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Gap Inc.’s Intermix Sale Elevates ‘Core Four’ Brands

When Gap Inc. unveiled its Power Plan 2023 last year, it kept the focus on its “purpose-led” brands: Gap, Athleta, Old Navy and Banana Republic. In the six months since the October investor meeting, the San Francisco clothing company has shed children’s chain Janie and Jack, and now another label is exiting its portfolio—setting the stage for Gap Inc. to supercharge its core four brands.

On Tuesday, the apparel giant inked an agreement to sell Intermix to Altamont Capital Partners, a private equity firm that will take on the specialty fashion boutique’s 31 store leases, e-commerce and related assets for an undisclosed sum. Gap Inc. had acquired the multi-brand chain in 2012.

The company also confirmed Tuesday that the Janie and Jack sale had closed. “We are committed to driving long-term, profitable growth for our shareholders and employees, while delivering unique product and experiences for our customers at scale,” said Sally Gilligan, Gap Inc.’s head of strategy. “The sale of Janie and Jack and planned transaction of Intermix demonstrate how we are prioritizing our strategic focus and resources behind the growth and potential of Old Navy, Gap, Banana Republic and Athleta.”

The retail giant’s plan focuses on growing its “purpose-led, billion-dollar lifestyle brands by leveraging the power of its portfolio and its platform,” Gap said. The company believes Old Navy and Athleta can reach $10 billion and $2 billion in respective sales by 2023.

Gap Inc. recently scored a major coup in luring star athlete Simone Biles—holder of 30 Olympic and World Championship medals in gymnastics—away from Nike to the Athleta brand, where she’ll helm her own activewear line after working with the Oregon giant since 2015. And later this year, the Gap brand is set to debut the Yeezy x Gap label, harnessing the megawatt star power of erstwhile presidential candidate and iconoclastic rapper Kanye West to create apparel and accessories for men, women and kids.

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With plans in place to build up the core four, by selling Intermix, Gap Inc. is essentially getting rid of a “management distraction,” according to Sucharita Kodali, a Stanford MBA and Forrester principal analyst focused on omnichannel retail and consumer behavior.

The transaction makes sense on a number of levels, Kodali told Sourcing Journal. Intermix “was always a bit of an oddball part of their business,” she said. “Gap hasn’t done as well with multi-brand retail—remember Piperlime?” Gap Inc. shuttered that online spinoff, selling handbags and men’s, women’s and kids’ shoes, in 2015 after just nine years.

Plus, the Old Navy parent faced different economies of scale with Intermix because it didn’t actually manufacture the multi-brand boutique’s product, according to Kodali. Jockeying with rivals like Shopbop, Nordstrom and Net-a-Porter, Intermix was competing with a small if “very high end” addressable market, she added. Without the multi-brand outfit in the portfolio, “you lose what trend information you may have gleaned from fashionistas but I don’t think Gap had much use for that data anyway,” Kodali said.

Ike Boruchow, the Wells Fargo equity retail analyst, believes Intermix likely “lost money for the majority of the time within the Gap portfolio,” he wrote in a research note. Boruchow said he’s “bullish on the name and reiterate our $40 price target” for Gap Inc., whose shares closed down 9 cents to $35.38 in Big Board trading Tuesday.

Boruchow “believes the bull case can continue to build,” thanks to Athleta’s promising growth trajectory and the profit-driving Intermix sale. He also sees Old Navy and Athleta as post-pandemic outperformers and anticipates that the forthcoming Yeezy launch will bolster the bottom line. In addition, North American Gap and Banana Republic store closures and rent negotiations could yield $145 million in annual EBITDA (earnings before interest, taxes, depreciation and amortization) savings, Boruchow said. Gap Inc. could further streamline costs but cutting headcount, trimming store expenses, consolidating offices and rethinking store labor.

Additional reporting by Jessica Binns.