Are Gap Inc. and Old Navy better off together?
What a difference 10-and-a-half months make. Less than a year after Gap Inc. announced plans to spin off its Old Navy business as a standalone public company, it has reversed course.
“The plan to separate was rooted in our commitment to value creation from our portfolio of iconic brands,” said Robert Fisher, Gap Inc. interim president and chief executive officer, in a statement. “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.”
“The work we’ve done to prepare for the spin shone a bright light on operational inefficiencies and areas for improvement,” added Mr. Fisher. “We have learned a lot and intend to operate Gap Inc. in a more rigorous and transformational manner that empowers our growth brands, Old Navy and Athleta, and appropriately focuses on profitability for Banana Republic and Gap brand. Our board is focused on supporting this work and appointing new leadership with the appropriate experience necessary to lead a portfolio of retail brands and to support our transformation efforts.”
In an email to RetailWire, Moody’s vice president Christina Boni, echoed the challenges laid out by Gap in making its decision.
“Gap Inc.’s plan to terminate its spin of Old Navy reflects the challenges presented by the cost and complexity of splitting the business in the face of weaker operating results,” she said. “The significant dis-synergies related to the transaction, as well as most of its separation costs, will be avoided. A larger diversified platform is instrumental to Gap, Inc., not only in managing risk, but leveraging investments in technology and logistics.”
Shares of Old Navy were up nine percent in after-market trading, CNBC reports.
When Gap first announced its plans to spin off Old Navy last year, most industry watchers saw it as a positive for the chain, while at the same time questioning whether it could have a negative effect on its parent company post-separation.
Old Navy reported same-store sales for its third quarter were down four percent. Gap Inc. continues to look for a new chief executive after Art Peck stepped down in November.
- Gap Inc. No Longer Pursuing Separation of Old Navy – Gap Inc.
- Gap Inc. Reports Third Quarter Results – Gap Inc.
- Gap is no longer spinning off Old Navy, sending shares higher – CNBC
- Gap Inc. Reports Art Peck to Step Down as Chief Executive Officer – Gap Inc.
- Gap Inc. CEO steps down. What comes next? – RetailWire
- What will going separate ways mean for Gap and Old Navy? – RetailWire
- Old Navy is ready to set sail on its own – RetailWire
DISCUSSION QUESTIONS: What do you think of Gap’s decision to call off its separation from Old Navy? How will this move affect Old Navy and its parent company?