Gap to close 230 stores over the next two years

Gap to split off Old Navy 230 stores to close

Gap to split off Old Navy 230 stores to close

One will just be its Old Navy brand, and the second company will include Gap's other brands like Banana Republic and Athleta.

The company also said it would close hundreds of underperforming Gap stores in the next two years and would increase investments in its online business as they try to adapt to a more modern retail environment.

As one of the fastest growing apparel brands in the USA with approximately $8 billion in annual revenue, Old Navy will be able to capitalise on its scale, broad customer awareness and unique positioning to extend its category leadership and deliver profitable growth as an independent company. 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.

Art Peck, president and chief executive of Gap Inc, said the company knows "what we need to do to win".

"It's clear that Old Navy's business model and customers have increasingly diverged from our specialty brands over time", Gap's Chairman Robert Fisher said. And 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.

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To that end, Peck said the Gap brand will look to shutter 230 stores over the next two years. The transaction is expected to be completed in 2020. The market liked the news, sending shares soaring in Friday trading.

Gap the latest major retailer to announce store closures in response to declining sales. Meanwhile, the company can consolidate its older brands like Gap and Banana with its newer ones like Athleta and Hill City.

Getting out from under the sinking ship that is Gap (GPS) is good news for Old Navy.

Said Peck, "NewCo will have approximately $9 billion in annual revenue, a strong balance sheet and a significant opportunity to innovate, explore new ways to serve the customer and quite frankly what's on my mind is to write the next chapter for specialty retail".

The company expects adjusted profits in 2019 to hit as high as $2.55 per share, but sales to come in flat year-over-year. 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. "I'm not so sure on NewCo; that's still going to take some time", said Jennifer Redding, Wedbush Securities analyst. "It's nearly as if they used Old Navy as a smokescreen to hide the absolute urgency to do some fundamental things with the other businesses".

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