By Phil Wahba
February 28, 2019

Gap is sending Old Navy, its successful sibling, out on its own. Gap Inc. (gps) on Thursday said it was spinning off its Old Navy clothing chain, a business that generates about 45% of company sales and that has handily outperformed its two other major brands, The Gap and Banana Republic. Shares rose 19% on the news.

Old Navy, founded by former Gap Inc. 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. The brand, which found a way to offer low price clothing but with a splash of fun, has continued to grow even as The Gap and Banana Republic, both mall-based, have struggled for years: in 2018, comparable sales at Old Navy rose 3%, while at The Gap they fell 5%, and at Banana Republic, they edged up 1%, a slight improvement after a long period of decline.

Gap Inc. also announced it was closing 230 namesake stores, just the latest round of store shutterings for the once iconic American basic clothing brand. The Gap, along with Banana Republic and smaller brands Athleta, Intermix, and Hill City, will be grouped under a new company headed by Gap Inc. CEO Art Peck and garner about $9 billion in revenue.

For years, Peck tried to apply the practices that led Old Navy to such success to other brands, but to no avail. Many investors have come to feel the company’s stock has been weighed down by the namesake brand and limited the effect on shares of Old Navy’s results. He has been promising improvements at The Gap for five years and progress has proved elusive. Athleta, though still a small brand, is growing quickly.

“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. Chairman and a member of the family that controls the company.

 

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