Gap stock up 18% after splitting into two companies

The retailer's stock soars after Old Navy splits from Gap.

Gap stock soared 18% after the retailer announced it would break up into two separate publicly traded companies by 2020. The businesses will be Old Navy and another as-yet-unnamed brand that will include stores like Banana Republic and Athleta.

Why is Gap splitting up?

Gap is splitting up into two companies because of the success of the Old Navy brand. The business is one of the few bright spots in a slow US retail season. The store’s sales make up 47% of Gap’s sales and same store sales increased by 3% over the past year. Robert Fisher, Gap’s chairman, noted that the time was right for Old Navy to branch off on its own from Gap to compete better with other retailers like TJ Maxx.

Fisher also added that the change would offer Old Navy ‘the flexibility, focus, and control needed to increase customer access to continue to successfully resonate with value-focused customers.’

Gap will also restructure by closing 230 stores over the next two years. The company said that the move will save the corporation $250-$300 million.

What’s next for Gap and Old Navy stock?

Gap stock is rising after months of decline. The decision to focus more on online retail could increase its share price over time as well. While Gap’s stock is rising, Old Navy stock could be the one to watch when it goes public. The store’s success could lead to a valuation between $10-$17 billion.

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