Gap scraps spin-off plans for Old Navy
San Francisco-based apparel retailer Gap, Inc. announced on Thursday that it is no longer intending to spin off its Old Navy brand into a separate company and outlined its new plans for the future.
The departure of Gap, Inc. CEO Art Peck in November had already cast a shadow of doubt over the spin-off plans, but when the company reported its quarterly results later in the same month, Peck’s successor, interim CEO Robert Fisher, stated that they were still on track. It seems that this is no longer the case.
“The plan to separate was rooted in our commitment to value creation from our portfolio of iconic brands,” explained Fisher in a release. “While the objectives of the separation remain relevant, our board of directors has concluded that the cost and complexity of splitting into two companies, combined with softer business performance, limited our ability to create appropriate value from separation.”
First announced in March of last year, the split was supposed to leave Old Navy – a consistent bright spot in its parent company’s portfolio – free to pursue its own strategic initiatives, which included category expansion and omni-channel development, while Gap, Inc. would be able to concentrate on turning around its flagship brand and other remaining banners.
In September the retailer announced ambitious post-split plans that would see the Gap brand refocus on denim, while Old Navy was set to almost double its brick-and-mortar store count.
It’s unclear at this point which parts of these plans will still be put into practise, but Fisher did point out that preparations for the spin-off had highlighted a range of “operational inefficiencies and areas for improvement.”
He also emphasised that, from now on, the company will be run in a more transformational manner with a view to empowering growth brands like Old Navy and Athleta, while also focusing on driving profitability at the Banana Republic and Gap banners.
The announcement was accompanied by news of the shifts taking place in Gap, Inc.’s leadership as its search for a new permanent CEO continues.
President and CEO of Banana Republic, Mark Breitbard, is now also leading the remainder of Gap, Inc.’s speciality brands, including Gap, Athleta, Janie and Jack, Intermix and Hill City. Sonia Syngal will continue in her role as president and CEO of Old Navy, while Neil Fiske, president and CEO of the Gap brand, is leaving the company.
Elsewhere, EVP and CFO Teri List-Stoll will oversee corporate operations related to finance, supply chain, technology and real estate, while Julie Gruber is now serving in the roles of EVP, global general counsel, corporate secretary and chief compliance officer.
Along with these announcements, Gap also provided an update on its full-year outlook for fiscal 2019. The company now expects annual sales to be down in the range of mid-single digits to low-single digits, at the higher end of its previously reported guidance.
Thanks to stronger-than-expected promotional activity during the holidays, particularly at Old Navy, the company has also bumped up its guidance for adjusted earnings per share to between $1.70 and $1.75.
Gap is planning to announce its fourth-quarter and full-year fiscal 2019 financial results on February 27, 2020.
Following its announcement on Thursday, shares in the company rose 9% in the extended session, having finished the regular trading day up 3.9%.
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