(Bloomberg) -- When Gap Inc. announced it would spin off Old Navy, its most profitable brand, the apparel company’s stock surged 16 percent. But that optimism has proved short-lived: Just two weeks later, all those gains have been erased.
The shares fell as much as 2.4 percent in intraday trading Thursday, back below the $25.40-a-share level they were trading at before the split plan was announced.
Gap’s stock drop shows that a spin-off plan, while fleetingly exciting to Wall Street, is no substitute for a well-implemented strategy, according to Instinet analyst Simeon Siegel.
“I think every boardroom now has a Gap share price alert set because this is going to help dictate where the is,” Siegel said. “It would seem that the discussion here is balancing stock price versus operational efficiency.”
In late February, Gap said Old Navy will be spun off into its own public entity, with the rest of the company housing the namesake brand along with Banana Republic, Athleta and some other brands. It also announced it would close 230 Gap store locations in the next two years.
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