Actions to Drive Stronger Performance at Gap
North America, Coupled with Continued Global Growth and Digital
Innovation Central to Company’s Strategy
As part of its annual investor meeting, Gap Inc. (NYSE:GPS)
today will provide an overview of its strategic agenda designed to
best serve the ever-changing needs of consumers, while continuing
to drive long-term shareholder value and profitable growth across
its portfolio of brands.
“Our management team is aligned and focused on the key
priorities that will drive profitable growth for the company,” said
Art Peck, chief executive officer, Gap Inc. “Building upon the
strength of Old Navy, each brand within our portfolio is focused on
clear, near-team priorities and a strategy to capitalize on
long-term opportunities.”
Even before taking the helm of the company in February 2015,
Peck moved swiftly to assemble a team of proven leaders focused on
driving commercial success across its core brands. Additionally, as
demonstrated by yesterday’s announcement, Peck and Gap global
president Jeff Kirwan are implementing a series of strategic
actions designed to improve productivity and profitability at the
company’s namesake brand.
Today, the Gap Inc. management team will continue to reinforce
its strategies to drive loyalty and enhance growth.
Compelling Product
Collections: Led by Old Navy’s proven success
growing top-line sales by nearly $1 billion over the last three
fiscal years, Gap Inc.’s portfolio of brands will leverage its
transformed product operating model, Product 3.0, to more
consistently deliver on-trend product collections that customers
love. The company will highlight how this underlying engine mixes
the ‘art and science’ of bringing products to market, while working
alongside the company’s responsive supply chain to improve speed
and flexibility.
Industry-Leading Customer
Experiences: The company will also emphasize its
continued commitment to delivering exciting and seamless shopping
experiences across all channels. Recognizing that customers are
increasingly shopping and engaging with brands through online and
mobile, Gap Inc. will highlight its plans for new digital
capabilities, as well as mobile and personalization
initiatives.
Peck continued, “The retail industry is at a pivot point, where
digital experiences are redefining how customers shop and engage
with brands. We’re constantly testing and rolling out new
innovations to ensure we stay ahead of the customer and,
ultimately, thrive in a time of disruption.”
Continued Global Expansion:
Gap Inc. will emphasize its ongoing pursuit of global growth
opportunities, most notably through continued expansion in China,
where sales have grown to nearly $500 million in just over four
years and its Gap e-commerce sales expanded by about 60 percent
year-over-year between 2013 and 2014. The company also continues to
focus on growth through its global outlet and online channels, as
well as through the company’s Athleta brand in the United
States.
Strong Economic Model: Gap
Inc. will underscore its continued commitment to delivering against
its long-term financial objectives as evidenced by the company’s
five-year track record where it has:
- Grown sales by more than $2
billion;
- Achieved a 13 percent compound annual
growth rate in earnings per share;
- Generated nearly $6 billion in free
cash flow;
- Increased its dividend per share by
about 120 percent; and
- Distributed over $8.5 billion to
shareholders through share repurchases and dividends.
“Over the past five years, we’re pleased to have achieved an
earnings per share compound annual growth rate in the teens, while
consistently returning billions of dollars back to shareholders,”
said Sabrina Simmons, chief financial officer, Gap Inc. “Looking
ahead, we have a clear strategy and are well positioned to deliver
long-term shareholder value.”
In addition to Peck and Simmons, global brand presidents from
the company’s three largest brands will present updates to
investors, including: Jeff Kirwan from Gap; Andi Owen from Banana
Republic; and Stefan Larsson from Old Navy.
Gap Inc. Investor Meeting
A live webcast is accessible on Gap Inc.’s Financial News and
Events page at www.gapinc.com/investors from approximately 9:00
a.m. to 12:00 p.m. Pacific Time today. In addition, audio of this
meeting can be accessed by calling 1-855-5000-GPS or 855-500-0477
for domestic callers and 913-643-0954 for international callers.
The conference passcode is 9911599. A replay of the event will be
available on www.gapinc.com.
Follow the event on Twitter at http://twitter.com/gapinc. The
Twitter cashtag for the event is $GPS.
SEC Regulation G
This press release includes the non-GAAP measure free cash flow,
and the related investor day webcast includes the non-GAAP measures
free cash flow, adjusted debt to capital, earnings per share
excluding estimated pre-tax costs, foreign exchange impact on
operating income and earnings per share, and adjusted debt to
EBIDTAR. The description or reconciliation to GAAP of these
measures is included in the tables at the end of this release.
Forward-Looking Statements
This press release and related investor day 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:
- improving business performance,
profitable growth, and driving productivity improvements;
- growth initiatives, including Athleta
growth, outlet growth, online growth, and international growth,
including growth in Asia and Mexico;
- advances in the product operating model
and increased product acceptance;
- digital, mobile and omni-channel
innovations and growth;
- delivering shareholder value and
distributing cash to shareholders;
- positive comps, expanding margins, and
leveraging expenses;
- earnings per share growth;
- impact of West Coast ports slowdowns
and shutdowns on financial results;
- foreign exchange impact on financial
results;
- Gap China profitability;
- number of future Gap brand stores, and
number of Gap brand store closures;
- workforce reductions;
- financial impact of store closures and
workforce reductions, including sales impact, annualized savings,
and the amount, type, and timing of expected one-time costs;
- earnings per share for fiscal year
2015; and
- sales per square foot and store
contribution rates.
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:
- the risk that the company or its
franchisees will be unsuccessful in gauging apparel trends and
changing consumer preferences;
- the risk that changes in global
economic conditions or consumer spending patterns could adversely
impact the company’s results of operations;
- the highly competitive nature of the
company’s business in the United States and internationally;
- the risk that if the company is unable
to manage its inventory effectively, its gross margins will be
adversely affected;
- the risks to the company’s efforts to
expand internationally, including its ability to operate under a
global brand structure, foreign exchange fluctuations, and
operating in regions where it has less experience;
- the risks to the company’s business,
including its costs and supply chain, associated with global
sourcing and manufacturing;
- the risks to the company’s reputation
or operations associated with importing merchandise from foreign
countries, including failure of the company’s vendors to adhere to
its Code of Vendor Conduct;
- the risk that trade matters could
increase the cost or reduce the supply of apparel available to the
company and adversely affect its business, financial condition, and
results of operations;
- the risk that the company’s
franchisees’ operation of franchise stores is not directly within
the company’s control and could impair the value of its
brands;
- the risk that the company or its
franchisees will be unsuccessful in identifying, negotiating, and
securing new store locations and renewing, modifying, or
terminating leases for existing store locations effectively;
- the risk that the company is 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 the company’s security measures, which could
have an adverse effect on the company’s results of operations and
reputation;
- the risk that the failure to attract
and retain key personnel, or effectively manage succession, could
have an adverse impact on the company’s results of operations;
- the risk that the company’s investments
in omni-channel shopping initiatives may not deliver the results
the company anticipates;
- the risk that comparable sales and
margins will experience fluctuations;
- the risk that changes in the company’s
credit profile or deterioration in market conditions may limit the
company’s access to the capital markets and adversely impact its
financial results or business initiatives;
- the risk that updates or changes to the
company’s information technology (“IT”) systems may disrupt its
operations;
- the risk that natural disasters, public
health crises, political crises, or other catastrophic events could
adversely affect the company’s operations and financial results, or
those of its franchisees or vendors;
- the risk that changes in the regulatory
or administrative landscape could adversely affect the company’s
financial condition, strategies, and results of operations;
- the risk that the company does not
repurchase some or all of the shares it anticipates purchasing
pursuant to its repurchase program; and
- the risk that the company will not be
successful in defending various proceedings, lawsuits, disputes,
claims, and audits.
Additional information regarding factors that could cause
results to differ can be found in the company’s Annual Report on
Form 10-K for the fiscal year ended January 31, 2015, as well as
the company’s subsequent filings with the Securities and Exchange
Commission.
These forward-looking statements are based on information as of
June 16, 2015. 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 Gap, Banana Republic, Old Navy, Athleta, and
Intermix brands. Fiscal year 2014 net sales were $16.4 billion. Gap
Inc. products are available for purchase in more than 90 countries
worldwide through about 3,300 company-operated stores, over 400
franchise stores, and e-commerce sites. For more information,
please visit www.gapinc.com.
The Gap, Inc. NON-GAAP FINANCIAL MEASURES
UNAUDITED FREE CASH FLOW Free cash flow
is a non-GAAP financial measure. We believe free cash flow is an
important metric because it represents a measure of how much cash a
company has available for discretionary and non-discretionary items
after the deduction of capital expenditures, as we require regular
capital expenditures to build and maintain stores and purchase new
equipment to improve our business. We use this metric internally,
as we believe our sustained ability to generate free cash flow is
an important driver of value creation. However, this non-GAAP
financial measure is not intended to supersede or replace our GAAP
results.
Fiscal Year (number of weeks) ($ in
millions) 2014 (52) 2013 (52) 2012 (53)
2011 (52) 2010 (52) Net cash provided by operating
activities $ 2,129 $ 1,705 $ 1,936 $ 1,363 $ 1,744 Less: Purchases
of property and equipment (714 ) (670 ) (659 )
(548 ) (557 ) Free cash flow $ 1,415 $ 1,035
$ 1,277 $ 815 $ 1,187
The Gap, Inc. NON-GAAP FINANCIAL MEASURES
UNAUDITED ADJUSTED DEBT TO CAPITAL
Adjusted debt to capital is a non-GAAP financial measure. We
believe adjusted debt to capital is an important metric in
evaluating the total amount of leverage in our capital structure
including off-balance sheet lease obligations. However, this
non-GAAP financial measure is not intended to supersede or replace
our GAAP results.
($ in millions) January
31, 2015 Total long-term debt $ 1,353 Add: Estimated
capitalized operating lease obligations (a) 6,595
Lease adjusted debt $ 7,948
($ and shares in
millions except stock price) Stock price as of June 9, 2015 $
37.52 Number of shares outstanding as of May 29, 2015 417
Market capitalization 15,659 Add: Lease adjusted debt
7,948 Adjusted capital $ 23,607 Adjusted debt
to capital 34 % (a) Calculated as rent expense for fiscal
year ended January 31, 2015 multiplied by five. The multiple of
five times rent expense is a commonly used method of estimating the
debt we would record for our leases that are classified as
operating if they had met the criteria for a capital lease, or we
had purchased the property.
The Gap, Inc.
NON-GAAP FINANCIAL MEASURES UNAUDITED
ADJUSTED DEBT TO EBITDAR Adjusted debt to earnings
before interest, income taxes, depreciation, amortization, and rent
("EBITDAR") is a non-GAAP financial measure. We believe adjusted
debt to EBITDAR is an important metric in evaluating our credit
worthiness, which could impact our credit rating and borrowing
costs. However, this non-GAAP financial measure is not intended to
supersede or replace our GAAP results.
($ in
millions) January 31, 2015 Total long-term debt $ 1,353
Add: Estimated capitalized operating lease obligations (a)
6,595 Lease adjusted debt $ 7,948
($ in
millions) Fiscal 2014 Net income $ 1,262 Add: Income
taxes 751 Add: Interest expense, net 70 Earnings before
interest and income taxes 2,083 Add: Depreciation and
amortization expenses (b) 500 Add: Rent expense 1,319
EBITDAR $ 3,902 Adjusted debt to EBITDAR 2.0 (a)
Calculated as rent expense for fiscal year ended January 31, 2015
multiplied by five. The multiple of five times rent expense is a
commonly used method of estimating the debt we would record for our
leases that are classified as operating if they had met the
criteria for a capital lease, or we had purchased the property. (b)
Depreciation and amortization is net of amortization of lease
incentives.
The Gap, Inc. NON-GAAP
FINANCIAL MEASURES UNAUDITED ADDITIONAL
INFORMATION REGARDING FOREIGN EXCHANGE In calculating
the impact of foreign exchange to the company’s operating income
and earnings per share, the company estimates current gross margins
using the appropriate prior year rates (including the impact of
merchandise-related hedges), translates current period foreign
earnings at prior year rates, and excludes the year-over-year
earnings impact of balance sheet remeasurement and gains or losses
from non-merchandise-related foreign currency hedges. This is done
in order to enhance the visibility of business results excluding
the direct impact of foreign currency exchange rate fluctuations.
The Gap, Inc. NON-GAAP FINANCIAL
MEASURES UNAUDITED ADDITIONAL INFORMATION
REGARDING GUIDANCE The fiscal year 2015 diluted earnings
per share guidance of $2.75 to $2.80 excludes pre-tax charges of
$140 million to $160 million (approximately $0.21 to $0.24 per
diluted share) primarily related to the Gap brand optimization
effort. This guidance is provided to enhance visibility into the
company's expectations regarding its ongoing business excluding the
Gap brand optimization effort.
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version on businesswire.com: http://www.businesswire.com/news/home/20150616005712/en/
Gap Inc.Investor Relations Contact:David Davick,
415-427-2164Investor_relations@gap.comMedia Relations
Contact:Kari Shellhorn, 415-427-1805Press@gap.com
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