Voost Kain
Banned
In what reads as a desperate move, Gap Inc. is spinning off the best part of its business -- Old Navy. The market liked the news, sending shares soaring 25 percent in premarket trading.
The remaining company -- which still needs a name -- will consist of the namesake Gap brand, Athleta and Banana Republic, plus a couple of lesser known brands. It will have annual revenue of about $9 billion, compared to Old Navy’s $8 billion, the company said.
Analysts called the split a smart one -- and one the struggling parent company should have considered long ago.
“It’s absolutely long overdue. I’m stunned it hadn’t happened already. How much more can the strength of Old Navy prop up the rest of the business?” said Wendy Liebmann, chief executive officer of WSL Strategic Retail. “It’s almost as if they used Old Navy as a smokescreen to hide the absolute urgency to do some fundamental things with the other businesses.”
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. In the latest quarter -- the critical holiday period -- Old Navy’s same-store sales were flat, while Gap and Banana Republic sales were both negative.
As part of the reorganization, the company will slash the store count of the struggling Gap brand by closing 230 locations over the next two years. These closures will erase $625 million in sales. Art Peck, who’s been leading parent company Gap, said the company doesn’t know the exact number of job losses from the planned store closures but will try to minimize the number.
Ok, I'm a bit confused on this one. I'm aware of how a split would be a good idea in certain situations, but Old Navy, based on old and recent investor and finance reports, was TH REASON Gap made it through a few years in the past to stay in business.
So By removing what has saved them, how would this...what?