Surprisingly, Gap has called off to separate from Old Navy during its press release on Thursday, according to NY Post.
Likewise, its president and CEO of Gap, Neil Fiske, is leaving.
Gap interim and CEO Robert Fisher said during an interview, “The plan to separate was rooted in our commitment to value creation from our portfolio of iconic brands. 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.”
He also added, “The work we’ve done to prepare for the spin shone a bright light on operational inefficiencies and areas for improvement.”
It was in February 2019 when Gap announced its plans with the Old Navy, which led to the ouster of former Gap Inc.
CEO Art Peck late last year. Peck stepped down from the position that he was holding since 2015. Fisher temporarily replaced him, who is the son of Donald and Doris Fisher, Gap’s founders.
The new CEO will be appointed so that there will be a full overview of the portfolio of brands, including the Banana Republic, Athleta, and Hill City.
The departure of Peck made the doubt for the split-up of Old Navy and Gap.
It was supposed to give hope that Old Navy would be successful on its own without being dragged by Gap’s other brand, Banana Republic.
Old Navy’s sale went down in several quarters mostly likely because of the growing competitor brands which sell budget apparels, namely H&M, Target, and TJ Maxx.
The company also shared its financials with Wall Street after the holiday season, but they didn’t provide the exact figures.
According to Gap, “as a result of better than anticipated promotional levels over the holiday period”, specifically Old Navy, it now is calling for adjusted earnings for last year to be “moderately above”, from $1.70 to $1.75.
In Fisher’s statement, the splitting of companies shone “bright light on operational inefficiencies and areas for improvement” for Old Navy, thus contributing to the decision reversal. “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 the Banana Republic and Gap brand,” he added.
The separation would have cost as much as $450 million in a one-time expense, whereas another $350 million would be spent on capital-related expenses for next year.
In about more than a month, Gap will be reporting its last quarter and full-year earnings. Over the previous year, the stock fell more than 25%. Gap has a market value of $6.9 billion.
Many from the Wall Street lauded on that move, and there are still some skeptical about Gap. On Friday, it fell 1%.
According to Oliver Chen, an analyst from Covent and Co., The spin-off plan was “drawing focus away from the company that needs to prioritize delivering better execution across the supply chain, merchandise, inventory optimization, and customer engagement, and the company has a lot of work ahead…. (Gap) ultimately needs to focus on modernizing the brands to capture younger consumers and master a ‘test-and-react’ merchandise strategy to limit promotions and drive higher unit economics.”