Gap dumps plans to spin off Old Navy as a separate entity

January 16, 2020 - 4:25 pm

NEW YORK (AP) — Gap Inc. says it no longer intends to spin off Old Navy as a separate public company.

The retailer said Thursday that its board scuttled the move after determining it would be too costly and complex, especially given the company's recent struggles.

Its stock was up about 7% in after-hours trading Thursday.

Gap announced in February 2019 that it planned to split into two publicly traded companies, one for its low-cost Old Navy brand and another for the Gap, Banana Republic and its lesser known brands like Athleta, Intermix and Hill City. But analysts started to doubt Gap would stick with the plan when it fired CEO Art Peck in November after his efforts to reinvigorate the business failed.

At that time, the San Francisco-based retailer also lowered its earnings outlook for the fiscal year after sales at the Gap, Banana Republic and Old Navy fell in the fiscal third quarter. The company also announced that Robert J. Fisher, Gap's non-executive chairman, would serve as president and CEO on an interim basis. Fisher is the son of Gap's co-founders Donald and Doris F. Fisher.

"The work we’ve done to prepare for the spin shone a bright light on operational inefficiencies and areas for improvement," said Fisher in a statement Thursday. “We have learned a lot and intend to operate Gap Inc. in a more rigorous and transformational manner that empowers our growth brands, Old Navy and Athleta, and appropriately focuses on profitability for Banana Republic and Gap brand.”

The company reiterated on Thursday that it intends to hire a new CEO. It also announced that Neil Fiske, president and CEO of Gap brand, will leave the company

Gap said it now expects total company fiscal 2019 comparable sales and net sales to both be at the higher end of its previous guidance range of down mid-single digits and down low-single digits, respectively. As a result of better-than-anticipated discount levels over the holiday period, particularly at Old Navy, it now estimates its adjusted fiscal year 2019 earnings per share to be moderately above its previous per share guidance of $1.70 to $1.75.

The company plans to release final fiscal fourth-quarter results on Feb. 27.

Like many mall-based clothing chains, Gap is struggling to turn itself around as shoppers go online or to discounters like T.J. Maxx for their clothing. But Gap, which defined casual dressing in the 1990s, has also long struggled with its own deep-rooted problems — its offerings have failed to stand out from that of its rivals.

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