Gap's Old Navy spinoff is torpedoed

A spinoff of Old Navy doesn't make sense anymore

Gap has shelved its planned spinoff of discount chain Old Navy.

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TickerSecurityLastChangeChange %
GPSGAP16.29-0.03-0.18%

Shares got a modest boost in the extended session following the news.

In a statement, the retailer said that while the purpose of the spinoff was for "value creation" it no longer made sense to the board of directors, who determined the "cost and complexity of splitting into two companies, combined with softer business performance, limited our ability to create appropriate value from separation," said Robert Fisher, Gap Inc. interim president and chief executive officer.

The company also said comp and net sales for the 2019 year will be at the higher end of prior forecasts, albeit still "down mid-single digits and down low-single digits respectively." With sales not as weak as expected, the retailer now expects to earn $1.70 - $1.75, slightly higher than previous forecasts.

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In November, Gap CEO Art Peck abruptly left his post. At the time the company also cut its full-year revenue outlook and acknowledged industry headwinds.

“This was a challenging quarter, as macro impacts and slower traffic further pressured results that have been hampered by product and operating challenges across key brands,” Gap Chief Financial Officer Teri List-Stoll said in a statement at the time.

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KSSKOHL'S CORP.19.45-0.39-1.97%
TGTTARGET CORP.154.35+2.35+1.55%

Gap, like many other retailers, is struggling to boost sales. Macy's recently announced plans to close 29 stores, while sales from J.C. Penney and Kohl's recently disappointed. While Target also saw some weakness in its holiday sales, the retailer has been outperforming its peers by a wide margin.

TARGET IS THRIVING THANKS TO BIG EARNERS SHOPPING SMALLER STORES

On the bright side, Fisher said his team learned a lot in the spinoff planning process.

“The work we’ve done to prepare for the spin shone a bright light on operational inefficiencies and areas for improvement,” said 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 Thursday's announcement, the retailer noted it intends to appoint a CEO to oversee all the brands and strategy.

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