Gap, Inc., the apparel retailer headquartered in San Francisco, has made the decision to abandon its plans to spin off its Old Navy brand into a separate company. This move comes after the departure of CEO Art Peck in November. Previously, interim CEO Robert Fisher had indicated that the spin-off plans were still on track. However, the company has now determined that the cost and complexity involved, as well as softer business performance, make the separation unfeasible. Although the objectives of the separation remain relevant, the company’s board of directors concluded that they would not be able to generate sufficient value from the split.

The announcement to spin off Old Navy was originally made in March 2019 in order to allow the brand to pursue its own strategic initiatives. These initiatives included expanding its product categories and developing an omni-channel approach. Gap, Inc., on the other hand, had planned to focus on reviving its flagship brand and its other remaining banners. In September, the company unveiled its ambitious post-split plans, with Gap aiming to refocus on denim and Old Navy planning to significantly increase the number of its physical stores.

The extent to which these plans will now be implemented is uncertain. Nonetheless, Fisher acknowledged that the preparation for the spin-off had revealed operational inefficiencies and areas for improvement. Going forward, Gap, Inc. intends to adopt a more transformational approach, with a focus on empowering growth brands like Old Navy and Athleta, as well as enhancing profitability for Banana Republic and Gap.

In addition to the announcement regarding the abandoned spin-off, Gap, Inc. also provided updates on its leadership and its full-year outlook for fiscal 2019. Banana Republic President and CEO Mark Breitbard will now oversee the company’s specialty brands, which include Gap, Athleta, Janie and Jack, Intermix, and Hill City. Sonia Syngal will continue in her role as President and CEO of Old Navy, while Gap brand President and CEO Neil Fiske will be leaving the company. Other leadership changes include Teri List-Stoll taking on the role of EVP and CFO, overseeing corporate operations related to finance, supply chain, technology, and real estate, and Julie Gruber assuming multiple roles as EVP, global general counsel, corporate secretary, and chief compliance officer.

Gap, Inc.’s full-year outlook for fiscal 2019 now expects an annual sales decline in the mid-single digits to low-single digits, at the higher end of its previous guidance. The company has also increased its guidance for adjusted earnings per share to a range of $1.70 to $1.75, thanks to stronger-than-expected promotional activity during the holiday season, particularly at Old Navy. The company plans to release its fourth-quarter and full-year fiscal 2019 financial results on February 27, 2020.

As a result of the announcement, Gap, Inc.’s shares rose 9% in after-hours trading, following a 3.9% increase during regular trading hours.

Useful links:
1. Gap, Inc. Official Website
2. Gap, Inc. Press Release