Gap Inc. (NYSE:GPS) today reported second quarter fiscal year
2015 results and reaffirmed its full-year earnings per share
guidance to be in the range of $2.75 to $2.80, excluding the impact
from strategic actions previously announced on June 15, 2015.
“I remain confident in our strategies to improve business
performance and drive loyalty going forward,” said Art Peck, chief
executive officer, Gap Inc. “Our evolving product operating model
is laying the foundation to more consistently deliver on-trend
product collections across our portfolio.”
On a reported basis, Gap Inc.’s second quarter of fiscal year
2015 diluted earnings per share were $0.52, including the negative
impacts associated with foreign currency fluctuations, West Coast
port delays, and the strategic actions.
Excluding the negative impact of about $0.12 from the strategic
actions, the company’s adjusted diluted earnings per share were
$0.64 for the second quarter of fiscal year 2015. Please see the
reconciliation of adjusted diluted earnings per share, a non-GAAP
financial measure, from the GAAP financial measure in the table at
the end of this press release.
In addition, Gap Inc. distributed about $800 million to
shareholders through share repurchases and dividends fiscal
year-to-date, reinforcing the company’s commitment to returning
excess cash to shareholders.
First Half Fiscal Year 2015 Results
For the first half of fiscal year 2015, the company’s diluted
earnings per share were $1.09. The company’s adjusted diluted
earnings per share were $1.42, or an increase of approximately 12
percent compared with adjusted diluted earnings per share for the
first half of fiscal year 2014, which excludes a $0.05 gain on
asset sale. The company noted that its adjusted diluted earnings
per share for the first half of fiscal year 2015 excludes the
following negative impacts:
- $0.06 per share due to the estimated
impact from foreign currency fluctuations;
- $0.13 per share due to the estimated
impact from West Coast port delays; and
- $0.14 per share due to charges
associated with strategic actions primarily at Gap brand, including
lease buyouts, asset impairments, and employee-related costs.
“We’re pleased to deliver earnings per share growth of about 12
percent on an adjusted basis for the first half of the year, while
continuing to work through product challenges at two of our global
brands,” said Sabrina Simmons, chief financial officer, Gap
Inc.
Please see the reconciliation of adjusted diluted earnings per
share, a non-GAAP financial measure, from the GAAP financial
measure in the table at the end of this press release.
Business Highlights
- On top of three consecutive years of
growth, Old Navy delivered another quarter of positive comparable
sales, demonstrating the continued success of its demand-driven and
trend-predictive product pipeline in delivering aspirational
collections that customers love.
- Gap brand continues to make progress
against its strategic actions, including right-sizing its North
America store count to create a smaller, more vibrant fleet of
stores. The brand’s leadership team remains focused on an
aggressive agenda designed to improve business performance,
including the implementation of a clear, on-brand product aesthetic
framework and a new product operating model to increase speed,
predictability and responsiveness.
- The company continues to pursue its
strategy to integrate physical and digital shopping experiences,
redefining how customers shop and engage with Gap Inc.’s portfolio
of brands. During the quarter, the company expanded its
Reserve in Store service to all U.S. Athleta stores, while its
Order in Store capabilities continued to offer more customers
across its portfolio access to expanded inventories including
broader size, color and style selections.
Second Quarter 2015 Comparable Sales Results
Gap Inc.’s comparable sales for the second quarter of fiscal
year 2015 were down 2 percent versus flat last year. Comparable
sales by global brand for the second quarter were as follows:
- Gap Global: negative 6 percent
versus negative 5 percent last year
- Banana Republic Global: negative
4 percent versus flat last year
- Old Navy Global: positive 3
percent versus positive 4 percent last year
Second Quarter 2015 Net Sales Results
For the second quarter of fiscal year 2015, Gap Inc.’s net sales
decreased 2 percent to $3.90 billion compared with $3.98 billion
for the second quarter last year.
On a constant currency basis, net sales for the second quarter
of fiscal year 2015 were about flat compared with last year. In
calculating the net sales change on a constant currency basis,
current year foreign exchange rates are applied to both current
year and prior year net sales. This is done to enhance the
visibility of underlying sales trends, excluding the impact of
foreign currency exchange rate fluctuations.
The translation of net sales in foreign currencies into U.S.
dollars negatively impacted the company’s reported sales for the
second quarter of fiscal year 2015 by about $100 million, primarily
due to the weakening Japanese yen and Canadian dollar.
The following table details the company’s second quarter 2015
net sales:
Banana
($ in millions)
Old Navy Republic Percentage
Quarter Ended August 1, 2015
Gap Global Global Global Other (2)
Total of Net Sales U.S. (1) $ 795 $ 1,500 $ 563 $ 177
$ 3,035 78 % Canada 88 124 59 1 272 7 % Europe 176 — 20 — 196 5 %
Asia 270 49 27 — 346 9 % Other regions 39 2 8
— 49 1 % Total $ 1,368 $ 1,675 $ 677 $ 178 $ 3,898
100 %
Banana
($ in millions)
Old Navy Republic Percentage
Quarter Ended August 2, 2014
Gap Global Global Global Other (3)
Total of Net Sales U.S. (1) $ 850 $ 1,460 $ 576 $ 185
$ 3,071 77 % Canada 95 127 58 1 281 7 % Europe 206 — 26 — 232 6 %
Asia 274 35 37 — 346 9 % Other regions 44 — 7
— 51 1 % Total $ 1,469 $ 1,622 $ 704 $ 186 $ 3,981
100 %
(1) U.S. includes the United States, Puerto Rico, and Guam.(2)
Includes Athleta and Intermix.(3) Includes Piperlime, Athleta, and
Intermix.
Additional Second Quarter Results and 2015 Outlook
Earnings per Share and Operating Margin
On a reported basis, second quarter of fiscal year 2015 diluted
earnings per share were $0.52, including the negative impacts
associated with foreign currency fluctuations, West Coast port
delays, and the strategic actions.
Excluding the negative impact of about $0.12 from the strategic
actions, the company’s adjusted diluted earnings per share were
$0.64 for the second quarter of fiscal year 2015. Please see the
reconciliation of adjusted diluted earnings per share, a non-GAAP
financial measure, from the GAAP financial measure in the table at
the end of this press release.
The company also noted that the estimated impact from foreign
currency fluctuations reduced the company’s diluted earnings per
share growth rate in the second quarter of fiscal year 2015 by
about $0.04 or about 5 percentage points.1
1 In calculating earnings per share excluding the impact of
foreign exchange, 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 company reaffirmed its full-year earnings per share guidance
to be in the range of $2.75 to $2.80 for fiscal year 2015,
excluding the negative impact associated with the strategic
actions. The company updated its estimate of the charges associated
with the strategic actions to approximately $130 million to $140
million, from the previously announced range of $140 million to
$160 million. This guidance is provided to enhance visibility into
the company’s expectations regarding its ongoing business,
excluding the strategic actions.
The company continues to expect operating margin, excluding the
impact associated with the strategic actions, to be down about 1
percentage point in fiscal year 2015 compared with fiscal year
2014.
Operating Expenses
Second quarter operating expenses were $1.09 billion, compared
with $1.00 billion in the second quarter of last year. Marketing
expenses for the second quarter were $131 million, down $11 million
from last year.
Effective Tax Rate
The effective tax rate was 38 percent for the second quarter of
fiscal year 2015. The company continues to expect its full-year
fiscal 2015 effective tax rate to be about 38 percent.
Inventory
At the end of the second quarter of fiscal year 2015, inventory
dollars per store were up about 1 percent on a year-over-year
basis, in line with the company’s previously communicated
guidance.
At the end of the third quarter of fiscal year 2015, the company
expects year-over-year inventory dollars per store to be down
slightly compared with last year.
Cash and Cash Equivalents
The company ended the second quarter of fiscal year 2015 with
$1.04 billion in cash and cash equivalents. Year-to-date free cash
flow, defined as net cash provided by operating activities less
purchases of property and equipment, was an inflow of $341 million.
Please see the reconciliation of free cash flow, a non-GAAP
financial measure, from the GAAP financial measure in the tables at
the end of this press release.
Cash Distribution
During the quarter, Gap Inc. repurchased 10 million shares for
about $375 million and ended the second quarter of fiscal year 2015
with 410 million shares outstanding.
Including the company’s dividend, shareholder distributions
totaled about $800 million for the first half of fiscal year 2015,
underscoring the company’s commitment to returning excess cash to
shareholders.
The company paid a dividend of $0.23 per share during the second
quarter of fiscal year 2015. In addition, on August 13, 2015, the
company announced that its Board of Directors authorized a third
quarter dividend of $0.23 per share.
Capital Expenditures
Fiscal year-to-date capital expenditures were $301 million. For
fiscal year 2015, the company continues to expect capital spending
to be approximately $800 million.
Depreciation and Amortization
The company continues to expect depreciation and amortization
expense, net of amortization of lease incentives, to be about $525
million for fiscal year 2015.
Real Estate
The company ended the second quarter of fiscal year 2015 with
3,751 store locations in 51 countries, of which 3,309 were
company-operated.
While the company continues to pursue its previously stated
growth initiatives with a focus on Asia, global outlets and Athleta
in the U.S., it now expects its overall store count and square
footage to remain flat in fiscal year 2015, as compared to last
year due to Gap brand store closures.
Store count, openings, closings, and square footage for our
stores are as follows:
13 Weeks Ended August 1, 2015 Store
Locations Store Locations
Store Locations Store Locations
Square Feet Beginning of Q2 Opened
Closed End of Q2 (millions) Gap North America
963 6 26 943 9.9 Gap Asia 281 6 1 286 2.8 Gap Europe 188 3 2 189
1.6 Old Navy North America 1,010 7 4 1,013 17.1 Old Navy Asia 50 1
- 51 0.8 Banana Republic North America 612 4 2 614 5.1 Banana
Republic Asia 46 2 - 48 0.2 Banana Republic Europe 11 - - 11 0.1
Athleta North America 105 6 - 111 0.5 Intermix North America 43 - -
43 0.1 Company-operated stores total 3,309 35 35 3,309 38.2
Franchise 440 7 5 442 N/A Total 3,749 42 40 3,751 38.2
Webcast and Conference Call Information
Jack Calandra, senior vice president of Corporate Finance and
Investor Relations at Gap Inc., will host a summary of the
company’s second quarter fiscal year 2015 results during a
conference call and webcast from approximately 2:00 p.m. to 2:45
p.m. Pacific Time today. Mr. Calandra will be joined by Art Peck,
Gap Inc. chief executive officer, and Sabrina Simmons, Gap Inc.
chief financial officer.
The conference call can be accessed by calling 1-855-5000-GPS or
1-855-500-0477 (participant passcode: 7779269). International
callers may dial 913-643-0954. The webcast can be accessed
at www.gapinc.com.
August Sales
The company will report August sales on September 3, 2015.
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:
- improving business performance, driving
loyalty and delivering on-trend product collections;
- earnings per share for fiscal year
2015;
- impact of strategic actions;
- operating margin for fiscal year
2015;
- effective tax rate for fiscal year
2015;
- inventory dollars per store at the end
of the third quarter of fiscal year 2015;
- returning excess cash to
shareholders;
- capital expenditures for fiscal year
2015;
- depreciation and amortization for
fiscal year 2015;
- overall store count and square footage
for fiscal year 2015;
- growth for Old Navy; and
- long-term growth opportunity in
China.
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 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 the financial information;
- the risk that the adoption of new
accounting pronouncements will impact future results;
- 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
August 20, 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 $16.4 billion. Gap
Inc. products are available for purchase in more than 90 countries
worldwide through about 3,300 company-operated stores, over 400
franchise stores, and e-commerce sites. For more information,
please visit www.gapinc.com.
The Gap, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS UNAUDITED
August 1, August 2,
($ in millions)
2015 2014 ASSETS Current assets: Cash and cash
equivalents $ 1,043 $ 1,518 Merchandise inventory 2,005 1,948 Other
current assets 899 778 Total current
assets 3,947 4,244 Property and equipment, net 2,740 2,739 Other
long-term assets 600 695 Total assets $
7,287 $ 7,678 LIABILITIES AND STOCKHOLDERS'
EQUITY Current liabilities: Current maturities of debt $ 20 $ 24
Accounts payable 1,206 1,227 Accrued expenses and other current
liabilities 954 985 Income taxes payable 4 26
Total current liabilities 2,184 2,262
Long-term liabilities: Long-term debt 1,328 1,369 Lease
incentives and other long-term liabilities 1,104
1,101 Total long-term liabilities 2,432
2,470 Total stockholders' equity 2,671
2,946 Total liabilities and stockholders' equity $
7,287 $ 7,678
The Gap, Inc. CONDENSED CONSOLIDATED STATEMENTS OF
INCOME UNAUDITED 13 Weeks Ended 26
Weeks Ended August 1, August 2, August 1,
August 2,
($ and shares in millions except per
share amounts)
2015 2014 2015 2014 Net sales $ 3,898 $
3,981 $ 7,555 $ 7,755 Cost of goods sold and occupancy expenses
2,440 2,412 4,715
4,720 Gross profit 1,458 1,569 2,840 3,035 Operating
expenses 1,089 1,002 2,085
2,025 Operating income 369 567 755 1,010
Interest, net 16 18 20
35 Income before income taxes 353 549 735 975 Income
taxes 134 217 277
383 Net income $ 219 $ 332 $ 458 $ 592
Weighted-average number of shares - basic 417 439 419
442 Weighted-average number of shares - diluted 418 443 421 447
Earnings per share - basic $ 0.53 $ 0.76 $ 1.09 $ 1.34
Earnings per share - diluted $ 0.52 $ 0.75 $ 1.09 $ 1.32
The Gap, Inc. CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
26 Weeks Ended
August 1, August 2,
($ in millions)
2015 2014 Cash flows from operating activities: Net
income $ 458 $ 592 Depreciation and amortization (a) 263 240 Change
in merchandise inventory (124 ) (18 ) Other, net 45
182 Net cash provided by operating activities
642 996 Cash flows from investing
activities: Purchases of property and equipment (301 ) (328 )
Proceeds from sale of property and equipment - 121 Other (1
) (1 ) Net cash used for investing activities (302 )
(208 ) Cash flows from financing activities:
Issuances under share-based compensation plans, net (15 ) (4 )
Repurchases of common stock (622 ) (608 ) Excess tax benefit from
exercise of stock options and vesting of stock units 24 25 Cash
dividends paid (192 ) (194 ) Other (1 ) - Net
cash used for financing activities (806 ) (781 )
Effect of foreign exchange rate fluctuations on cash and
cash equivalents (6 ) 1 Net increase
(decrease) in cash and cash equivalents (472 ) 8 Cash and cash
equivalents at beginning of period 1,515 1,510
Cash and cash equivalents at end of period $ 1,043 $
1,518 (a) Depreciation and amortization is net
of amortization of lease incentives.
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.
26 Weeks Ended
August 1, August 2,
($ in millions)
2015 2014 Net cash provided by operating activities $
642 $ 996 Less: Purchases of property and equipment (301 )
(328 ) Free cash flow $ 341 $ 668
The Gap, Inc. NON-GAAP FINANCIAL
MEASURES UNAUDITED ADJUSTED EARNINGS PER SHARE
FOR THE SECOND QUARTER OF FISCAL YEAR 2015 Adjusted
diluted earnings per share is a non-GAAP financial measure.
Adjusted diluted earnings per share for the second quarter of
fiscal year 2015 is provided to enhance visibility into the
company's underlying results for the period excluding impact from
its strategic actions primarily related to Gap brand. However, this
non-GAAP financial measure is not intended to supersede or replace
our GAAP results.
13 Weeks Ended August 1,
2015 Earnings per share - diluted $ 0.52 Add: Impact from
strategic actions (a) 0.12 Adjusted earnings per
share - diluted $ 0.64
____________________
(a) Represents the earnings per share impact of previously
announced strategic actions primarily related to Gap brand. The
charges associated with the strategic actions primarily include
lease termination fees, store asset impairments, inventory
impairment, and employee related costs.
The Gap,
Inc. NON-GAAP FINANCIAL MEASURES UNAUDITED
ADJUSTED OPERATING EXPENSES Adjusted
operating expenses is a non-GAAP financial measure. We believe this
is an important metric because it excludes items that we do not
consider to be part of the company's ordinary operating results, as
well as the impact from foreign currency exchange rate
fluctuations. We believe this measure provides an important
perspective of underlying business trends and results and provides
a more comparable measure of year-over-year operating expenses.
However, this non-GAAP financial measure is not intended to
supersede or replace our GAAP results.
13 Weeks Ended
August 1, August 2,
($ in millions)
2015 2014 Operating expenses $ 1,089 $ 1,002 Add:
Estimated impact from foreign exchange (a) 28 - Add: Gain from sale
of corporate asset (b) - 39 Less: Impact from strategic actions (c)
(71 ) - Adjusted operating expenses $ 1,046
$ 1,041
____________________
(a) In estimating the impact from foreign currency exchange rate
fluctuations on operating expenses, the company translates current
period foreign operating expenses at prior year rates and excludes
the year-over-year impact of balance sheet remeasurement and gains
or losses from non-merchandise-related foreign currency hedges.
(b) Represents the gain recognized in the second quarter of
fiscal year 2014 related to the sale of a building. (c)
Represents the costs associated with the previously announced
strategic actions primarily related to Gap brand, and primarily
include lease termination fees, store asset impairments, and
employee related costs.
The Gap,
Inc. NON-GAAP FINANCIAL MEASURES UNAUDITED
ADJUSTED EARNINGS PER SHARE FOR THE FIRST HALF OF FISCAL YEARS
2015 AND 2014
Adjusted diluted earnings per share is a
non-GAAP financial measure. Adjusted diluted earnings per share for
the first half of fiscal years 2015 and 2014 exclude items that we
do not consider to be part of the company's ordinary operating
results, as well as the impact from foreign currency exchange rate
fluctuations. We believe this measure provides an important
perspective of underlying business trends and results and provide a
more comparable measure of year-over-year earnings per share
growth. However, this non-GAAP financial measure is not intended to
supersede or replace our GAAP results.
26 Weeks Ended August 1, August 2,
2015 2014 Earnings per share - diluted $ 1.09 $ 1.32
Add: Estimated impact from foreign exchange (a) 0.06 - Add:
Estimated impact from delayed merchandise receipts at West Coast
ports (b) 0.13 - Add: Impact from strategic actions (c) 0.14 -
Less: Gain from sale of corporate asset (d) -
(0.05 ) Adjusted earnings per share - diluted $ 1.42 $ 1.27
Adjusted earnings per share growth 12 %
____________________
(a) In estimating the earnings per share impact from foreign
currency exchange rate fluctuations, 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. (b) Represents the estimated earnings per share
impact of West Coast port congestion in the first half of fiscal
year 2015. In estimating the earnings per share impact, the
company's calculation primarily includes estimated sales loss and
margin deterioration due to the delayed or canceled receipts of
merchandise, as well as an increase in shipping costs. (c)
Represents the earnings per share impact of previously announced
strategic actions primarily related to Gap brand. The charges
associated with the strategic actions primarily includes lease
termination fees, store asset impairments, inventory impairment,
and employee related costs. (d) Represents the earnings per
share impact of gain recognized in the second quarter of fiscal
year 2014 related to the sale of a building.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150820006076/en/
Gap Inc.Investor Relations Contact:Jack Calandra,
415-427-1726Investor_relations@gap.comMedia Relations
Contact:Kari Shellhorn, 415-427-1805Press@gap.com
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