Art Peck, president and chief executive of Gap Inc, said: "Combined with the separation we announced today, we will be well positioned to leverage the power of our brands and the talented teams that lead them to accelerate the pace of change, improve execution and deliver profitable growth".
"Santa didn't bring the sales but brought Old Navy spin instead", RBC's analyst Kate Fitzsimons said. After the closures, which also include the 68 stores it shut this year, the chain will be down to roughly 427 stores.
Investors will now likely pay more for Old Navy's stock-the point of the spinoff. The companies belonging to the new company reel in $9 billion in annual revenue.
The retailer said the separation will be done through a spin-off that is meant to generally be tax-free to company shareholders for US federal income tax purposes.
Gap Inc. will be closing 230 of their underperforming GAP stores worldwide over the next two years, many of them in the USA and some in Canada.
In the latest quarter - the critical holiday period - Old Navy's same-store sales were flat, while Gap and Banana Republic sales were both negative.
Gap Inc.is spinning off fast-growing Old Navy as a standalone company.
Gap's stock price closed at $25.40 per share on Thursday, Feb. 28, down from $31.70 per share a year ago.
The Gap, which was founded in 1969, used to be the coolest brand in retail: It rode the mall boom in the back half of the 20th century, and its logoed sweatshirts and turtlenecks won over everyone from teens to moms and celebrities like Sharon Stone. Sonia Syngal, CEO of Old Navy, will keep running that company.
The company says it estimates an annualized sales loss of approximately $625 million as a result of these store closures.
The company also said it plans to invest more in fleece for spring, summer and fall seasons. The brand hauled in $7.8 billion in sales a year ago, up from $7.3 billion in 2017. Instead, a clean split like this can help all companies better allocate resources and give Gap a window to double down on its main focus areas.
But some analysts questioned why promising brands such as Athleta and Hill City were included in NewCo with the struggling Gap brand.
"The remixing of the channel exposure is something that every retailer that has been dominent in the higher end of the specialty apparel segment is going to need to do", he said on the firm's earnings call. "It's simply putting the NewCo brands though the ringer for another cycle of rinse and repeat".