Gap Inc. stock rallied in the extended session Thursday after the retailer backtracked from its plan to spin off its Old Navy brand.
Gap GPS, +3.85% shares rose as much as 9% in after-hours trading after ending the regular trading day up 3.9%.
Mounting costs and a softer business performance made the split not worth it, Gap said.
The company announced the plan to turn its cheaper apparel brand into a stand-alone company in March, and nearly a year and a Chief Executive departure later, it concluded that the “cost and complexity” of the separation, plus the softer business environment, “limited our ability to create appropriate value” from the split,” interim Chief Executive Robert Fisher said in the statement.
The process of preparing for the spinoff shone “a bright light on operational inneficiencies and areas for improvement,” Fisher said. “We have learned a lot and intend to operate Gap Inc. in a more rigorous and transformational manner that empowers our growth brands, Old Navy and Athleta, and appropriately focuses on profitability for Banana Republic and Gap brand.”
Gap plans to appoint a new CEO overseeing all brands, the company said. CEO Art Peck announced his departure in November.
Also late Thursday, Gap said it expects fiscal 2019 same-store sales and net sales to at the higher end of a previous guidance between down mid-single digits and down low-single digits.
Thanks to better-than-expected promotions over the holiday period, particularly at Old Navy, Gap forecast adjusted fiscal-year 2019 earnings per share to be “moderately above” a previous guidance between $1.70 and $1.75, it said. Old Navy sales are expected to make up 48% of total Gap Inc. fourth-quarter sales.
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The company said it would report fourth-quarter results after the bell on Feb. 27. Analysts polled by FactSet expect the retailer to report GAAP and adjusted profit of 35 cents a share on sales of $4.5 billion for the quarter, which would compare with GAAP earnings of 72 cents a share on sales of $4.6 billion in the year-ago period.
Gap shares have dropped 25% in the past 12 months, contrasting with gains of 27% and 21% for the S&P 500 index SPX, +0.84% and the Dow Jones Industrial Average. DJIA, +0.92%
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