Gap pulls plug on Old Navy spinoff to focus on turning
around sales
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[January 17, 2020] By
Uday Sampath Kumar
(Reuters) - Gap Inc <GPS.N> on Thursday
scrapped its plan to spin-off Old Navy and said it would instead work to
stem dropping sales, while fewer discounts during the holiday season
helped full-year earnings, sending its shares up about 4%.
The move came as a surprise as just two months ago the company had stuck
to its plan to separate despite several analysts calling for the
strategy to be canned due to weak sales and the abrupt exit of Chief
Executive Officer Art Peck.
Peck unveiled the plan in February last year when Old Navy was a bright
spot for the company, which was struggling with out-of-fashion apparel
at its Gap brand.
However, sales for Old Navy have slowed in recent quarters, raising
doubts about the brand's value as a separate entity.
"Old Navy's business has not been good. With the CEO out of the way,
this is the right move," said Jane Hali, at research firm 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."
The company on Thursday also said that Mark Breitbard, head of Banana
Republic, will lead the Gap brand on interim basis after the departure
of Chief Executive Officer Neil Fiske.
"The work we've done to prepare for the spin shone a bright light on
operational inefficiencies and areas for improvement," Gap interim CEO
Robert Fisher said.
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The logo of GAP clothing retailer is seen at a company's store at
Tbilisi Mall in Tbilisi, Georgia, April 22, 2016. REUTERS/David
Mdzinarishvili
The company is searching for a permanent CEO, whose primary task, according to
Craig Johnson, president at retail consultancy Customer Growth Partners, will be
to fix the big three brands - Gap, Old Navy and Banana Republic.
"Launching an independent Navy when none of the big brands is ready for prime
time would be a bridge too far," he said.
Gap said same-store sales for 2019 would be at the higher end of its prior
outlook, but would still drop from a year earlier as brick and mortar retailers
lose holiday shoppers to online competition.
It forecast adjusted 2019 earnings to be moderately above its prior outlook of
$1.70 to $1.75 per share.
Gap shares were up at $19.44 in extended trading.
(Reporting by Uday Sampath in Bengaluru and Melissa Fares in New York; Editing
by Arun Koyyur)
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