By Tonya Garcia, MarketWatch
Gap Inc.’s decision to call off the Old Navy spinoff resolves one issue for the troubled retailer, but there are many more to deal with, according to analysts.
Gap /zigman2/quotes/206554267/composite GPS +1.69% announced late last week that it was canceling its plans to separate Old Navy from the rest of the company, saying the “cost and complexity” of the process meant the split wouldn’t “create the appropriate value.”
Jefferies analysts recently downgraded Gap shares on concerns about whether the spinoff was the best move. Wells Fargo analysts also said a cancelation would be a good move.
With the transition nixed, analysts have a more positive view though they agree the company still has plenty of troubles.
“While this decision is surprising given management’s prior conviction behind it, we applaud the revised strategy and continue to believe it makes significantly more sense to keep Old Navy intact (even more so given recent Old Navy performance),” MKM Partners’ Managing Director Roxanne Meyer wrote in a note.
Gap’s Interim Chief Executive Robert Fisher gave three reasons for why the separation would not happen during its most recent earnings call.
“As we’ve discussed previously, we believe the dis-synergies from the separation (particularly in sales, but also in the supply chain would have been significantly greater than expected,” MKM said.
MKM rates Gap stock as neutral with a $19 price target.
When the spinoff was first announced, Art Peck was Gap’s chief executive and Old Navy was a growth engine.
Now, Old Navy is in the midst of a turnaround after same-store sales declines, and Peck has left the company.
Gap also announced last week that the Gap brand president, Neil Fiske is stepping down; Banana Republic Chief Executive Mark Breitbard will lead specialty brands, which includes the namesake, Banana Republic and Athleta; and Chief Financial Officer Teri List-Stoll will now lead corporate operations, including those related to real estate and supply chain.
The company is searching for a new CEO.
The spinoff could have cost as much as $800 million, according to Wells Fargo.