Gap Inc. (NYSE:GPS) today reported results for the third quarter
of fiscal year 2015 and updated its full-year fiscal 2015
outlook.
“With a challenging third quarter behind us, we are sharply
focused on holiday execution across all channels,” said Art Peck,
chief executive officer, Gap Inc. “We are driving forward on our
key strategies designed to fuel future growth.”
“Old Navy delivered another consecutive quarter of growth,” Peck
continued. “Gap has made clear progress on its transformation
agenda and we look forward to introducing customers to the brand’s
spring collection, which embodies elevated American style.”
On a reported basis, Gap Inc.’s third quarter fiscal year 2015
diluted earnings per share were $0.61. On an adjusted basis, the
company’s diluted earnings per share were $0.63, excluding a $0.02
impact from strategic actions previously announced on June 15,
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.
Business Highlights
- Year-to-date, Gap Inc. distributed
about $1.1 billion to shareholders through share repurchases and
dividends, reinforcing the company’s commitment to returning cash
to shareholders.
- Old Navy delivered another quarter of
growth as the brand continued to leverage the power of its more
responsive product operating model. As part of Old Navy’s global
growth strategy, the brand debuted seven company-operated stores in
Mexico during the quarter, with plans to open a total of about nine
stores in the country by the end of the fiscal year.
- Gap’s leadership team continues to make
progress on its transformation agenda, which includes a clear
product aesthetic framework, new product operating model and
actions to build a smaller, more vibrant fleet of stores. These
strategies position the brand to drive more consistent, on-brand
product collections and enhanced customer experiences across all
channels.
- Athleta continued to grow its footprint
during the quarter and is on track to end the fiscal year with
about 120 U.S. locations. Additionally, during the quarter, the
brand launched its first-ever designer collaboration with Derek Lam
10 Crosby and AthletaCard joined the Gap Inc. credit card
program.
- Gap Inc. continues to expand and
enhance its digital capabilities, making it easy for customers to
shop seamlessly between the digital and physical expressions of the
company’s brands. Mobile remains a top priority, as the company
continues to introduce new, responsive features to create a rich,
engaging and easy mobile shopping experience.
Third Quarter 2015 Comparable Sales Results
Gap Inc.’s comparable sales for the third quarter of fiscal year
2015 were down 2 percent versus a 2 percent decrease last year.
Comparable sales by global brand for the third quarter were as
follows:
- Gap Global: negative 4 percent
versus negative 5 percent last year
- Banana Republic Global: negative
12 percent versus flat last year
- Old Navy Global: positive 4
percent versus positive 1 percent last year
Third Quarter 2015 Net Sales Results
For the third quarter of fiscal year 2015, Gap Inc.’s net sales
decreased 3 percent to $3.86 billion compared with $3.97 billion
for the third quarter last year.
On a constant currency basis, net sales for the third quarter of
fiscal year 2015 were 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 company noted that the translation of foreign currencies
into U.S. dollars negatively impacted the company’s reported net
sales for the third quarter of fiscal year 2015 by about $100
million, primarily due to the weakening Japanese yen and Canadian
dollar.
The following table details the company’s third quarter 2015 net
sales:
Banana
($ in millions) Old
Navy Republic
Percentage Quarter Ended October 31, 2015 Gap
Global Global Global
Other (2)
Total
of Net Sales U.S. (1) $ 838 $ 1,449 $ 520 $ 159 $ 2,966 77 %
Canada 94 118 56 — 268 7 % Europe 182 — 17 — 199 5 % Asia 300 50 26
— 376 10 % Other regions 34 6 8 —
48 1 % Total $ 1,448 $ 1,623 $ 627 $ 159 $ 3,857 100 %
Banana
($ in millions) Old Navy Republic
Percentage Quarter Ended November 1, 2014 Gap
Global Global Global
Other (3)
Total
of Net Sales U.S. (1) $ 907 $ 1,390 $ 581 $ 152 $ 3,030 76 %
Canada 105 129 63 1 298 8 % Europe 198 — 22 — 220 6 % Asia 296 39
33 — 368 9 % Other regions 49 — 7 —
56 1 % Total $ 1,555 $ 1,558 $ 706 $ 153 $ 3,972 100 %
(1) U.S. includes the United States, Puerto Rico, and Guam.
(2) Includes Athleta and Intermix. (3) Includes Piperlime, Athleta,
and Intermix.
Total online sales increased to $635 million for the third
quarter of fiscal year 2015 compared with $621 million in the third
quarter last year.
Additional Third Quarter Results and 2015 Outlook
Earnings per Share and Operating Margin
On a reported basis, third quarter of fiscal year 2015 diluted
earnings per share were $0.61. The company’s adjusted diluted
earnings per share, excluding the negative impact of about $0.02
from the strategic actions, were $0.63 for the third 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 noted that the estimated impact from foreign
currency fluctuations reduced the company’s diluted earnings per
share growth rate in the third quarter of fiscal year 2015 by about
$0.05 or about 6 percentage points.1 The company also noted that
diluted earnings per share for the third quarter of fiscal year
2014 benefitted from a discrete tax item that resulted in a lower
effective tax rate of 34.5 percent compared with 37.4 percent for
the third quarter this year.
The company updated its adjusted diluted earnings per share
guidance for the full fiscal year 2015 to be in the range of $2.38
to $2.42 and now expects its adjusted operating margin to be about
10.5 percent in fiscal year 2015.
The company also noted that its adjusted earnings per share
guidance range and adjusted operating margin for fiscal year 2015
exclude charges associated with the strategic actions, which
continue to be estimated at approximately $130 million to $140
million. Additionally, its full-year guidance and operating margin
for fiscal year 2015 are negatively impacted by West Coast port
delays in the first half of fiscal year 2015 and foreign currency
fluctuations.
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.
Operating Expenses
Third quarter operating expenses were $1.03 billion compared
with $1.04 billion in the third quarter of last year. Marketing
expenses for the third quarter were $142 million, down $34 million
from last year driven primarily by decreased spending at Gap
brand.
Effective Tax Rate
The effective tax rate was 37.4 percent for the third 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 third quarter of fiscal year 2015, inventory
dollars per store were down 4 percent on a year-over-year
basis.
At the end of the fourth quarter of fiscal year 2015, the
company expects year-over-year inventory dollars per store to be
about flat versus a decline of 6 percent last year.
Cash and Cash Equivalents
The company ended the third 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 $229 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
Year-to-date for fiscal year 2015, Gap Inc. repurchased 22
million shares for about $800 million. For the third quarter of
fiscal year 2015, Gap Inc. repurchased 6.2 million shares for about
$200 million and ended the quarter with 404 million shares
outstanding.
Including the company’s dividend, year-to-date shareholder
distributions totaled about $1.1 billion for fiscal year 2015,
underscoring the company’s commitment to returning cash to
shareholders.
The company paid a dividend of $0.23 per share during the third
quarter of fiscal year 2015. In addition, on November 13, 2015, the
company announced that its Board of Directors authorized a fourth
quarter dividend of $0.23 per share.
Capital Expenditures
Fiscal year-to-date capital expenditures were $505 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 third quarter of fiscal year 2015 with
3,794 store locations in 51 countries, of which 3,346 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 continues to expect 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 October 31, 2015 Store
Locations Store Locations
Store Locations Store Locations
Square Feet Beginning of Q3 Opened
Closed End of Q3 (millions) Gap North America
943 9 13 939 9.8 Gap Asia 286 13 - 299 2.9 Gap Europe 189 1 6 184
1.6 Old Navy North America 1,013 16 2 1,027 17.4 Old Navy Asia 51 6
- 57 0.8 Banana Republic North America 614 8 4 618 5.2 Banana
Republic Asia 48 2 - 50 0.2 Banana Republic Europe 11 - - 11 0.1
Athleta North America 111 7 - 118 0.5 Intermix North America 43 1 1
43 0.1 Company-operated stores total 3,309 63 26 3,346 38.6
Franchise 442 21 15 448 N/A Total 3,751 84 41 3,794 38.6
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 third 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: 2687902). International
callers may dial 913-643-0954. The webcast can be accessed
at www.gapinc.com.
November Sales
The company will report November sales on December 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:
- returning excess cash to
shareholders;
- overall store count and square footage
for fiscal year 2015;
- 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 fourth quarter of fiscal year 2015;
- future dividends;
- capital expenditures for fiscal year
2015;
- depreciation and amortization for
fiscal year 2015;
- growth initiatives with a focus on
Asia, global outlets and Athleta in the U.S.;
- the expectation that the holiday season
will remain highly promotional and competitive;
- company performance, including product
improvement, in fiscal year 2016; and
- disciplined expense management in the
fourth quarter of fiscal 2015.
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
November 19, 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 $16.4 billion. Gap
Inc. products are available for purchase in more than 90 countries
worldwide through about 3,300 company-operated stores, over 400
franchise stores, and e-commerce sites. For more information,
please visit www.gapinc.com.
The Gap, Inc. CONDENSED
CONSOLIDATED BALANCE SHEETS UNAUDITED October
31, November 1, ($ in millions) 2015
2014 ASSETS Current assets: Cash and cash equivalents $
1,042 $ 954 Merchandise inventory 2,498 2,553 Other current assets
821 816 Total current assets 4,361 4,323 Property and
equipment, net 2,814 2,777 Other long-term assets 631
719 Total assets $ 7,806 $ 7,819 LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities: Current maturities of
debt $ 421 $ 22 Accounts payable 1,327 1,477 Accrued expenses and
other current liabilities 997 1,011 Income taxes payable 23
12 Total current liabilities 2,768 2,522
Long-term liabilities: Long-term debt 1,331 1,358 Lease incentives
and other long-term liabilities 1,098 1,084 Total
long-term liabilities 2,429 2,442 Total stockholders'
equity 2,609 2,855 Total liabilities and
stockholders' equity $ 7,806 $ 7,819
The Gap, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME UNAUDITED
13 Weeks Ended 39 Weeks Ended October
31, November 1, October 31, November 1,
($ and shares in millions except per share amounts)
2015 2014 2015 2014 Net sales $ 3,857 $
3,972 $ 11,412 $ 11,727 Cost of goods sold and occupancy expenses
2,417 2,376 7,132 7,096 Gross profit
1,440 1,596 4,280 4,631 Operating expenses 1,026
1,042 3,111 3,067 Operating income 414 554 1,169
1,564 Interest, net 18 18 38 53 Income
before income taxes 396 536 1,131 1,511 Income taxes 148
185 425 568 Net income $ 248 $ 351 $ 706 $ 943
Weighted-average number of shares - basic 406 432 415 439
Weighted-average number of shares - diluted 408 437 417 444
Earnings per share - basic $ 0.61 $ 0.81 $ 1.70 $ 2.15 Earnings per
share - diluted $ 0.61 $ 0.80 $ 1.69 $ 2.12
The Gap,
Inc. CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS UNAUDITED 39 Weeks
Ended October 31, November 1, ($ in
millions) 2015 2014 Cash flows from operating
activities: Net income $ 706 $ 943 Depreciation and amortization
(a) 390 365 Change in merchandise inventory (615 ) (644 ) Other,
net 253 450 Net cash provided by
operating activities 734 1,114
Cash flows from investing activities: Purchases of property and
equipment (505 ) (508 ) Proceeds from sale of property and
equipment - 121 Other (4 ) (1 ) Net cash used for
investing activities (509 ) (388 ) Cash flows
from financing activities: Proceeds from issuance of short-term
debt 400 - Issuances under share-based compensation plans, net (8 )
25 Repurchases of common stock (822 ) (1,046 ) Excess tax benefit
from exercise of stock options and vesting of stock units 24 35
Cash dividends paid (285 ) (290 ) Other (1 ) -
Net cash used for financing activities (692 ) (1,276
) Effect of foreign exchange rate fluctuations on cash and
cash equivalents (6 ) (6 ) Net decrease in cash and
cash equivalents (473 ) (556 ) Cash and cash equivalents at
beginning of period 1,515 1,510 Cash
and cash equivalents at end of period $ 1,042 $ 954
(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.
39
Weeks Ended October 31, November 1, ($ in
millions) 2015 2014 Net cash provided by
operating activities $ 734 $ 1,114 Less: Purchases of property and
equipment (505 ) (508 ) Free cash flow $ 229 $
606
The Gap, Inc. NON-GAAP FINANCIAL
MEASURES UNAUDITED ADJUSTED EARNINGS PER SHARE
FOR THE THIRD QUARTER OF FISCAL YEAR 2015 Adjusted
diluted earnings per share is a non-GAAP financial measure.
Adjusted diluted earnings per share for the third 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 October 31,
2015 Earnings per share - diluted $ 0.61 Add: Impact from
strategic actions (a) 0.02 Adjusted earnings per share - diluted $
0.63 ____________________ (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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20151119006505/en/
Gap Inc.Investor Relations Contact:Jack Calandra,
415-427-1726Investor_relations@gap.comorMedia Relations
Contact:Jennifer Poppers, 415-427-1729Press@gap.com
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