STREAMING NOW: Watch Now

Gap and Old Navy are splitting up

Gap and Old Navy have been trending in opposite directions for years. So they're finally splitting up.Gap said Thursday that it would break into two c...

Posted: Feb 28, 2019 4:04 PM
Updated: Feb 28, 2019 6:15 PM

Gap and Old Navy have been trending in opposite directions for years. So they're finally splitting up.

Gap said Thursday that it would break into two companies. One of the companies will contain Old Navy, while the other yet-to-be-named business, currently called NewCo, will comprise Gap, Banana Republic and other brands, including Athleta and Hill City.

The move is designed to allow Old Navy — which has grown to $8 billion in annual sales since it opened its first store in 1994 — to expand on its own. Meanwhile, the company can consolidate its older brands like Gap and Banana with its newer ones like Athleta and Hill City. NewCo will have about $9 billion in annual sales.

'We think the best way for each company to grow and meet the evolving needs of our customers is to allow them to pursue tailored strategies separately,' Gap CEO Art Peck told analysts Thursday. Peck will lead NewCo. Sonia Syngal, CEO of Old Navy, will keep running that company.

Wall Street cheered the decision: Gap stock was up 25% in after-hours trading.

The separation is a tale of two vastly different businesses: Old Navy has thrived in recent years, and sales at stores open at least a year grew 3% in 2018.

Meanwhile, the Gap has struggled — its sales fell 5% last year. Banana Republic has been closing stores, which has helped the company improve sales.

'Old Navy continues to outpace Gap brand and Banana Republic, and is one the fastest-growing major apparel brands,' said Christina Boni, analyst at Moody's.

The Gap, which was founded in 1969, used to be the coolest brand in retail: It rode the mall boom in the back half of the 20th century, and its logoed sweatshirts and turtlenecks won over everyone from teens to moms and celebrities like Sharon Stone.

But the brand fell out of touch with the Baby Boomers who grew up on the brand, and it failed to attract the Millennials who drive fashion trends today. Retailers such as Levi's, Target and fast-fashion sellers H&M and Zara lured away Gap's denim shoppers with cheaper prices and trendier styles.

The company has been talking for a while about how to make the Gap a healthy part of the business again. In November, Peck described Gap's store count as unprofitable. As of the end of last quarter, there were 1,242 Gap stores worldwide. 758 of them were in North America.

On Thursday, the company said it will close 230 Gap stores over the next two years as part of its plan to 'revitalize' the Gap brand. The closures will affect 'specialty' Gap stores, which includes mall-based stores.

Most of those stores will be in North America, Peck told analysts Thursday. Chief financial officer Teri Stoll added that the company focused on stores that were not delivering, were in the 'wrong locations' or were not a 'strategic fit.'

About 130 of those closures will happen this year, according to Gap. The company also plans to open Old Navy and Athleta locations. Athleta, which will be part of the new Gap company, is a women's athleisure chain that has been a success. Hill City launched last year as Gap's men's athleisure brand.

Gap thinks it will save between $250 million and $300 million before taxes over the next two years because of its closure plans, according to a securities filing. It expects to finish splitting the companies in 2020.

But some analysts questioned why promising brands such as Athleta and Hill City were included in NewCo with the struggling Gap brand.

'This could have been an opportunity for a fresh start for Gap,' said Bob Phibbs, CEO of consultancy Retail Doctor. 'It's simply putting the NewCo brands though the ringer for another cycle of rinse and repeat.'

Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 319511

Reported Deaths: 7368
CountyCasesDeaths
DeSoto22267267
Hinds20657421
Harrison18401317
Rankin13868282
Jackson13681248
Madison10239224
Lee10052176
Jones8458167
Forrest7824153
Lauderdale7257242
Lowndes6501150
Lamar634088
Lafayette6303121
Washington5419136
Bolivar4836133
Panola4665110
Oktibbeha466098
Pearl River4600147
Marshall4572105
Warren4440121
Pontotoc425073
Union415677
Monroe4155135
Neshoba4059179
Lincoln4008112
Hancock386487
Leflore3515125
Tate342386
Sunflower339391
Pike3368111
Alcorn324272
Scott319774
Yazoo314171
Adams305886
Itawamba305078
Copiah299666
Coahoma298484
Simpson298189
Tippah291868
Prentiss283661
Leake271774
Marion271280
Covington267283
Wayne264442
Grenada264087
George252051
Newton248663
Tishomingo231268
Winston229981
Jasper222148
Attala215073
Chickasaw210559
Holmes190374
Clay187754
Stone187433
Tallahatchie180041
Clarke178980
Calhoun174032
Yalobusha167840
Smith164034
Walthall135347
Greene131833
Lawrence131024
Montgomery128643
Noxubee128034
Perry126738
Amite126242
Carroll122330
Webster115032
Jefferson Davis108033
Tunica108027
Claiborne103130
Benton102325
Humphreys97533
Kemper96629
Franklin85023
Quitman81916
Choctaw79118
Wilkinson69432
Jefferson66228
Sharkey50917
Issaquena1696
Unassigned00

Alabama Coronavirus Cases

Cases: 548323

Reported Deaths: 11288
CountyCasesDeaths
Jefferson809531565
Mobile42066826
Madison35663525
Tuscaloosa26162458
Shelby25595254
Montgomery25081612
Baldwin21839313
Lee16265176
Calhoun14718325
Morgan14626285
Etowah14171363
Marshall12449230
Houston10764288
Elmore10295213
Limestone10182157
St. Clair10160251
Cullman9941201
Lauderdale9596249
DeKalb8967189
Talladega8458184
Walker7335280
Autauga7230113
Blount6944139
Jackson6922113
Colbert6414140
Coffee5627127
Dale4929114
Russell454941
Chilton4472116
Franklin431083
Covington4273122
Tallapoosa4136155
Escambia401780
Chambers3726124
Dallas3607156
Clarke352961
Marion3242106
Pike314078
Lawrence3129100
Winston283572
Bibb268464
Geneva257581
Marengo250665
Pickens236862
Barbour234659
Hale226878
Butler224071
Fayette218162
Henry193843
Cherokee187245
Randolph187044
Monroe179341
Washington170439
Macon162951
Clay160159
Crenshaw155657
Cleburne153244
Lamar146537
Lowndes142054
Wilcox127030
Bullock124242
Conecuh113430
Coosa111429
Perry108626
Sumter105732
Greene93534
Choctaw62025
Out of AL00
Unassigned00
Tupelo
Partly Cloudy
91° wxIcon
Hi: 91° Lo: 67°
Feels Like: 91°
Columbus
Partly Cloudy
89° wxIcon
Hi: 90° Lo: 64°
Feels Like: 90°
Oxford
Partly Cloudy
84° wxIcon
Hi: 90° Lo: 63°
Feels Like: 85°
Starkville
Partly Cloudy
88° wxIcon
Hi: 88° Lo: 62°
Feels Like: 88°
The relative lack of humidity has been a welcome change from the summertime stuffiness we’ve had lately. That lack of humidity will once again ensure that temperatures get down into the mid 60s for early morning Thursday. While Friday morning will remain comfortable as well, rain chances ratchet up as a tropical system approaches this weekend.
WTVA Radar
WTVA Temperatures
WTVA Severe Weather