Gap Inc. to Split Into Two Separate Publicly Traded Companies

For years, Old Navy has been the workhorse for Gap Inc., whose other brands include Gap, Banana Republic, Athleta, Intermix and the newly launched Hill City.

Now Old Navy will be its own separate company after Gap Inc. executives announced on Feb. 28 that they are spinning off Old Navy and will create two independent publicly traded companies. One company will be called Old Navy, which is known for its family-oriented, moderately priced goods. The other company, consisting of all the other Gap Inc. brands, does not have a name yet but is being referred to as NewCo.

Old Navy currently has about $8 billion in annual revenues while NewCo has about $9 billion in annual revenues.

As part of the revamping, some 230 Gap stores will be closed over the next two years as the company expects about 40 percent of future Gap sales to come from online purchases.

“Following a comprehensive review by the Gap Inc. board of directors, 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,” said Robert Fisher, the board chairman for Gap Inc. “Recognizing that, we determined that pursuing a separation is the most compelling path forward for our brands—creating two separate companies with distinct financial profiles, tailored operating priorities and unique capital allocation strategies, both well positioned to achieve their strategic goals and create significant value for our customers, employees and shareholders.”

Art Peck, the president and chief executive of Gap Inc., said this will help all the brands move forward. “We have made significant progress executing on our balanced growth strategy and investing in the capabilities to position our brands for growth: expanding the omni-channel customer experience, building our digital capabilities and improving operational efficiencies across the company. Today’s spin-off announcement enables us to embed those capabilities within two stand-alone companies, each with a sharpened strategic focus and tailored operating structure.”

Peck will continue as president and chief executive officer of NewCo, while Sonia Syngal, current president and chief executive of Old Navy, will lead the new stand-alone enterprise. She has led Old Navy since 2016.

The transactions to divide Gap Inc. into two separate companies should be completed by 2020 and are subject to final approval by Gap Inc.’s board of directors.

NewCo will be based in Gap Inc.’s current headquarters, and Old Navy will remain at its current headquarters, both located in San Francisco.

The announcement came on the same day the company reported its fourth-quarter and fiscal-year earnings for 2018.

For the fourth quarter ending Feb. 2, 2019, Gap Inc. had net income of $276 million on $4.6 billion in sales. For the same period last year, net income was $205 million on $4.78 billion in sales.

For its current fiscal year, net income was $1 billion on net sales of $16.6 billion compared to net income of $848 million on net sales of $15.85 billion.

Same-store sales dropped 1 percent during the quarter compared with an increase of 5 percent a year ago. Sales were flat at Old Navy, the company said, while sales at Gap were down 5 percent globally, and sales at Banana Republic were down 1 percent.