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Gap Boosts Premium Kids Apparel Line With Janie and Jack Buyout

Zacks Equity Research

The Gap, Inc. GPS has acquired Janie and Jack clothing brand from Gymboree Group Inc. for roughly $35 million, after the retailer filed for bankruptcy. Additionally, there was a supplementary agreement to buy Janie and Jack’s inventory at cost along with its additional fees and expenses.

Janie and Jack that has more than 100 retail stores in the United States with an e-commerce site will operate as a standalone brand, with its headquarters in San Francisco. This brand, offering premium and designer children’s clothing, will be a valuable addition to Gap’s premium kids and baby brands portfolio. Janie and Jack’s renowned portfolio fully complements Gap’s existing brands. Further, Janie and Jack’s loyal customer base promise more growth in the future.

Simultaneously, as part of the bankruptcy auction held on Mar 4, The Children's Place, Inc. PLCE has bought the bankrupt retailer’s Gymboree and Crazy 8 brands as well as related assets (the ‘Gymboree Assets’) for $76 million.

Coming to Gap, the company recently unveiled its intention to spin off into two separate entities – Old Navy and yet-to-be-named (‘NewCo’). The NewCo, with roughly $9 billion revenues annually, will house the Gap, Athleta, Banana Republic, Intermix and Hill City brands. Meanwhile, management expects Old Navy, which is among the fast-growing apparel brands with about $8 billion revenues in a year, to enhance its omni-channel capabilities and product offerings for improving customer experience and gaining market share.

The transaction is expected to close in 2020 and subjected to some conditions that also include final approval by Gap’s board of directors. Management expects the deal to enable these two stand-alone companies to strategically focus on their initiatives and operating structure in a bid to capitalize on growth opportunities.

Additionally, the company has announced plans to revitalize its Gap brand by streamlining the specialty fleet and renewing the marketing model for enhancing customer engagement and loyalty. In relation to streamlining specialty fleet, it expects to shut down roughly 230 stores in the next two years. These restructuring measures are likely to generate annualized pre-tax savings of nearly $90 million. Further, these actions will lead to about 40% of sales from online, while 60% will come from the specialty and value channels.

A glance at this Zacks Rank #3 (Hold) stock’s price performance shows that it has gained 3.1% against the industry’s 1.2% decline in the past three months. This outperformance can be attributed to Gap’s superb earnings surprise history, having surpassed estimates in seven of the trailing eight quarters. The company also reported sales beat in eight of the preceding nine quarters.

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