In the announcement today, the company announced a restructuring that would close 230 Gap stores over the next two years, saving as much as $90 million in annual costs.
That leaves 742 Gap stores globally. They also plan to close 230 Gap locations over the next two years. "There will be a healthier channel mix after the restructuring, with almost 40% of sales coming from online, and the remainder split fairly evenly between the specialty and value channels".
Gap's stock surged 25 percent in after-market trading on Thursday.
Originally launched by Gap in 1994, Old Navy offers apparel that generally comes in at a lower price point than at Gap or Banana Republic.
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. "And if that's the case", said Siegel, "it makes sense to let Old Navy shine as a stand alone". The majority of the affected stores are expected to shutter by the fourth quarter.
She noted that in order for Gap to succeed, it needs to find the right mix of style and basics for its stores, while getting a better grasp of who its customer is.
The company expects adjusted profits in 2019 to hit as high as $2.55 per share, but sales to come in flat year-over-year. By division, the Gap brand posted a 5 percent drop, while that figure at Banana Republic was down 1 percent.
"Santa didn't bring the sales but brought Old Navy spin instead", RBC's analyst Kate Fitzsimons said. Net sales for the 2018 fourth quarter - the key period for retailers via the holiday season - decreased by 7 percent relative to a year ago.
"Following a comprehensive review by the Gap Inc. board of directors, it's clear that Old Navy's business model and customers have increasingly diverged from our specialty brands over time, and each company now requires a different strategy to thrive moving forward", said Robert Fisher, chairman Gap Inc.
A second company will exclusively house its Old Navy brand, which has been out-performing its stablemates.
"Let's remember these are both US$8 and US$9 billion companies, so it's not like they're small", Peck said in an interview Thursday.
"We are focused on value creation and have no sort of emotional attachment to a particular combination of these businesses", Peck told an analyst conference call.