Gap Finally Gets It - Spin-Off of Old Navy Heading Your Way

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Gap said on Thursday that Old Navy would be spun off to its shareholders, while the other entity will consist of the Gap brand, Athleta, BR, Intermix and Hill City.

"But over time, Old Navy's value creation levers, business model and customers have increasingly diverged from our specialty brands".

An afternoon recap of the day's most important business news, delivered weekdays. The two companies will trade under different ticker symbols and have separate management and leadership structures, as well as distinct financial profiles, company executives said. The separation of Old Navy into a publicly listed company, which Gap said will be tax-free to investors, is likely to be completed by 2020.

Randal Konik, an analyst at Jefferies, has been arguing for an Old Navy separation for years.

"Santa Didn't Bring the Sales but Brought Old Navy Spin Instead". Gap intends that the Old Navy spin-off is meant to be a tax-free event to existing Gap shareholders.

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The iconic mall fixture Gap, which was a popular brand with baby boomers, has been losing market share over the past few years as younger generations have been attracted to the cheap costs and style of fast-fashion companies. The second company called New-Co will contain Gap's other brands like Banana Republic and Athleta. Gap Inc. will be closing 230 of their underperforming GAP stores worldwide over the next two years, many of them in the USA and some in Canada.

"We have made significant progress executing on our balanced growth strategy and investing in the capabilities to position our brands for growth", says Art Peck, president and CEO of Gap Inc., who will hold the same position with the new company. This brand has notably been the strongest within the company as Gap's namesake label has struggled to grow sales of late. CEO Mickey Drexler in 1994, generates about $8 billion a year, big enough to make it a Fortune 500 company, and will continue to be headed by Sonia Syngal. Old Navy is the No. 2 clothing brand in the US, according to Gap, as it has carved out a niche targeting shoppers with discount deals that compete against off-price clothing stores like T.J.Maxx.

It is part of a strategy to "revitalise" the brand, and generate more of its sales online, which it hopes will reach 40% of total revenues.

But to achieve the top end of Siegel's valuation range, Old Navy will have to bounce back quickly from a mixed holiday season. Gap expects to effect the separation through a spin-off that is meant to generally be tax-free to its shareholders.

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