Gap Announced The First Split Plan For The Old Navy Aiming At Billions Of Dollars.

Gap Inc. (NYSE:GPS), which hosted investor activities on Thursday, released its first split plan. After sharp fluctuations in its stock price in early trading, it settled steadily in the afternoon and fell 0.36% in all day, indicating that the market's resolution of the largest US apparel group has not yet reached the end of the day.

In group investor Art Peck, chief financial officer Teri List-Stoll, and Old Navy veteran Navy chief executive Sonia Syngal three participants, the main message released is that the Old Navy group will expand through the store to reach US $10 billion. At the same time, the original group of the remaining brands will focus on the development of sports and niche brands such as Athleta and Janie&Jack.

Although the split is beneficial to the independent development of the two groups, the short-term dispersion effect will bring the loss of the Old Navy brand to US $7000-9000 per year, and at the same time, it will bring about 90 million -1.10 billion US dollars per year for the split Cape group.

The Cape group also said that in the 2019-2021 years, the split cost will reach 4.00-4.50 billion, and it will also bring 3.00-3.50 billion capital expenditure.

Morgan Stanley analyst Kimberly Greenberger appreciates the split of the Cape group, but investors may want to buy an independent Old Navy company after splitting up, but stay away from the struggling Gap brand, but at the same time, she said Athleta is attractive to investors and the brand could grow into another Bath&Body Works.

Bath&Body Works is the beauty brand of L Brands Inc. (NYSE:LB). At present, the secret of underwear's beauty brand Victoria "s Secret Vitoria" falls into the edge of loss, and becomes the only power to support L Brands.

However, Ike Boruchow, an analyst at Wells Fargo, has a different view. He believes that the current risk return rate is in a favorable position and raises the target price of the company from 18 US dollars to 24 US dollars. It is considered that although investors will not give Gap a high P/E, in view of the rapid growth of Athleta, investors may give Athleta a very high valuation, which depends on the key EBITDA profit of Athleta.

At the end of last month, Cape group appointed Nancy Green as the president of the Old Navy brand (new position) and chief creative officer, while Nancy Green served as vice president and chief creative officer of the brand during the period of serving Athleta, and led the doubling of the revenue of Athleta, which is expected to reach US $1 billion next year, and the operating profit margin will be raised.

MKM Partners and Cowen analysts also held a wait-and-see attitude towards the split plan of the Cape group. The former analyst Roxanne Meyer said that the expansion of the Old Navy brand was not from the split, and the expansion of the store was the real opportunity, which had nothing to do with the split plan. Cowen analysts worry that the competition between the two companies will intensify after splitting up, which may lead to price war.

The results released at the end of May showed that the Old Navy brands were falling into recession before being split.

In the first quarter of May 4th, comparable sales of the Old Navy decreased by 1% annually, the first decline since the first quarter of 2016, while analysts expected a 0.8% increase. The brand's performance dragged down the group's overall sales in the first quarter, which fell by 4% compared to the same period last year, but failed to grow in the two quarter, and analysts expected a 1.2% decline.

However, Teri List-Stoll, chief financial officer of Cape group, has revealed that the Old Navy team has found the crux of its weak product lineup and difficult to satisfy consumers' needs for different shapes, patterns and colors. The supply is expected to improve from autumn. Product problems and the impact of weather on the physical passenger flow have also led to an increase in discount sales in the quarter. Management has started to adjust from procurement, and it is expected that the profit margin for the rest of the fiscal year can be gradually improved. He also stressed that the Old Navy's brand fundamentals remained strong and the market share continued to expand.

On Thursday's investor Day campaign, Sonia Syngal, the chief executive of the Old Navy brand, said that the Old Navy should expand to a ten billion dollar brand with 2000 stores on the basis of the current 1140 stores, which means it will grow 25% on the basis of 8 billion dollars last year.

Sonia Syngal said China could be an important market for brand expansion. In the beginning of this month, the first Chinese shop in Western China, which opened in Chongqing earlier this month, has been expanding into the Chinese market since the beginning of 2014. Its expansion rate is very slow, including Chongqing stores, with a total number of only 18 stores.