Gap Inc. will be closing 230 of their underperforming GAP stores worldwide over the next two years, many of them in the United States and some in Canada.
"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, Gap Inc.'s chairman.
The news doesn't come as a complete shock, as Old Navy has thrived in recent years, while sales at Gap and Banana Republic have sagged - for reference, Old Navy reported approximately $8 billion United States dollars in revenue for 2018, while all other Gap brands had a combined revenue of $9 billion USD over the same time.
News of the split comes as the company published its results for fiscal year 2018 where Gap said it would be closing 230 stores over the next two years, which will generate an annual sales loss of about $625 million.
The company's shares were up 17.7 percent at $29.89 in extended trading.
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After the separation, Art Peck, now the president and CEO of Gap Inc., will hold the same position with "NewCo", and Sonia Syngal, current president and CEO of Old Navy, will continue to lead the brand as a standalone company.
"Separating Old Navy to a standalone company is what we have argued for over the past few years". The separation is expected to be completed by 2020, Gap said.
In 2018, Old Navy's comparable sales were up three percent.
Gap's president and chief executive, Art Peck, will stay at the helm of the new company.
The Gap brand has struggled as part of a broader slump for brick and mortar retailers, even as the lower-priced Old Navy brand has resonated with discount shoppers. Old Navy posted sales that were unchanged from a year ago. Old Navy would have been too valuable for Gap to simply sell off.
"It'll work out for Old Navy", Cohen said, "because Gap has been an albatross around Old Navy's neck". Instead, a clean split like this can help all companies better allocate resources and give Gap a window to double down on its main focus areas. The company also plans to open Old Navy and Athleta locations.