Gap scraps plan to spin off its Old Navy brand

Almost a year after announcing plans to form two separate public companies, Gap Inc. will no longer spin off Old Navy into a standalone business, the San Francisco retailer said Thursday.

The company said in a news release that its board had scrapped the plan to split the companies, saying it would be too costly and complex. It was looking into spinning off Old Navy while retaining its other entities — the Gap store chain, Athleta, Banana Republic, Intermix and Hill City — under the Gap Inc. name.

The apparel maker also announced Thursday that Neil Fiske, president and CEO of the Gap brand, is stepping down.

“The work we’ve done to prepare for the spin shone a bright light on operational inefficiencies and areas for improvement,” said Robert Fisher, the company’s interim president and CEO, in a

statement.

“We have learned a lot and intend to operate Gap Inc. in a more rigorous and transformational manner.”

The reasoning behind the split, the company had said, was so the betterperforming Old Navy stores would not be weighed down by the original Gap chain and other weaker brands.

But Old Navy’s sales dropped in the quarter that ended Nov. 2, the company reported last year. Gap said at the time that it had lost sight of what the Old Navy customer “really valued.”

Like many mallbased retailers, Gap has also struggled to compete with the rise of online shopping. Clothing, once seen as a strong product for physical stores, which could offer changing rooms and easy returns, has seen huge growth by online retailers. Gap, which has long offered online shopping, has made some moves to compete — for example, by introducing an online subscription service for Banana Republic clothes and accessories, joining rivals like Trunk Club and Stitch Fix in offering monthly deliveries of wardrobes.

Analysts began to question whether the split would happen after

Art Peck stepped down as Gap Inc. CEO in November.

“Gap Inc.’s plan to terminate its spin of Old Navy reflects the challenges presented by the cost and complexity of splitting the business in the face of weaker operating results,” Christina Boni, vice president of Moody’s credit rating agency, said in a statement.

Gap shares shot up almost 7% in afterhours trading following the announcement. Gap is set to report fourthquarter and fullyear earnings on Feb. 27.