Dive Brief:
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Gap on Thursday announced it will create two independent publicly traded companies: Old Navy and a yet-to-be-named company (dubbed NewCo for now), which will include the Gap brand, Athleta, Banana Republic, Intermix and Hill City.
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Following a comprehensive review, executives determined 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," Robert Fisher, Gap Inc. board chairman, said in a statement.
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The spin-off is intended to maximize "focus and flexibility, align investments and incentives to meet its unique business needs," the company said ahead of its earnings call Thursday.
Dive Insight:
Old Navy has been the shiny star of Gap Inc. Now, executives say it's better off on its own.
"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," Art Peck, president and CEO of Gap Inc, said in a statement. "As a result, both companies will be well positioned to capitalize on their respective opportunities and act decisively in an evolving retail environment.”
The newly formed company, comprised of the rest of Gap's portfolio of brands, has approximately $9 billion in annual revenue, according to the company. The plan is to drive profitability to its struggling brands by leaning on Athleta and newly-launched Hill City. With roughly $8 billion in annual revenue, the company says that Old Navy will be able to "capitalize on its scale." By separating out, the brand will focus on a new real estate strategy, omnichannel model and expansion into other product categories.
In the split, Peck will become the CEO of NewCo., and Sonia Syngal, the current president and CEO of Old Navy, will lead Old Navy as a standalone company. Current Gap shareholders are expected to receive a pro-rata stock distribution and own an equal portion of NewCo and Old Navy shares.
