Gap shares surge 25 pct as Wall Street praises split

Gap shares surge 25 pct as Wall Street praises split

Gap Inc.'s move to spin off Old Navy is expected to accelerate growth opportunities for Athleta, the already fast-growing women's activewear chain.

Fashion firm Gap Inc has announced is shutting 230 stores and splitting off its Old Navy brand, a restructuring aimed at "revitalising" the company.

The yet-to-be-named company, now dubbed "NewCo", will encompass Gap, Banana Republic, Intermix, Hill City and the thriving Athleta brand while the other eponymously named one will be dedicated exclusively to Old Navy, which had a 3 percent increase in sales previous year and about $8 billion in revenues. Old Navy is also bringing $8 billion in annual revenue with it. The three largest brands were meant to complement each other, with Old Navy pulling in families with discounts, Gap resonating with high school and college students and Banana Republic a go-to for young professionals.

The news comes two years after Gap Inc. started to dump 200 Gap and Banana Republic outposts while adding 270 Old Navy and Athleta shops, as Commercial Observer previously reported.

That's what Kate Fitzsimons, an analyst at RBC Capital Markets, wrote in a note out late Thursday following Gap's announcement that it would make Old Navy a separate, publicly traded company.

The company estimates that the closures of the 230 stores - roughly 20 percent of its total global store count- will result in approximately $625 million in annualized sales losses. "At the end of the day, Gap is still a struggling brand and needs to prove its relevancy to the consumer", Redding said.

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Gap's shares rose $6.50 to $31.90 in extended trading after the split-up was announced. By division, the Gap brand posted a 5 per cent drop, while that figure at Banana Republic was down 1 per cent. The rest of the brands combined will have about $9 billion in annual revenue.

Global Positioning System stock was flying high on Thursday following news of plans to spin off the Old Navy business. Old Navy posted sales that were unchanged from a year ago. Old Navy would have been too valuable for Gap to simply sell off.

Teri List-Stoll, EVP and CFO, said, "Athleta delivered another good quarter on top of last year's remarkable trends, resulting in a two-year comp of almost 30 percent positive".

She said investors could see a similar spin-off in Abercrombie & Fitch's Hollister apparel brand, and American Eagle Outfitters' Aerie lingerie business.

Peck will continue to hold the same position with the new company, while Sonia Syngal will remain as president and CEO of Old Navy.

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