Retail

Gap is no longer spinning off Old Navy, sending shares higher

Key Points
  • Gap has called off plans to split Old Navy into a separate public company.
  • It also announced that Neil Fiske, president and CEO of the Gap brand, is departing.
  • Gap said the 2019 holiday season wasn't as promotional as it had expected, helping profit margins.
Pedestrians pass in front of a GAP store in New York.
Scott Mlyn | CNBC

Gap Inc. has called off plans to split Old Navy into a separate public company, the company announced in a press release Thursday.

The apparel maker also announced that Neil Fiske, president and CEO of the Gap brand, is departing.

Its shares shot up more than 9% in after-hours trading on the news.

"The plan to separate was rooted in our commitment to value creation from our portfolio of iconic brands," Gap interim president and CEO Robert Fisher said in a statement. "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."

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Gap scraps plan to spin off Old Navy

"The work we've done to prepare for the spin shone a bright light on operational inefficiencies and areas for improvement," he added.

Gap's plans to spin off its once-star Old Navy brand — which were first announced last February — were called into question with the ouster of former Gap Inc. CEO Art Peck in late 2019.

The San Francisco-based retailer announced in November that Peck was stepping down from the position he had held since 2015. Peck was replaced temporarily by Fisher, the son of Gap's founders Donald and Doris Fisher.

Gap said Thursday that it intends to appoint a new CEO to oversee its full portfolio of brands, which includes Banana Republic, Athleta and Hill City.

With Peck's abrupt departure, analysts and investors began to doubt that a looming split of Old Navy and Gap would go through — especially with the recent under-performance at Old Navy. The hope, with the split, was that Old Navy could shine on its own, without being dragged down by Gap's weaker-performing namesake brand and Banana Republic.

But Old Navy's sales have slumped in recent quarters. The brand that sells budget apparel faces heightened competition from the likes of H&M, TJ Maxx and Target.

Gap also on Thursday provided Wall Street an update on its financials, following the all-important holiday season. It didn't, however, disclose exact holiday sales figures.

The retailer said it is now calling for total same-store sales and net sales in fiscal 2019 to fall on the high end of previously issued outlooks — of down mid-single digits and down low-single digits, respectively.

Gap said that "as a result of better than anticipated promotional levels over the holiday period" — particularly at Old Navy — it now is calling for adjusted earnings per share in fiscal 2019 to be "moderately above" a previously issued range of $1.70 to $1.75.

Gap is set to report fourth-quarter and full-year earnings on Feb. 27.

The company, which has a market value of $6.9 billion, has watched its stock fall more than 25% over the past 12 months.

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