Gap shares surged 25% today as a number of Wall Street analysts lauded the company's decision to separate its better-performing Old Navy brand.
The company, once a trend setter with its casual logo emblazoned hoodies to Khaki cargos, has struggled to keep pace with fast-fashion rivals such as Zara and H&M.
Old Navy has been the only bright spot for the company in the past few years.
Old Navy sales have cushioned it from the weak performance of its namesake Gap and Banana Republic brands, where sales have also taken a hit from fewer additions of new designs.
Analysts said that separating Old Navy, which is the primary driver of profit for Gap, would also make the budget brand as attractive as off-price retailers such as TJX and Ross Stores.
Gap said that Old Navy would be spun off to its shareholders, while the other entity will consist of the Gap brand, Athleta, BR, Intermix and Hill City.
The company also said it would close hundreds of underperforming Gap stores in the next two years and would increase investments in its online business as they try to adapt to a more modern retail environment.
It already shut its massive flagship store on Fifth Avenue in New York earlier this year.
While analysts were encouraged by the news, some said concerns around the company's money-losing Gap brand would remain.
Gap's shares lost a fifth of their value in the past 12 months.