Commentary

The Gap Rips Up Its Plans To Spin Off Old Navy

Two months after the departure of numbers-crunching CEO Art Peck, The Gap said yesterday that it had canceled plans, announced last February, to spin off its Old Navy brand into a standalone public company.

“The plan to separate was rooted in our commitment to value creation from our portfolio of iconic brands,” interim president and CEO Robert Fisher -- the son of Gap founders Doris and Don Fisher -- says in a statement announcing the action. 

advertisement

advertisement

“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,” Fisher continues.

“The company also announced that Neil Fiske, president and chief executive officer of Gap brand, will leave the company. Gap has struggled in recent years to find its identity, with several fashion misses and declining sales,” Bloomberg’s Jordyn Holman and Jonathan Roeder write  for MSN Money.

“Gap has lost its identity,” Poonam Goyal, a retail analyst at Bloomberg Intelligence, tell them. “It needs to fix operational execution, brand messaging and the entire organization needs an uplift. Who is Gap and who are they trying to attract?”

“The work we’ve done to prepare for the spin shone a bright light on operational inefficiencies and areas for improvement,” Fisher also said in the statement. “We have learned a lot.''

“In February, Gap Inc. said it would spin Old Navy off into its own publicly traded company. The retailer had consistently outperformed its sister brands, Gap and Banana Republic, and company leaders said at the time that each of the store chains required their own individual strategies to succeed,” Charisse Jones recalls for USA Today.

But “analysts had grown quite skeptical of the separation plan, devised by longtime CEO Art Peck last year, and frustrated by a lack of details surrounding it,” Daphne Howland writes for Retail Dive

Howland analyzed  the Gap’s decline from “the brand that examines, questions, and reimagines what the American lifestyle calls for in terms of basic apparel” into “a retailer of basic apparel” when Peck left after five years as CEO and 15 years at the company. And in a piece two weeks ago, Howland wondered  if the plans to break up the company were about to be scuttled. 

Retail Dive was all set to give Gap Inc.'s plan to spin off Old Navy its ‘Deal of the Year’ Dive Award, in light of the huge implications for both a stand-alone Old Navy business and the remaining ‘new Gap Inc.’ But recent developments have called it into question,” she wrote.

Among them were faltering sales at Old Navy.

“Old Navy had been a bright spot for its parent company, but the business has stalled more recently. Sales at Old Navy stores open at least a year fell for the first three quarters of the current fiscal year, after rising for most of 2018,” Suzanne Kapner and Micah Maidenberg write  for The Wall Street Journal.

“The company’s other brands, which include the Gap and Banana Republic, have also struggled with falling sales. Hundreds of those chains’ stores have been closed in recent years. The company said Thursday that it anticipates full-year sales will fall less than it previously expected. It also raised its earnings guidance, after lowering estimates this fall,” Kapner and Maidenberg add.

“Gap said it now expects total company fiscal 2019 comparable sales and net sales to both be at the higher end of its previous guidance range of down mid-single digits and down low-single digits, respectively. As a result of better-than-anticipated discount levels over the holiday period, particularly at Old Navy, it now estimates its adjusted fiscal year 2019 earnings per share to be moderately above its previous per share guidance of $1.70 to $1.75,” the AP’s Anne D’Innocenzio writes.

“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,” CNBC’s Lauren Thomas reports.

"Old Navy, which launched in 1994, had been the top prize in Gap’s often inconsistent brand portfolio,” writes  Nathaniel Meyersohn for CNN Business.

“The decision to stop pursuing a company split is now the right one,” Jefferies analyst Randal Konik tells him.

“Old Navy's business has not been good. With the CEO out of the way, this is the right move,” agrees Jane Hali of Jane Hali & Associates. “Instead of thinking of spinning off companies, they should get back to the basics of giving customers what they’re asking for,” she tells  Reuters’ Uday Sampath Kumar.

Next story loading loading..