- Reaffirmed Full-Year Earnings per Share
Guidance Range of $1.95 to $2.05
- Delivered Positive 2 Percent Comparable
Sales Growth
- Distributed Approximately $190 Million
to Shareholders Through Share Repurchases and Dividends
Gap Inc. (NYSE: GPS) today reported first quarter fiscal year
2017 diluted earnings per share of $0.36 compared with diluted
earnings per share of $0.32 in the first quarter of fiscal year
2016. The company also reaffirmed its full-year diluted earnings
per share guidance to be in the range of $1.95 to $2.05.
“We are pleased with our positive comp and earnings growth this
quarter,” said Art Peck, president and chief executive officer, Gap
Inc. “We’ve made substantial improvements in product quality and
fit, and our increasing responsive capabilities are enabling
us to better react to trends and demand."
“While the retail environment continues to be challenging, we
are focused on delivering the best possible product and customer
experience, and our ability to leverage a portfolio of iconic
brands and operating scale uniquely positions the company for
long-term growth,” Peck continued.
First Quarter 2017 Comparable Sales Results
Gap Inc.’s comparable sales for the first quarter of fiscal year
2017 were up 2 percent versus a 5 percent decrease last year.
Comparable sales by global brand for the first quarter were as
follows:
- Old Navy Global: positive 8
percent versus negative 6 percent last year
- Gap Global: negative 4 percent
versus negative 3 percent last year
- Banana Republic Global: negative
4 percent versus negative 11 percent last year
Net Sales Results
Net sales for the first quarter of fiscal year 2017 were $3.4
billion, about flat to the first quarter of fiscal year 2016. The
translation of foreign currencies into U.S. dollars negatively
impacted the company’s net sales for the first quarter of fiscal
year 2017 by about $11 million. First quarter net sales details
appear in the tables at the end of this press release.
Additional First Quarter of Fiscal 2017 Results and 2017
Outlook
Earnings per Share
The company reaffirmed its full year diluted earnings per share
guidance to be in the range of $1.95 to $2.05.
The company updated its diluted earnings per share guidance for
the first half of fiscal year 2017 to be down mid-single digits
when compared with the adjusted diluted earnings per share for the
first half of fiscal year 2016, an improvement from the company’s
previous guidance of down high-single digits.
The company noted that foreign currency fluctuations negatively
impacted earnings per share for the first quarter of fiscal year
2017 by an estimated $0.03, or about 9 percentage points of
earnings per share growth.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.
Comparable and Net Sales
The company continues to expect comparable sales for fiscal year
2017 to be flat to up slightly.
Net sales for fiscal year 2017 are expected to be slightly below
this range driven by an expected negative impact from foreign
currency fluctuations year-over-year.
Operating Margin
The company’s operating margin for the first quarter of fiscal
year 2017 was 7.4 percent compared with 6.5 percent last year.
Operating Expenses
First quarter fiscal year 2017 operating expenses were $1.05
billion compared with $987 million last year.
Effective Tax Rate
The effective tax rate was 39.9 percent for the first quarter of
fiscal year 2017. The first quarter tax rate was negatively
impacted by the adoption of a new accounting standard related to
share-based compensation which requires all excess tax benefits and
deficiencies to be recognized as a component of the income tax
provision.
The company continues to expect its fiscal year 2017 effective
tax rate to be about 39 percent, including the impact of the new
accounting standard related to share-based compensation.
Inventory
At the end of the first quarter of fiscal year 2017, total
inventory was about flat year-over-year.
The company now expects total inventory to be about flat at the
end of the first half of fiscal year 2017 when compared with the
end of the first half of fiscal year 2016.
Cash and Cash Equivalents
The company ended the first quarter of fiscal year 2017 with
$1.6 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, net of insurance proceeds
related to loss of property and equipment, was negative $5 million,
reflecting the timing of lease payments and a larger increase in
inventory from the beginning of the quarter to the end of the
quarter when compared to the same period in fiscal 2016. 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 4.2 million shares for
about $100 million and ended the first quarter of fiscal year 2017
with 396 million shares outstanding.
The company expects to spend about $100 million on share
repurchases in the second quarter of fiscal 2017.
The company paid a dividend of $0.23 per share during the first
quarter of fiscal year 2017. In addition, the company announced
today that its Board of Directors authorized a second quarter
dividend of $0.23 per share.
Capital Expenditures
First quarter fiscal year 2017 capital expenditures were $110
million. The company continues to expect capital spending to be
approximately $625 million for fiscal year 2017, excluding an
estimated $200 million associated with the rebuilding of the
company’s Fishkill, New York distribution center campus and related
supply chain spend. The company noted the majority of these costs
are expected to be covered by insurance proceeds.
Real Estate
The company ended the first quarter of fiscal year 2017 with
3,652 store locations in 50 countries, of which 3,186 were
company-operated.
The company now expects store count to be about flat at the end
of fiscal year 2017 compared with fiscal year 2016, down from
previous guidance of 40 net store openings.
Webcast and Conference Call Information
Jennifer Fall, senior vice president of Corporate Finance and
Investor Relations at Gap Inc., will host a summary of the
company’s first quarter fiscal year 2017 results during a
conference call and webcast from approximately 2:00 p.m. to 3:00
p.m. Pacific Time today. Ms. Fall will be joined by Art Peck, Gap
Inc. president and chief executive officer, and Teri List-Stoll,
Gap Inc. executive vice president and chief financial officer.
The conference call can be accessed by calling 1-855-5000-GPS or
1-855-500-0477 (participant passcode: 4151797). International
callers may dial 913-643-0954. The webcast can be accessed at
www.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:
- earnings per share for the first half
and full fiscal year 2017;
- comparable sales for fiscal year
2017;
- net sales for fiscal year 2017;
- foreign exchange impact in fiscal year
2017;
- effective tax rate for fiscal year
2017;
- total inventory at the end of the first
half of fiscal year 2017;
- capital expenditures for fiscal year
2017;
- costs related to rebuilding the
Fishkill distribution center;
- store count at the end of fiscal year
2017 and new Athleta stores;
- insurance recovery for costs related to
the fire at our Fishkill distribution center; and
- share repurchases in the second quarter
of fiscal year 2017.
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 unaudited financial information;
- the risk that the company or its
franchisees will be unsuccessful in gauging apparel trends and
changing consumer preferences;
- the highly competitive nature of the
company’s business in the United States and internationally;
- the risk that failure to maintain,
enhance and protect the company’s brand image could have an adverse
effect on its results of operations;
- 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 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 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’s investments
in omni-channel shopping initiatives may not deliver the results
the company anticipates;
- the risk that if the company is unable
to manage its inventory effectively, its gross margins will be
adversely affected;
- 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 foreign currency exchange
rate fluctuations could adversely impact the company’s financial
results;
- the risks to the company’s business,
including its costs and supply chain, associated with global
sourcing and manufacturing;
- the risk that changes in global
economic conditions or consumer spending patterns could adversely
impact the company’s results of operations;
- the risks to the company’s efforts to
expand internationally, including its ability to operate under a
global brand structure and operating in regions where it has less
experience;
- 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 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 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 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 reductions in income and
cash flow from our marketing and servicing 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 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 28, 2017, as well as
the company’s subsequent filings with the Securities and Exchange
Commission.
These forward-looking statements are based on information as of
May 18, 2017. 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,
Intermix, and Weddington Way brands. Fiscal year 2016 net sales
were $15.5 billion. Gap Inc. products are available for purchase in
more than 90 countries worldwide through about 3,200
company-operated stores, about 450 franchise stores, and e-commerce
sites. For more information, please visit www.gapinc.com.
The Gap, Inc. CONDENSED CONSOLIDATED BALANCE
SHEETS UNAUDITED
($ in millions)
April 29,2017
April 30,2016
ASSETS Current assets: Cash and cash equivalents $ 1,583 $ 1,313
Merchandise inventory 1,961 1,958 Other current assets 575
674 Total current assets 4,119 3,945 Property and equipment,
net 2,605 2,864 Other long-term assets 687 698 Total
assets $ 7,411 $ 7,507 LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: Current maturities of debt $ 67 $ 424 Accounts
payable 1,119 1,108 Accrued expenses and other current liabilities
1,088 974 Income taxes payable 28 49 Total current
liabilities 2,302 2,555 Long-term liabilities:
Long-term debt 1,248 1,318 Lease incentives and other long-term
liabilities 999 1,112 Total long-term liabilities
2,247 2,430 Total stockholders' equity 2,862
2,522 Total liabilities and stockholders' equity $ 7,411 $
7,507
The Gap, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME UNAUDITED
13 Weeks Ended ($ and shares in millions except
per share amounts)
April 29,2017
April 30,2016
Net sales $ 3,440 $ 3,438 Cost of goods sold and occupancy expenses
2,137 2,229 Gross profit 1,303 1,209 Operating
expenses 1,049 987 Operating income 254 222 Interest,
net 16 18 Income before income taxes 238 204 Income
taxes 95 77 Net income $ 143 $ 127
Weighted-average number of shares - basic 399 398 Weighted-average
number of shares - diluted 400 399 Earnings per share -
basic $ 0.36 $ 0.32 Earnings per share - diluted $ 0.36 $ 0.32
The Gap, Inc. CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS UNAUDITED
13 Weeks Ended ($ in
millions)
April 29,2017
April 30,2016
Cash flows from operating activities: Net income $ 143 $ 127
Depreciation and amortization (a) 123 132 Change in merchandise
inventory (133 ) (53 ) Other, net (42 ) (38 ) Net
cash provided by operating activities 91 168
Cash flows from investing activities: Purchases of
property and equipment (110 ) (139 ) Insurance proceeds related to
loss on property and equipment 14 - Other (3 ) (1 )
Net cash used for investing activities (99 ) (140 )
Cash flows from financing activities: Proceeds from
issuances under share-based compensation plans 8 10 Withholding tax
payments related to vesting of stock units (13 ) (17 ) Repurchases
of common stock (96 ) - Excess tax benefit from exercise of stock
options and vesting of stock units - 1 Cash dividends paid
(92 ) (91 ) Net cash used for financing activities
(193 ) (97 ) Effect of foreign exchange rate
fluctuations on cash and cash equivalents 1 12
Net decrease in cash and cash equivalents (200 ) (57 ) Cash
and cash equivalents at beginning of period 1,783
1,370 Cash and cash equivalents at end of period $
1,583 $ 1,313 (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, net of insurance proceeds related to loss on property
and equipment, 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.
13
Weeks Ended ($ in millions)
April 29,2017
April 30,2016
Net cash provided by operating activities $ 91 $ 168 Less:
Purchases of property and equipment (110 ) (139 )
Add: Insurance proceeds related to loss on
property and equipment (a)
14 - Free cash flow $ (5 ) $ 29
____________________ (a) Represents advance payments
of insurance proceeds related to loss on property and equipment
from the fire that occurred on the company-owned distribution
center campus in Fishkill, New York on August 29, 2016.
The Gap, Inc.
NET SALES RESULTS UNAUDITED The following
table details the company’s first quarter fiscal year 2017 net
sales:
($ in millions)
Gap Global
Old NavyGlobal
BananaRepublic Global
Other (2)
Total
Percentage ofNet Sales
13 Weeks Ended April 29, 2017
U.S. (1) $ 668
$ 1,426
$ 437
$ 202
$
2,733 79% Canada 77 111 45 1 234 7% Europe 133 - 4 - 137 4% Asia
250 9 24 - 283 8% Other regions 30 16 7
- 53 2% Total $ 1,158 $ 1,562 $ 517 $ 203 $ 3,440 100%
($ in millions)
Gap Global
Old NavyGlobal
BananaRepublic Global
Other (3)
Total
Percentage ofNet Sales
13 Weeks Ended April 30, 2016
U.S. (1) $ 698 $ 1,328 $ 454
$
178
$
2,658 77% Canada 70 98 47 1 216 6% Europe 144 - 14 - 158 5% Asia
280 50 26 - 356 11% Other regions 31 10 9
- 50 1% Total $ 1,223 $ 1,486 $ 550 $ 179 $ 3,438
100% (1) U.S. includes the United States,
Puerto Rico, and Guam. (2) Includes Athleta, Intermix, and
Weddington Way. (3) Includes Athleta and Intermix.
The Gap, Inc.
REAL ESTATE Store count, openings, closings, and
square footage for our stores are as follows:
13 Weeks
Ended April 29, 2017
Store LocationsBeginning of
Q1
Store LocationsOpened
Store LocationsClosed
Store LocationsEnd of Q1
Square Feet(millions)
Gap North America 844 - 9 835 8.6 Gap Asia 311 2 6 307 2.9 Gap
Europe 164 - 1 163 1.4 Old Navy North America 1,043 5 1 1,047 17.5
Old Navy Asia 13 - - 13 0.2 Banana Republic North America 601 - 4
597 5.0 Banana Republic Asia 48 1 - 49 0.2 Banana Republic Europe 1
- 1 - - Athleta North America 132 1 - 133 0.6 Intermix North
America 43 - 1 42 0.1
Company-operated stores total
3,200 9 23 3,186 36.5 Franchise 459 15 8 466 N/A
Total
3,659 24 31 3,652 36.5
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170518006281/en/
Gap Inc.Investor Relations Contact:Tina Romani,
415-427-5264Investor_relations@gap.comorMedia Relations
Contact:Jennifer Poppers, 415-427-1729Press@gap.com
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