March 1 (UPI) -- Gap Inc. will split Old Navy off into its own publicly traded company, the retail merchandiser said.
In its Wednesday announcement, Gap Inc. said that it will also group its other brands Gap, Athleta, Banana Republic, Intermix and Hill City into NewCo, the placeholder name for the other company.
The decision to spin-off Old Navy was to allow each company to optimize its cost structure by focusing on its specific business needs, it said.
"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 Gap Inc. board chairman Robert Fisher. "Recognizing that, we determined that pursuing a separation is the most compelling path forward for our brands."
Creating the two companies will better position them to meet their individual strategic goals, Fisher said in a statement.
The iconic mall fixture Gap, which was a popular brand with baby boomers, has been losing market share over the past few years as younger generations have been attracted to the cheap costs and style of fast-fashion companies.
Old Navy, on the other hand, has been one of the fastest growing brands in America, generating $8 billion in annual revenue, Gap Inc. said.
All of NewCo is expected to generate about $9 billion in annual revenue.
Gap Inc. President and CEO Art Peck said that the company has made significant progress in executing its growth strategy by investing in its customer experience and digital capabilities that will be further optimized by the splitting of the two companies.
"Both companies will be well positioned to capitalize on their respective opportunities and act decisively in an evolving retail environment," he said in a statement.
News of the split comes as the company published its results for fiscal year 2018 where Gap said it would be closing 230 stores over the next two years, which will generate an annual sales loss of about $625 million.
Stores have been an important part of its business strategy but it is looking to revitalize the Gap brand through "recapturing the traditional Gap attributes of style, quality, fit and value," the company said in its report.
"As we look ahead to 2019 and beyond, we know what we need to do to win and, combined with the separation we announced today, we will be well positioned to leverage the power of our brands and the talented teams that lead them to accelerate the pace of change, improve execution and deliver profitable growth," Peck said.