-to-be-named company. The separation, which the company said will be tax free to investors, is likely to be completed by 2020.
Gap Inc’s current Chief Executive Officer Art Peck will hold the same position with the new company, while Old Navy CEO Sonia Syngal will continue to head the standalone firm.
Old Navy has annual sales of about $8 billion, while the company’s other brands have a combined revenue of $9 billion.
Separately, the company reported a surprise drop in fourth-quarter overall same-store sales, down 1 percent compared with analysts’ average estimate of a 0.3 percent rise, according to IBES data from Refinitiv.
The company’s shares were up 24.8 percent at $31.70 in extended trading.
Reporting by Uday Sampath in Bengaluru; Editing by Sriraj Kalluvila