Gap Inc. will spin off its better-performing Old Navy brand into a separate public company, the apparel retailer announced Thursday. Its stock leaped as much as 23%.
The remaining company — which still needs a name — will consist of the namesake Gap brand, Athleta, Banana Republic, Intermix and Hill City. It will have annual revenue of about $9 billion, compared with Old Navy’s $8 billion, the company said.
As part of the reorganization, the company plans to slash the store count of the struggling Gap brand by closing 230 locations over the next two years. These closures are expected to erase $625 million in sales.
In November, the San Francisco company said it may close hundreds of stores that don’t fit its “vision” for the Gap brand. A month later, it announced it would shut a three-story location on Manhattan’s 5th Avenue.
The Gap brand has struggled as part of a broader slump for bricks-and-mortar retailers, even as the lower-priced Old Navy brand has resonated with discount shoppers. In the latest quarter, Old Navy’s same-store sales were flat, while Gap and Banana Republic sales declined.
Art Peck, chief executive of Gap, is to maintain that role at the new company. After the split, Sonia Syngal, who is CEO of Old Navy, will lead the stand-alone company.
As part of the separation, Gap shareholders will receive a proportional stock distribution and own equal shares of both Old Navy and the new company.
The deal is set to be completed in 2020 and is subject to final approval from Gap's board of directors.
Gap made its announcement after the stock market closed. Its stock soared in after-hours trading. At the end of regular trading, the shares had been down 1.4% this year and down nearly 20% compared with a year earlier.