Gap to Spin Off Old Navy Despite Weak Growth

On Thursday, after Gap Inc.’s warning earlier this month that it was expecting dismal results, the company reported its quarterly earnings and sales that topped analysts’ low expectations. The brand’s struggle to move women’s apparel off the shelves has resulted in a third-quarter same-store sales decline of 4%.

The company said that despite poor performance they are still committed to the spin-off of Old Navy into its own company. The deal is expected to close in the middle of 2020.

According to Robert Fisher, Gap’s interim CEO, they are continuing to make progress against their separation plans. This will provide improved focus and act as a catalyst for transformation. While both companies will benefit equally from this, the new Gap Inc. will specifically have an urgency and need to reinvest in how it operates.

On Thursday, they also announced their plans to exit Old Navy from China by early 2020, in order to focus more on under-served North American markets.

In after-hours trading, Gap shares rose about 1.5% on the news.

Gap in its fiscal third-quarter projected 53 cents adjusted earnings per share compared to 51 cents what analysts expected. The revenue generated was $4.00 billion from $3.96 billion analysts’ expectations. Their same-store sales dropped down to 4% compared to 2.3% expected by analysts.

Earlier this month the company announced Art Peck’s departure from the company and Fisher, son of the company’s founders, as temporarily replacement. Since the company has continued to search for new CEO candidates both internally and externally.

During the announcement for the managerial changes, the company offered a glimpse at its third-quarter performance. The said that its same-store sales fell by 4%, compared to flat growth a year ago. They also said that same-store sales at the Gap brand were down by 7%, in addition to 3% at the Banana Republic, and 4% at Old Navy.

As of Thursday’s, Gap Inc. shares market closed nearly by 40% this year.

 

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