Gap Inc’s shares rose 25% on Thursday after the company indicated its plans to separate its Old Navy brand, along with the closing of 230 Gap stores. 68 stores have already been shut.
The company has had mixed sales across its brands. Old Navy performed the best, as its wide range of budget apparel made it more attractive to a broader base of customers. On the other hand, Gap had a hard time catching up with the fast-fashion retailers and changing trends. This is confirmed by the fact that Old Navy has annual sales of about $8 billion, while the other brands have a combined revenue of $9 billion.
The company is also planning to boost its marketing and to develop new products for the Gap brand. However, the CEO Art Peck wants to focus more on the period-over-period improvement. Gap shares have fallen roughly 20% over the past 12 months, bringing its market cap to about $9.7 billion.
It is still undecided under which company name Gap, Athleta, Banana Republic and the remaining brands will come. The separation of Old Navy into a publicly listed company, which Gap said will be tax free to investors, is likely to be completed by 2020.
Analysts believe that the separation of Old Navy as a new company may enable a strategic focus, but this could reduce the diversification the brand provides to the overall entity.