GAP 8-K
Gap Inc (GAP)
8-K
2020-11-24
For: 2020-11-24
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Added on
April 10, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported)
(Exact name of registrant as specified in its charter)
| (State of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(415 ) 427-0100
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||||||||
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||||||||
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||||||||
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | ||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
| Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). | |||||
| Emerging growth company | |||||
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ | ||||
Item 2.02 Results of Operations and Financial Condition.
On November 24, 2020, The Gap, Inc. (the "Company") issued a press release announcing the Company’s earnings for the third quarter of fiscal 2020 ended October 31, 2020. A copy of this press release is furnished as Exhibit 99.1 to this report and incorporated herein by reference. A slide presentation, which includes supplemental information relating to the Company's third quarter earnings, is furnished as Exhibit 99.3 to this current report.
The information provided pursuant to Item 2.02, including the exhibits furnished herewith, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (as amended, the "Exchange Act") or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933 (as amended, the "Securities Act") or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers.
(c)
On November 20, 2020, the compensation and management development committee of the board of directors of the Company appointed Asheesh Saksena as the Company's Chief Growth Officer, effective January 11, 2021.
Prior to his appointment as the Company's Chief Growth Officer, Mr. Saksena, 56, served as the Senior Advisor to the Chief Executive Officer of Best Buy Co., Inc., an American multinational consumer electronics retailer, from August 2020 to November 2020; President of Best Buy Health of Best Buy Co., Inc. from December 2018 to August 2020; and Chief Strategic Growth Officer of Best Buy Co., Inc. from June 2016 to December 2018. Prior to joining Best Buy, Mr. Saksena served as Executive Vice President, Chief Strategy Officer of Cox Communications, an American company that provides digital cable television, telecommunications and home automation services and a wholly owned subsidiary of Cox Enterprises, Inc., from October 2011 to May 2016.
Pursuant to the terms of Mr. Saksena’s at-will offer letter with the Company (the "Offer Letter"), he will receive an annual base salary of $900,000 and will be eligible for an annual target bonus equal to 125% of his base salary, prorated to his start date. Mr. Saksena will also be eligible to receive long-term equity incentive awards with an annual target value of $3,000,000, which will be comprised of 60% performance restricted stock units, 20% stock options and 20% restricted stock units. The vesting period for such awards will be determined at the time of grant. Mr. Saksena is also eligible to receive severance benefits as set forth in the Offer Letter, which include 18 months of post-termination salary payments, reimbursement of healthcare premiums through COBRA, financial counseling, a prorated annual bonus and accelerated vesting of restricted stock units and performance shares or units that remain subject only to time vesting conditions scheduled to vest prior to April 1 following the fiscal year of termination.
There are no family relationships existing between Mr. Saksena and any director or executive officer of the Company. There have been no transactions, and no transactions are currently proposed, in which the Company was or is to be a participant and in which Mr. Saksena or any member of his immediate family had or will have any interest, that are required to be disclosed by Item 404(a) of Regulation S-K. In addition, there are no arrangements or understandings between Mr. Saksena and any other persons pursuant to which Mr. Saksena was appointed to this position.
Item 7.01 Regulation FD Disclosure.
On November 24, 2020, the Company issued a press release announcing the appointment of Mr. Saksena as Chief Growth Officer and Sandra Stangl as President and Chief Executive Officer of Banana Republic. Ms. Stangl will begin her role on December 14, 2020. A copy of this press release is attached hereto as Exhibit 99.2.
The information provided pursuant to Item 7.01, including Exhibit 99.2 attached hereto, shall not be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit No. | Exhibit Description | |||||||
| 99.1 | ||||||||
| 99.2 | ||||||||
| 99.3 | ||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| THE GAP, INC. | |||||||||||
| Date: November 24, 2020 | By: | /s/ Katrina O'Connell | |||||||||
| Katrina O'Connell | |||||||||||
| Executive Vice President and | |||||||||||
| Chief Financial Officer | |||||||||||
Exhibit 99.1
GAP INC. REPORTS THIRD QUARTER RESULTS
Year-over-year net sales were flat, reflecting a meaningful improvement versus the prior quarter, including a 5% rise in comparable sales, and a 61% increase in online sales
Acquired 3.4 million new customers through our online channel, representing over 145% growth in new online customer acquisition year-over-year
Ended the quarter with $2.6 billion in cash, cash equivalents, and short-term investments versus $1.1 billion in the year-ago quarter
SAN FRANCISCO – November 24, 2020 – Gap Inc. (NYSE: GPS), a collection of purpose-led lifestyle brands including Old Navy, Gap, Banana Republic and Athleta, reported its financial results for the third quarter of fiscal year 2020, ending October 31. Gap Inc. is the largest specialty apparel company and the second largest apparel e-commerce business in the U.S.
Gap Inc. third quarter results reflected flat sales versus last year, supported by 5% growth in comparable sales which was driven by a 61% increase in online sales. Net sales were impacted by the company’s ongoing strategy to close unprofitable stores. Gross margin increased 160 basis points versus last year, to 40.6%.
For the quarter, Gap Inc. delivered $0.25 earnings per diluted share, reflecting gross margin improvement versus the prior year, partially offset by higher operating expenses, including a significant increase in marketing support across all brands.
“Our third quarter results reflect our Power Plan 2023 in action — specifically the strength of our online business, which comprised 40% of sales, and our commitment to meeting the shopping preferences of our customers through our leading omni platform,” said Sonia Syngal, Chief Executive Officer, Gap Inc. “With our teams focused on sales growth and returning to profitability, we’ve made investments in demand generation that are driving engagement, particularly in this dislocated market as customers are looking to trusted brands to provide easy and safe shopping options.”
Third Quarter Fiscal Year 2020 Results
Net sales were flat year-over-year, reflecting a 61% increase in online sales, offset by a 20% decline in store sales. Notably, 40% of the company’s sales were online in the third quarter. As noted during the company’s Investor Meeting, held in October 2020, the company aspires to achieve 50% of its sales from online by the end of 2023.
Third quarter fiscal year 2020 comparable sales were up 5%, driven by the strength of Gap Inc.’s scaled e-commerce business, which added over 3.4 million new customers during the quarter. The comparable sales calculation reflects online sales and comparable sales days in stores that were open.
Net sales and comparable sales by brand for the third quarter 2020 compared to the third quarter 2019 were as follows:
•Old Navy Global: Net sales increased 15%, with comparable sales up 17%. Old Navy continued to experience meaningful acceleration in its online business as strong customer response to product was further bolstered by compelling and relevant digital marketing investment. During the quarter, active offerings grew over 55%. Notably, Old Navy’s U.S. Kids & Baby apparel business added meaningful market share to become the #1 brand in that segment.1
Additionally, the brand’s off-mall and strip real estate locations, which make up approximately 75% of the brand’s fleet, continue to be an advantage, supporting not only in-store sales but customers’ omni purchases, through curbside and buy-online-pickup-in-store (BOPIS).
•Gap Global: Net sales were down 14% and comparable sales were down 5%. This reflects a reduced store fleet and lower traffic trends partially offset by strong online performance. The brand remains focused on maximizing online demand through relevant marketing, improved execution and customer engagement. In particular, the brand’s Fall marketing campaigns “Stand United” and “Be the Future” generated positive customer response.
•Banana Republic Global: Net sales were down 34%, a slight improvement versus the second quarter. Comparable sales were down 30%. As previously discussed, Banana Republic continues to focus on adjusting to consumer preferences and improving inventory mix by shifting away from the brand’s traditional work wear assortment and into casual fashion during the current stay-at-home environment.
•Athleta: Net sales were up 35%. Comparable sales were the highest in the brand’s history - up 37% - and online contribution remained above 50% in the quarter. Athleta continues to benefit from its participation in the highly relevant values-driven active and lifestyle space, strong returns from increased digital marketing investments, and a focused product strategy, which is driving a healthy regular price business. While performance was strong across the brand, masks continued to attract new customers, providing the opportunity to build a relationship across other product offerings.
Gross margin was 40.6%, a 160 basis point improvement versus last year. This improvement is consistent with the strategic focus outlined in last month’s Power Plan 2023 discussion of opening highly-profitable Old Navy and Athleta stores, while also closing select unprofitable Gap and Banana Republic stores, yielding significant rent and occupancy savings. In addition, a lower level of promotions contributed to higher product margins in the quarter. The benefits of lower rent and occupancy and higher product margin were partially offset by higher shipping expenses associated with the company’s growth in online sales.
Operating expenses were 36.2% of sales, an increase of 270 basis points versus last year, reflecting over 175 basis points in higher marketing investment across all brands and approximately 140 basis points in spending to support health and safety measures in stores. Operating expenses were also impacted by approximately 120 basis points in costs associated with store closures that were mostly offset by rent and occupancy benefits reflected in gross margin. These increases were partially offset by approximately 200 basis points in one-time costs in the year-ago quarter primarily related to the company’s previously planned separation of Old Navy.
Operating income was $175 million or 4.4% of net sales.
1 Source: The NPD Group / Consumer Tracking Service / U.S. Apparel, Dollar Share, Wearer Segment: Boys, Girls, Male Infant Toddler, Female Infant Toddler, 3 Months Ending October 2020
The effective tax rate was 21.5%, primarily reflecting changes in the estimated benefit associated with the enactment of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the impact of the Company’s geographical mix of pre-tax earnings. The year-to-date effective tax rate was 23.7%.
Diluted earnings per share for the third quarter was $0.25.
Balance Sheet
Gap Inc. ended third quarter fiscal year 2020 with $2.6 billion in cash, cash equivalents, and short-term investments, compared to $1.1 billion at the end of the third quarter in fiscal year 2019, providing ample liquidity to support the company’s long-term growth strategy.
As of the end of its third quarter fiscal year 2020, Gap Inc. inventory was up 1% versus the year-ago quarter. Excluding pack & hold inventory that is being held for introduction into the marketplace in 2021, ending inventory was down about 7%, reflecting the company’s focus on working capital management.
Gap Inc. ended the quarter with 3,785 store locations in 43 countries, of which 3,178 were company-operated. This compares to 3,396 company-operated stores in the third quarter last year. As part of ongoing fleet optimization efforts supporting its long-term strategic priority of a smaller healthier fleet, the company reiterates its intention to close approximately 225 Gap and Banana Republic stores globally, net of openings, in 2020.
Cash Flow
Year-to-date free cash flow, defined as net cash from operating activities less purchases of property and equipment, was $111 million compared with $5 million last year, reflecting strong operating cash flow in the second and third quarters, following the impact of pandemic-related store closures earlier in the year, as well as a lower level of capital expenditures versus the prior year.
Please see the reconciliation of free cash flow, a non-GAAP financial measure, in the tables at the end of this press release.
Strong cash flow in the quarter reflected gross margin improvement, and focused working capital management, particularly as the company focused on aligning inventory relative to customer demand, as well as prudent capital expenditure management.
Year-to-date capital expenditures were $288 million compared to $523 million last year. The company now anticipates capital spending to be approximately $375 million for fiscal year 2020, an increase versus the prior forecast of approximately $300 million, as the company invests in investments to drive online growth, particularly in digital, technology, and capacity.
2020 Financial Outlook
Recognizing the continued high level of uncertainty in the marketplace, the company is not providing a fiscal year earnings outlook. The widely-noted recent rise in COVID-19 cases remains a concern, which may impact store traffic. However, with rapidly growing online sales contribution, at over 40% of company sales in the quarter, and the opportunity for market share gains, supported by the significant investment in marketing, the company remains optimistic for the fourth quarter.
Behind the continued investment in digital capabilities, including the third quarter launch of its loyalty program, the company believes it is well-positioned heading into the holiday shopping season.
General assumptions for the fourth quarter include:
•Net sales being equal to or slightly higher than last year
•Gross margin rate being equal to last year, reflecting continued benefits of store closures largely offset by higher shipping expenses
•Operating expenses being between 33% to 34% of company sales, reflecting the company’s continued investment in brand marketing, behind the opportunity to capture market share, as well as the continued cost of in-store health & safety measures on behalf of our customers and employees.
“We’re really pleased to see key elements of our Power Plan 2023 strategy driving results in the third quarter, reflected in improving sales and gross margin trends, following the COVID-19-related store closures earlier in the year,” said Katrina O’Connell, Chief Financial Officer, Gap Inc. “Importantly, our strong cash flow continues to provide us ample liquidity to invest in marketing support behind our brands, as well as digital capabilities to drive our rapidly growing online business.”
Webcast and Conference Call Information
Steve Austenfeld, Head of Investor Relations at Gap Inc., will host a summary of the company’s third quarter fiscal year 2020 results during a conference call and webcast from approximately 2:00 p.m. to 3:00 p.m. Pacific Time today. Mr. Austenfeld will be joined by Chief Executive Officer Sonia Syngal and Chief Financial Officer Katrina O’Connell.
The conference call can be accessed by calling 1-855-5000-GPS or 1-855-500-0477 (participant passcode: 9501186). International callers may dial 1-323-794-2078. The webcast can be accessed at investors.gapinc.com.
Forward-Looking Statements
This press release and related conference call and webcast contain forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements other than those that are purely historical are forward-looking statements. Words such as “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan,” “project,” and similar expressions also identify forward-looking statements. Forward-looking statements include statements regarding the following: our ability to achieve 50% of sales from online by the end of 2023; our ability to open highly-profitable Old Navy and Athleta stores, close select unprofitable Gap and Banana Republic stores and achieve significant rent and occupancy savings; our ability to achieve our goal of a smaller healthier fleet of Gap and Banana Republic stores; our anticipated capital spending in fiscal year 2020; our expectation that we will gain market share in the fourth quarter of fiscal year 2020; and assumptions regarding our net sales, gross margin and operating expense for the fourth quarter of fiscal year 2020.
Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause the company’s actual results to differ materially from those in the forward-looking statements. These factors include, without limitation, the following risks, any of which could have an adverse effect on the company’s financial condition, results of operations, and reputation: the risk that additional information may arise during the company’s close process or as a result of subsequent events that would require the company to make adjustments to its financial information; the overall global economic environment and risks associated with the COVID-19 pandemic; the risk that we or our franchisees will be unsuccessful in gauging apparel trends and changing consumer preferences; the highly competitive nature of our business in the United States and internationally; the risk that changes in global economic conditions or consumer spending patterns could adversely impact our results of operations; engaging in or seeking to engage in strategic transactions that are subject to various risks and uncertainties; the risk that failure to maintain, enhance and protect our brand image could have an adverse effect on our results of operations; the risk that the failure to manage key executive succession and retention and to continue to attract qualified personnel could have an adverse impact on our results
of operations; the risk that our investments in customer, online, and omni-channel shopping initiatives may not deliver the results we anticipate; the risk that if we are unable to manage our inventory effectively, our gross margins will be adversely affected; the risks to our business, including our costs and supply chain, associated with global sourcing and manufacturing; the risk that we are subject to data or other security breaches that may result in increased costs, violations of law, significant legal and financial exposure, and a loss of confidence in our security measures, which could have an adverse effect on our results of operations and our reputation; the risk that a failure of, or updates or changes to, our information technology systems may disrupt our operations; the risks to our efforts to expand internationally, including our ability to operate in regions where we have less experience; the risk that we or our franchisees will be unsuccessful in identifying, negotiating, and securing new store locations and renewing, modifying, or terminating leases for existing store locations effectively; the risks to our reputation or operations associated with importing merchandise from foreign countries, including failure of our vendors to adhere to our Code of Vendor Conduct; the risk that our franchisees’ operation of franchise stores is not directly within our control and could impair the value of our brands; the risk that trade matters could increase the cost or reduce the supply of apparel available to us and adversely affect our business, financial condition, and results of operations; the risk that foreign currency exchange rate fluctuations could adversely impact our financial results; the risk that comparable sales and margins will experience fluctuations; the risk that changes in our credit profile or deterioration in market conditions may limit our access to the capital markets and adversely impact our financial position or our business initiatives; the risk that changes in the regulatory or administrative landscape could adversely affect our financial condition and results of operations; the risk that natural disasters, public health crises (similar to and including the ongoing COVID-19 pandemic), political crises, negative global climate patterns, or other catastrophic events could adversely affect our operations and financial results, or those of our franchisees or vendors; the risk that reductions in income and cash flow from our credit card arrangement related to our private label and co-branded credit cards could adversely affect our operating results and cash flows; the risk that the adoption of new accounting pronouncements will impact future results; the risk that we do not repurchase some or all of the shares we anticipate purchasing pursuant to our repurchase program; and the risk that we will not be successful in defending various proceedings, lawsuits, disputes, and claims.
Additional information regarding factors that could cause results to differ can be found in the company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on June 9, 2020, as well as the company’s subsequent filings with the Securities and Exchange Commission.
These forward-looking statements are based on information as of November 24, 2020. The company assumes no obligation to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
About Gap Inc.
Gap Inc. is a leading global retailer offering clothing, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, Athleta, Intermix, Janie and Jack, and Hill City brands. Fiscal year 2019 net sales were $16.4 billion. Gap Inc. products are available for purchase worldwide through company-operated stores, franchise stores, and e-commerce sites. For more information, please visit www.gapinc.com.
Investor Relations Contact:
Steve Austenfeld
(415) 427-1807
Media Relations Contact:
Megan Foote
(415) 832-1989
The Gap, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
| ($ in millions) | October 31, 2020 | November 2, 2019 | |||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 2,471 | $ | 788 | |||||||
| Short-term investments | 178 | 294 | |||||||||
| Merchandise inventory | 2,747 | 2,720 | |||||||||
| Other current assets | 966 | 770 | |||||||||
| Total current assets | 6,362 | 4,572 | |||||||||
| Property and equipment, net | 2,846 | 3,225 | |||||||||
| Operating lease assets | 4,460 | 5,796 | |||||||||
| Other long-term assets | 705 | 525 | |||||||||
| Total assets | $ | 14,373 | $ | 14,118 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 2,284 | $ | 1,241 | |||||||
| Accrued expenses and other current liabilities | 1,283 | 974 | |||||||||
| Current portion of operating lease liabilities | 823 | 934 | |||||||||
| Income taxes payable | 41 | 43 | |||||||||
| Total current liabilities | 4,431 | 3,192 | |||||||||
| Long-term liabilities: | |||||||||||
| Long-term debt | 2,214 | 1,249 | |||||||||
| Long-term operating lease liabilities | 4,899 | 5,650 | |||||||||
| Lease incentives and other long-term liabilities | 458 | 393 | |||||||||
| Total long-term liabilities | 7,571 | 7,292 | |||||||||
| Total stockholders' equity | 2,371 | 3,634 | |||||||||
| Total liabilities and stockholders' equity | $ | 14,373 | $ | 14,118 | |||||||
The Gap, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
| 13 Weeks Ended | 39 Weeks Ended | ||||||||||||||||||||||
| ($ and shares in millions except per share amounts) | October 31, 2020 | November 2, 2019 | October 31, 2020 | November 2, 2019 | |||||||||||||||||||
| Net sales | $ | 3,994 | $ | 3,998 | $ | 9,376 | $ | 11,709 | |||||||||||||||
| Cost of goods sold and occupancy expenses | 2,374 | 2,439 | 6,339 | 7,250 | |||||||||||||||||||
| Gross profit | 1,620 | 1,559 | 3,037 | 4,459 | |||||||||||||||||||
| Operating expenses | 1,445 | 1,338 | 4,033 | 3,640 | |||||||||||||||||||
| Operating income (loss) | 175 | 221 | (996) | 819 | |||||||||||||||||||
| Loss on extinguishment of debt | — | — | 58 | — | |||||||||||||||||||
| Interest, net | 54 | 12 | 125 | 37 | |||||||||||||||||||
| Income (loss) before income taxes | 121 | 209 | (1,179) | 782 | |||||||||||||||||||
| Income taxes | 26 | 69 | (280) | 247 | |||||||||||||||||||
| Net income (loss) | $ | 95 | $ | 140 | $ | (899) | $ | 535 | |||||||||||||||
| Weighted-average number of shares - basic | 374 | 375 | 373 | 377 | |||||||||||||||||||
| Weighted-average number of shares - diluted | 380 | 376 | 373 | 379 | |||||||||||||||||||
| Earnings (loss) per share - basic | $ | 0.25 | $ | 0.37 | $ | (2.41) | $ | 1.42 | |||||||||||||||
| Earnings (loss) per share - diluted | $ | 0.25 | $ | 0.37 | $ | (2.41) | $ | 1.41 | |||||||||||||||
The Gap, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
| 39 Weeks Ended | |||||||||||
| ($ in millions) | October 31, 2020 (a) | November 2, 2019 (a) | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | (899) | $ | 535 | |||||||
| Depreciation and amortization | 381 | 417 | |||||||||
| Impairment of operating lease assets | 361 | 1 | |||||||||
| Impairment of store assets | 127 | 9 | |||||||||
| Loss on extinguishment of debt | 58 | — | |||||||||
| Gain on sale of building | — | (191) | |||||||||
| Change in merchandise inventory | (590) | (559) | |||||||||
| Change in accounts payable | 1,120 | 129 | |||||||||
| Other, net | (159) | 187 | |||||||||
| Net cash provided by operating activities | 399 | 528 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property and equipment | (288) | (523) | |||||||||
| Purchase of building | — | (343) | |||||||||
| Proceeds from sale of building | — | 220 | |||||||||
| Purchases of short-term investments | (237) | (235) | |||||||||
| Proceeds from sales and maturities of short-term investments | 348 | 231 | |||||||||
| Purchase of Janie and Jack | — | (69) | |||||||||
| Other | 2 | — | |||||||||
| Net cash used for investing activities | (175) | (719) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from revolving credit facility | 500 | — | |||||||||
| Payments for revolving credit facility | (500) | — | |||||||||
| Proceeds from issuance of long-term debt | 2,250 | — | |||||||||
| Payments to extinguish debt | (1,307) | — | |||||||||
| Payments for debt issuance costs | (61) | — | |||||||||
| Proceeds from issuances under share-based compensation plans | 16 | 22 | |||||||||
| Withholding tax payments related to vesting of stock units | (8) | (21) | |||||||||
| Repurchases of common stock | — | (150) | |||||||||
| Cash dividends paid | — | (274) | |||||||||
| Net cash provided by (used for) financing activities | 890 | (423) | |||||||||
| Effect of foreign exchange rate fluctuations on cash, cash equivalents, and restricted cash | 4 | — | |||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | 1,118 | (614) | |||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 1,381 | 1,420 | |||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 2,499 | $ | 806 | |||||||
__________
(a)For the thirty-nine weeks ended October 31, 2020 and November 2, 2019, total cash, cash equivalents, and restricted cash includes $28 million and $18 million, respectively, of restricted cash recorded in other current assets and other long-term assets on the Condensed Consolidated Balance Sheets.
The Gap, Inc.
NON-GAAP FINANCIAL MEASURES
UNAUDITED
FREE CASH FLOW
Free cash flow is a non-GAAP financial measure. We believe free cash flow is an important metric because it represents a measure of how much cash a company has available for discretionary and non-discretionary items after the deduction of capital expenditures as we require regular capital expenditures to build and maintain stores and purchase new equipment to improve our business and infrastructure. We use this metric internally, as we believe our sustained ability to generate free cash flow is an important driver of value creation. However, this non-GAAP financial measure is not intended to supersede or replace our GAAP results.
| 39 Weeks Ended | |||||||||||
| ($ in millions) | October 31, 2020 | November 2, 2020 | |||||||||
| Net cash provided by operating activities | $ | 399 | $ | 528 | |||||||
Less: Purchases of property and equipment (a) | (288) | (523) | |||||||||
| Free cash flow | $ | 111 | $ | 5 | |||||||
__________
(a)Excludes purchase of building in the first quarter of fiscal 2019.
The Gap, Inc.
NET SALES RESULTS
UNAUDITED
The following table details the Company’s third quarter net sales (unaudited):
| ($ in millions) | Old Navy Global | Gap Global | Banana Republic Global | Other (3) | Total | |||||||||||||||||||||||||||
| 13 Weeks Ended October 31, 2020 | ||||||||||||||||||||||||||||||||
| U.S. (1) | $ | 2,034 | $ | 611 | $ | 323 | $ | 370 | $ | 3,338 | ||||||||||||||||||||||
| Canada | 193 | 86 | 39 | 3 | 321 | |||||||||||||||||||||||||||
| Europe | — | 115 | 3 | — | 118 | |||||||||||||||||||||||||||
| Asia | 1 | 169 | 18 | — | 188 | |||||||||||||||||||||||||||
| Other regions | 14 | 12 | 3 | — | 29 | |||||||||||||||||||||||||||
| Total | $ | 2,242 | $ | 993 | $ | 386 | $ | 373 | $ | 3,994 | ||||||||||||||||||||||
| ($ in millions) | Old Navy Global | Gap Global | Banana Republic Global (2) | Other (4) | Total | |||||||||||||||||||||||||||
| 13 Weeks Ended November 2, 2019 | ||||||||||||||||||||||||||||||||
| U.S. (1) | $ | 1,769 | $ | 689 | $ | 532 | $ | 274 | $ | 3,264 | ||||||||||||||||||||||
| Canada | 151 | 97 | 55 | 1 | 304 | |||||||||||||||||||||||||||
| Europe | — | 128 | 3 | — | 131 | |||||||||||||||||||||||||||
| Asia | 9 | 220 | 21 | — | 250 | |||||||||||||||||||||||||||
| Other regions | 18 | 24 | 7 | — | 49 | |||||||||||||||||||||||||||
| Total | $ | 1,947 | $ | 1,158 | $ | 618 | $ | 275 | $ | 3,998 | ||||||||||||||||||||||
__________
(1)U.S. includes the United States, Puerto Rico, and Guam.
(2)Banana Republic Global fiscal year 2019 net sales include the Janie and Jack brand.
(3)Primarily consists of net sales for the Athleta, Intermix and Hill City brands. Beginning in fiscal year 2020, Janie and Jack net sales are also included. Net sales for Athleta for the thirteen weeks ended October 31, 2020 were $292 million.
(4)Primarily consists of net sales for the Athleta, Intermix, and Hill City brands as well as a portion of income related to our credit card agreement. Net sales for Athleta for the thirteen weeks ended November 2, 2019 were $216 million.
The Gap, Inc.
REAL ESTATE
Store count, openings, closings, and square footage for our stores are as follows:
| February 1, 2020 | 39 Weeks Ended October 31, 2020 | October 31, 2020 | |||||||||||||||||||||||||||
| Store Locations | Store Locations Opened | Store Locations Closed (1) | Store Locations | Square Feet (millions) | |||||||||||||||||||||||||
| Old Navy North America | 1,207 | 30 | 12 | 1,225 | 19.7 | ||||||||||||||||||||||||
| Old Navy Asia | 17 | — | 17 | — | — | ||||||||||||||||||||||||
| Gap North America | 675 | 1 | 92 | 584 | 6.2 | ||||||||||||||||||||||||
| Gap Asia | 358 | 11 | 19 | 350 | 3.1 | ||||||||||||||||||||||||
| Gap Europe | 137 | 4 | 19 | 122 | 1.0 | ||||||||||||||||||||||||
| Banana Republic North America | 541 | 3 | 55 | 489 | 4.1 | ||||||||||||||||||||||||
| Banana Republic Asia | 48 | 5 | 5 | 48 | 0.2 | ||||||||||||||||||||||||
| Athleta North America | 190 | 10 | 2 | 198 | 0.8 | ||||||||||||||||||||||||
| Intermix North America | 33 | — | 1 | 32 | 0.1 | ||||||||||||||||||||||||
| Janie and Jack North America | 139 | — | 9 | 130 | 0.3 | ||||||||||||||||||||||||
| Company-operated stores total | 3,345 | 64 | 231 | 3,178 | 35.5 | ||||||||||||||||||||||||
| Franchise | 574 | 50 | 17 | 607 | N/A | ||||||||||||||||||||||||
| Total | 3,919 | 114 | 248 | 3,785 | 35.5 | ||||||||||||||||||||||||
__________
(1)Represents stores permanently closed, not stores temporarily closed as a result of COVID-19.
Exhibit 99.2
GAP INC. APPOINTS NEW CHIEF GROWTH OFFICER AND
NEW PRESIDENT AND CEO OF BANANA REPUBLIC
Asheesh Saksena and Sandra Stangl will join Gap Inc. as Company Pivots to Growth
SAN FRANCISCO – November 24, 2020 – Gap Inc. (NYSE: GPS) today announced that Asheesh Saksena will join the Gap Inc. Senior Leadership Team as Chief Growth Officer, a newly created position that will focus on executing the company’s strategic agenda, as well as leading growth initiatives for the future. In addition, the company also announced that Sandra Stangl will join Gap Inc. as the new President and CEO of Banana Republic, as the brand redefines affordable luxury.
“Gap Inc. has significant opportunity to grow our purpose-led, billion-dollar lifestyle brands through the power of our platform, sophisticated end-to-end capabilities and by harnessing the advantages that come with operating a portfolio that targets 80 percent of the addressable apparel market,” said Sonia Syngal, CEO of Gap Inc. “With the addition of Asheesh and Sandra, two strong industry veterans and proven creators, I have even greater confidence in our ability to deliver against our Power Plan 2023 as we steer the company into the future."
Asheesh Saksena most recently served as President of Best Buy Health where he led the formation and operation of the brand’s strategic diversification into Digital Health after serving as the company’s Chief Strategic Growth Officer. During his time with Best Buy, he helped expand the company’s addressable market and incubated new platforms for growth. Prior to his time at Best Buy, he led strategy and growth organizations at Cox Communications, Time Warner Cable, and as Partner at Accenture. He will join Gap Inc. in January 2021, and upon arrival will assess value creation opportunities to ensure consistent growth across the company.
Sandra Stangl is a strong creative leader known for delivering design vision, brand expansions and financial results. During her 23 years at Williams Sonoma, she held numerous leadership positions including President, Pottery Barn Brands and launched two iconic brands - Pottery Barn Kids and Pottery Barn Teen. Stangl was President, Chief Merchandising & New Business Development Officer for Restoration Hardware where she led new assortment, inventory and quality strategies enhancing the customer experience. Most recently, she cofounded and was the Chief Merchant of MINE, a disruptive pure-play home business. Stangl will bring the agility and strategic orientation of a tenured retail executive and entrepreneurial leadership to Banana Republic when she joins in December 2020.
About Gap Inc.
Gap Inc., a collection of purpose-led, billion-dollar lifestyle brands, is a leading global retailer offering clothing, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, Athleta, Intermix, Janie and Jack, and Hill City brands. Fiscal year 2019 net sales were $16.4 billion. Gap Inc. products are available for purchase worldwide through company-operated stores, franchise stores, and e-commerce sites. For more information, please visit www.gapinc.com.
Gap Inc. Media Contact:
Sandy Goldberg
Gap Inc. Investor Contact:
Steve Austenfeld
Exhibit 99.3 Gap Inc. Sonia Syngal Katrina O’Connell Fiscal 2020 CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER THIRD QUARTER EARNINGS RESULTS
Forward Looking Statements / Non-GAAP Financial Measures Forward Looking Statements This conference call and webcast contain forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. All statements other than those that are purely historical are forward-looking statements. Forward-looking statements include statements identified as such in our November 24, 2020 press release. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our actual results to differ materially from those in the forward-looking statements. Additional information regarding factors that could cause results to differ can be found in the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on June 9, 2020, as well as the Company’s subsequent filings with the Securities and Exchange Commission. These forward-looking statements are based on information as of November 24, 2020. We assume no obligation to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. SEC Regulation G This presentation includes the non-GAAP measure free cash flow. The description and reconciliation of this measure from GAAP is included in our November 24, 2020 earnings press release, which is available on investors.gapinc.com. 2
Statement from the CEO With the holiday season upon us, we feel prepared to welcome our customers no matter how they choose to shop with us. We have made investments to deliver standout moments across our omni experiences - whether it's on mobile, safely in-store, or through one of our new capabilities like curbside pickup. We believe customers will turn to our purpose-led brands and products to show their love for family and friends at a time when gifting means more than ever. SONIA SYNGAL, CHIEF EXECUTIVE OFFICER, GAP INC. NOVEMBER 24, 2020 3
Power Plan 2023 Power of our Brands Grow four purpose-led, billion-dollar lifestyle brands Power of our Portfolio Extend our customer reach across every age, body and occasion through our collective power Power of our Platform Leverage our omni capabilities and scaled operations and extend our engineered approach to cost and growth
Q3 2020 Financial Highlights • Comparable sales up 5% • Net sales flat year-over-year • 61% increase in online net sales year-over-year • Ended the quarter with $2.6 billion in cash, cash equivalents and short- term investments 5
Q3 2020 P&L Summary Q3 2020 Q3 Q3 vs. ($ Millions) 2020 2019 Q3 2019 Net Sales $3,994 $3,998 (0%) Gross Profit $1,620 $1,559 +4% % of Sales 40.6% 39.0% +160 bps Operating Expenses $1,445 $1,338 +8% % of Sales 36.2% 33.5% (270 bps) Operating Income $175 $221 (21%) % of Sales 4.4% 5.5% (110 bps) Net Income $95 $140 (32%) Diluted EPS $0.25 $0.37 6
Q3 2020 Comparable Sales Growth +5% +17% (5%) (30%) +37% 7
Q3 2020 Revenue Breakdown • Higher-margin Old Navy and Athleta are 63% of company sales and on a path to 70% by 2023 • Highly-attractive online, strip, and street locations are ~80% of company sales • >90% of company sales are in North America BRAND CHANNEL REGION ■ Old Navy 56% ■ Online 40% ■ U.S. 83% (1) ■ Gap 25% ■ Strip 34% ■ Canada 8% ■ Banana Republic 10% ■ Mall 21% ■ Asia 5% ■ Athleta 7% ■ Street 4% ■ Europe 3% ■ Other 2% ■ Outlet 1% ■ Other 1% Note: All data based on Q3 2020 net sales. (1) Includes Strip and Lifestyle Centers 8
Delivering an omni-experience and extending our reach Our leading omni-channel platform is allowing our customers to shop safely and seamlessly with us from anywhere 3.4 MILLION new customers acquired through our online channel in Q3 2020, representing +145% year-over-year growth 56% INCREASE in net sales volume year-over-year for BOPIS and curbside pickup orders in Q3 2020 ~3.5 MILLION new loyalty members enrolled since the September 22 launch of our multi-tender program 9
Rationalizing Our Store Fleet Expect ~225 Gap and Banana Republic net store closures globally in 2020 ANNUAL COMPARISON Q3 YEAR-OVER-OVER COMPARISON Gap Banana Republic Gap Banana Republic 1843 1822 1759 ~1534 1593 2018 2019 2020E Q3 2019 Q3 2020 10
Significant Operating Cash Flow Generation >$1B in annual cash from operations for 10+ years $1.7B $1.6B $1.4B $1.4B $1.4B 2015 2016 2017 2018 2019 11