Old Navy, meanwhile, brings in about $8 billion in annual sales by itself. This brand has notably been the strongest within the company as Gap’s namesake label has struggled to grow sales of late. Old Navy has been successful in targeting shoppers on a budget, rivaling off-price channels like T.J. Maxx and Ross Stores.
Gap’s current CEO, Art Peck, will remain at the company and become chief executive of “NewCo,” Gap said. Sonia Syngal, currently president and CEO of Old Navy, will lead the new public, stand-alone Old Navy company.
The spinoff should help both companies operate with “a sharpened strategic focus and tailored operating structure,” Peck said in a statement. The transaction is expected to be completed in 2020, subject to final approval by Gap’s board of directors.
Christina Boni, an analyst at Moody’s, agreed the split-up will help enable a sharpened focus on its business priorities. However, she warned it will also reduce the business’ diversification.
“Old Navy is Gap Inc.’s leading brand comprising 47 percent of sales in 2018 with margins that lead its portfolio,” Boni said. “Old Navy continues to outpace Gap Brand and Banana Republic and is one the fastest-growing major apparel brands with comparable stores of 3 percent in 2018 growing to over $7.8 billion in 2018.”
Gap also on Thursday announced it plans to shut 230 of the namesake brand’s locations over the next two years, as it works to restructure its business. The retailer posted mixed results for the holiday quarter. To revive the Gap brand, it said it’s working on multiple initiatives to fix the fit of its products and “modernize its marketing.”
Gap shares have fallen roughly 20 percent over the past 12 months, bringing its market cap to about $9.7 billion.