Gap, Old Navy splitting; 230 stores to close

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Christina Boni, vice president at Moody's, the rating agency, said: "Old Navy is Gap Inc.'s leading brand comprising 47% of sales in 2018 with margins that lead its portfolio". The model has frayed in recent years, with the Gap brand under increasing pressure amid complaints about its clothes and messy stores.

"Santa didn't bring the sales but brought Old Navy spin instead", RBC's analyst Kate Fitzsimons said.

About 130 of those closures will happen this year, according to Gap.

'This is great news for Old Navy, no longer having its success consistently outweighed by sluggish performance by Gap, ' said Tiffany Hogan, senior analyst at Kantar Consulting.

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All of NewCo is expected to generate about $9 billion in annual revenue.

Konik said separating Old Navy, which is the primary driver of profit for Gap, would also make the budget brand as attractive as off-price retailers such as TJX Co Inc and Ross Stores.

The moves, which followed a comprehensive board review, came with Old Navy thriving and Gap and Banana Republic struggling.

On an earnings call Thursday evening, said Teri List-Stoll, Gap's chief financial officer, said the company had been grappling with "what's right for Old Navy versus what's right for the other brands", whether with online strategies or technology tools.

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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. Same-store sales decreased 1 percent, while overall sales fell 7 percent to $4.6 billion - slightly less than Wall Street predicted.

Gap Inc said it was undertaking the restructuring exercise in an effort to "revitalise brand health".

Most of those stores will be in North America, Peck told analysts Thursday.

The company also said it plans to invest more in fleece for spring, summer and fall seasons. Athleta, which will be part of the new Gap company, is a women's athleisure chain that has been a success. The brand hauled in $7.8 billion in sales previous year, up from $7.3 billion in 2017.

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Numerous stores will be shuttered by the end of 2019, but the rest will close as their leases expire over the next two years. Instead, a clean split like this can help all companies better allocate resources and give Gap a window to double down on its main focus areas. "It's simply putting the NewCo brands though the ringer for another cycle of rinse and repeat".

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