Gap reveals plans to split in two

Gap laid down plans on Thursday to break itself up, separating Old Navy from the rest of the group, showing the lengths to which retailers are going to stay in investors’ favour as changing shopper habits upend the industry.

Shares in the clothing retailer leapt by 25 per cent in after-hours trading to $31.74, after the near-$10bn market capitalisation company disclosed plans to spin off Gap, Banana Republic and other assets from the better-performing Old Navy division.

Gap’s flagship brand was once synonymous with all-American style but peaked in the 1990s. Shoppers have defected to trendier rivals such as H&M, Zara and Uniqlo. The rise of ecommerce has added to the pressure.

Pursuing a separation is the most compelling path forward for our brands

The company, based in San Francisco, has shaken up its management and rejigged its product offering in an effort to revive its fortunes. But financial results have continued to underwhelm.

Figures on Thursday showed like-for-like sales at the Gap division dropped 5 per cent last year. About 230 Gap stores are to be closed over the next two years.

The group has found more success with the budget Old Navy business, whose annual sales of $8bn compare with $9bn for the company’s other brands combined. Founded in 1994 and named after a bar in Paris, Old Navy operates more than 1,000 stores. Like-for-like sales rose 3 per cent last year.

The remaining company will include Gap, Banana Republic and several other brands, and will be renamed after the separation. Art Peck, chief executive, will run the new entity while Sonia Syngal, who heads Old Navy, will lead the brand once it is a standalone company.

Robert Fisher, chairman, said in a statement 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”.

Shareholders will receive shares in both NewCo and Old Navy in equal proportion. The transaction is not expected to complete until next year.