Gap Inc.’s stock surged 25 percent to $31.75 in after-hours trading following a shock announcement that it is splitting itself into two publicly traded companies.
One will be made up of Old Navy, while the other — a yet-to-be-named company — will consist of Gap, Athleta, Banana Republic, Intermix and Hill City.
Art Peck, president and chief executive officer of Gap Inc., will run the new company, set to be created by next year, while Sonia Syngal, president and ceo of Old Navy, will remain in place.
The news did not stop there, with the company unveiling plans to shutter around 230 Gap stores over the next two years, resulting in an estimated annualized sales loss of approximately $625 million.
Pretax costs associated with these actions are set run $250 million to $300 million, with the majority expected to be cash expenditures. The company estimates that these actions will result in annualized pretax savings of about $90 million.
“Following a comprehensive review by the Gap Inc. board of directors, it’s clear that Old Navy’s business model and customers have increasingly diverged from our specialty brands over time, and each company now requires a different strategy to thrive moving forward,” said Robert Fisher, Gap chairman.
“Recognizing that, we determined that pursuing a separation is the most compelling path forward for our brands — creating two separate companies with distinct financial profiles, tailored operating priorities and unique capital allocation strategies, both well-positioned to achieve their strategic goals and create significant value for our customers, employees and shareholders.”
This came as the company reported fourth-quarter net income of $276 million, or 72 cents per share, compared with $205 million, or 52 cents per share, a year earlier.
Net sales were $4.6 billion, coming in a touch below Wall Street forecasts for $4.7 billion. Comparable sales were down 1 percent, compared with a 5 percent increase last year. Within that, Old Navy was flat, Banana Republic was down 1 percent and Gap was 5 percent lower.
The company detailed that it is working on multiple initiatives to “revitalize” the Gap brand by reengaging with customers and expanding its customer base, “leveraging the multigenerational, democratic appeal of the brand.”