- Affirmed Full-Year Earnings Per Share
Guidance Range of $2.55 to $2.70
- Delivered Sixth Consecutive Quarter of
Positive Comparable Sales Growth
- Distributed $194 Million to
Shareholders Through Share Repurchases and Dividends
Gap Inc. (NYSE: GPS) today reported first quarter fiscal year
2018 diluted earnings per share of $0.42 compared with diluted
earnings per share of $0.36 in the first quarter of fiscal year
2017. The company also affirmed its full-year diluted earnings per
share guidance to be in the range of $2.55 to $2.70.
“We are pleased to have delivered our sixth consecutive quarter
of positive comp growth, despite the expected challenges at Gap
brand,” said Art Peck, president and chief executive officer, Gap
Inc. “Our balanced growth strategy provides the right foundation to
differentiate our portfolio of brands in this retail environment,
with strategic investments in value, active and digital fueled by
productivity opportunities unique to our scaled operating
platform.”
“Despite the pressures we faced in the first quarter, we are
affirming our full-year guidance, reflecting our confidence in the
underlying fundamentals of the business as well as the benefits of
executing against our balanced growth strategy,” said Teri
List-Stoll, executive vice president and chief financial officer,
Gap Inc.
First Quarter 2018 Comparable Sales Results
Due to the 53rd week in fiscal 2017, comparable sales for the
first quarter of fiscal year 2018 are compared with the 13-week
period ended May 6, 2017. On this basis, the company’s first
quarter comparable sales increased 1% compared with a 2% increase
last year. Comparable sales by global brand for the first quarter
were as follows:
- Old Navy Global: positive 3%
versus positive 8% last year
- Gap Global: negative 4% versus
negative 4% last year
- Banana Republic Global: positive
3% versus negative 4% last year
Recent Accounting Pronouncement – Revenue Recognition
During the first quarter of fiscal 2018, the company adopted the
new revenue recognition standard, ASC 606. The adoption of this
standard has a significant impact on the presentations of certain
line items of the Consolidated Statements of Income, but does not
have a material impact to net income. The most significant changes
are the reclassifications from operating expenses to net sales of
income from revenue sharing associated with the company’s credit
card programs, as well as reclassifications from cost of goods sold
and occupancy expenses to net sales of reimbursements of loyalty
program discounts associated with the company’s credit card
programs.
The company has adopted this standard in the first quarter of
fiscal 2018, on a modified retrospective basis. The adoption
resulted in an increase of $141 million to net sales, an increase
of $50 million to cost of goods sold and occupancy expenses, and an
increase of $92 million to operating expenses for the first quarter
of fiscal 2018. There is not a material impact from the company’s
adoption on operating income, net income or earnings per share.
In accordance with the company’s adoption of the standard on a
modified retrospective basis, financial information prior to fiscal
2018 will not be recast. The summary below provides financial
measures with and without the impact from the adoption of the new
revenue recognition standard.
For the first quarter ended May 5, 2018:
- Net sales were $3.8 billion, an
increase of 10% compared with last year. Excluding the impact from
the adoption of the new revenue recognition standard, net sales
increased 6% compared with last year.
- The translation of foreign currencies
into U.S. dollars positively impacted the company’s net sales for
the first quarter of fiscal year 2018 by about $40 million. First
quarter net sales details appear in the tables at the end of this
press release.
- Gross profit was $1.43 billion, an
increase of 10% compared with last year. Excluding the impact from
the adoption of the new revenue recognition standard, gross profit
increased about 3% compared with last year.
- Gross margin was 37.7%, a decrease of
20 basis points compared with last year. Excluding the impact from
the adoption of the new revenue recognition standard, gross margin
was 36.7%, a decrease of 120 basis points compared with last year,
largely due to the Gap Brand.
- Operating margin was 6.1%, a decrease
of 130 basis points compared with last year. Excluding the impact
from the adoption of the new revenue recognition standard,
operating margin was 6.3%, a decrease of 110 basis points compared
with last year.
- The effective tax rate was 25.1% for
the first quarter of fiscal year 2018.
- Diluted earnings per share were $0.42
compared to $0.36 last year.
- The company noted diluted earnings per
share includes a positive impact from the calendar shift created by
the 53rd week in fiscal year 2017.
- The company noted that foreign currency
fluctuations did not materially impact earnings per share for the
first quarter of fiscal year 2018.
- The company repurchased 3.2 million
shares for $100 million and ended the first quarter of fiscal year
2018 with 387 million shares outstanding.
- The company paid a dividend of $0.2425
per share during the first quarter of fiscal year 2018, an increase
of over 5% compared to last year. In addition, on May 23, 2018, the
company announced that its Board of Directors authorized a second
quarter dividend of $0.2425 per share.
The company ended the first quarter of fiscal year 2018 with
$1.4 billion in cash, cash equivalents, and short-term investments.
Year-to-date free cash flow, defined as net cash from operating
activities less purchases of property and equipment, was negative
$204 million, which reflects a higher bonus payout in the first
quarter of fiscal year 2018. 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.
First quarter fiscal year 2018 capital expenditures were $138
million.
The company ended the first quarter of fiscal year 2018 with
3,617 store locations in 45 countries, of which 3,171 were
company-operated.
2018 Outlook
Earnings per Share
The company affirmed its full-year diluted earnings per share
guidance to be in the range of $2.55 to $2.70.
Comparable Sales
The company continues to expect comparable sales for fiscal year
2018 to be flat to up slightly.
Effective Tax Rate
The company continues to expect its fiscal year 2018 effective
tax rate to be about 26%.
Share Repurchases
The company continues to expect to repurchase approximately $100
million per quarter through the end of fiscal year 2018.
Capital Expenditures
The company continues to expect capital spending to be
approximately $800 million for fiscal year 2018, with a continued
focus on transformative infrastructure investments to support its
omni-channel and digital strategies, such as information technology
and supply chain.
Real Estate
The company continues to expect to open about 25
company-operated stores, net of closures and repositions in fiscal
year 2018. In line with its strategy, the company expects store
openings to be focused on Athleta and Old Navy locations, with
closures weighted toward Gap brand and Banana Republic.
Webcast and Conference Call Information
Tina Romani, Director of Investor Relations at Gap Inc., will
host a summary of the company’s first quarter fiscal year 2018
results during a conference call and webcast from approximately
2:00 p.m. to 3:00 p.m. Pacific Time today. Ms. Romani 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: 9015811). International
callers may dial 1-323-794-2078. 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; comparable sales for fiscal year
2018; effective tax rate for fiscal year 2018; share repurchases in
fiscal year 2018; capital expenditures for fiscal year 2018,
including transformative infrastructure investments; store
openings, net of closures and repositions, in fiscal year 2018;
gross margin pressure at Gap brand; the impact of the new FASB
revenue recognition standards; the spread between comparable sales
and sales growth in fiscal year 2018; SG&A as a percent of net
sales; and the impact on fiscal year 2018 of the 53rd week in
fiscal 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 risks, any of which could have an adverse
effect on the company’s financial condition, results of operations,
and reputation: the risk that adjustments to the company’s
unaudited financial statements may be identified through the course
of the company’s independent registered public accounting firm
completing its integrated audit of the company’s financial
statements and financial controls; 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 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 of failure to maintain, enhance and protect the company’s
brand image; the risk of failure to attract and retain key
personnel, or effectively manage succession; the risk that the
company’s investments in customer, digital, and omni-channel
shopping initiatives may not deliver the results the company
anticipates; the risk if the company is unable to manage its
inventory 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; the risk
that a failure of, or updates or changes to, the company’s
information technology systems may disrupt its operations; the risk
that trade matters could increase the cost or reduce the supply of
apparel available to the company; the risk of changes in the
regulatory or administrative landscape; the risks to the company’s
business, including its costs and supply chain, associated with
global sourcing and manufacturing; the risk of changes in global
economic conditions or consumer spending patterns; the risks to the
company’s efforts to expand internationally, including its ability
to operate 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 of foreign currency
exchange rate fluctuations; 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; the risk of
natural disasters, public health crises, political crises, negative
global climate patterns, or other catastrophic events; the risk of
reductions in income and cash flow from the company’s credit card
arrangement related to its private label and co-branded credit
cards; 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, and claims.
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 February 3, 2018, 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 24, 2018. 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 and Athleta
brands. Fiscal year 2017 net sales were $15.9 billion. Gap Inc.
products are available for purchase in more than 90 countries
worldwide through company-operated stores, franchise stores, and
e-commerce sites. For more information, please visit
www.gapinc.com.
The Gap, Inc. CONDENSED CONSOLIDATED BALANCE
SHEETS UNAUDITED
May
5,
April
29,
($ in millions) 2018 2017 ASSETS Current
assets: Cash and cash equivalents $ 1,210 $ 1,583 Short-term
investments 164 - Merchandise inventory 2,035 1,961 Other current
assets 778 575 Total current assets 4,187 4,119
Property and equipment, net 2,791 2,605 Other long-term assets
607 687 Total assets $ 7,585 $ 7,411
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current
maturities of debt $ - $ 67 Accounts payable 1,072 1,119 Accrued
expenses and other current liabilities 975 1,088 Income taxes
payable 11 28 Total current liabilities 2,058
2,302 Long-term liabilities: Long-term debt 1,249 1,248
Lease incentives and other long-term liabilities 1,081
999 Total long-term liabilities 2,330 2,247
Total stockholders' equity 3,197 2,862 Total
liabilities and stockholders' equity $ 7,585 $ 7,411
The
Gap, Inc. CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED 13 Weeks Ended
May
5,
April
29,
($ and shares in millions except per share amounts)
2018 2017 Net sales $ 3,783 $ 3,440 Cost of goods
sold and occupancy expenses 2,356 2,137 Gross profit
1,427 1,303 Operating expenses 1,198 1,049 Operating
income 229 254 Interest, net 10 16 Income before
income taxes 219 238 Income taxes 55 95 Net income $
164 $ 143 Weighted-average number of shares - basic 389 399
Weighted-average number of shares - diluted 393 400 Earnings
per share - basic $ 0.42 $ 0.36 Earnings per share - diluted $ 0.42
$ 0.36 Cash dividends declared and paid per share $ 0.2425 $
0.23
The Gap, Inc. CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
13 Weeks Ended
May
5,
April
29,
($ in millions) 2018 2017 (b) Cash flows from
operating activities: Net income $ 164 $ 143 Depreciation and
amortization (a) 126 123 Change in merchandise inventory (46 ) (133
) Other, net (310 ) (42 ) Net cash (used for)
provided by operating activities (66 ) 91
Cash flows from investing activities: Purchases of property
and equipment (138 ) (110 ) Insurance proceeds related to loss on
property and equipment - 14 Purchases of short-term investments
(167 ) - Sales and maturities of short-term investments 3 - Other
(7 ) - Net cash used for investing activities
(309 ) (96 ) Cash flows from financing
activities: Proceeds from issuances under share-based compensation
plans 20 8 Withholding tax payments related to vesting of stock
units (19 ) (13 ) Repurchases of common stock (100 ) (96 ) Cash
dividends paid (94 ) (92 ) Net cash used for
financing activities (193 ) (193 ) Effect of
foreign exchange rate fluctuations on cash, cash equivalents, and
restricted cash (2 ) 1 Net decrease in cash,
cash equivalents, and restricted cash (570 ) (197 ) Cash, cash
equivalents, and restricted cash at beginning of period
1,799 1,797 Cash, cash equivalents, and restricted
cash at end of period $ 1,229 $ 1,600
____________________ (a) Depreciation and amortization is
net of amortization of lease incentives. (b) The prior
period amounts reflect the retrospective adoption of ASU 2016-18,
Statement of Cash Flows: Restricted Cash, on February 4, 2018. As a
result of the adoption of ASU 2016-18, restricted cash of $19
million and $17 million recorded in other current assets and other
long-term assets on the Condensed Consolidated Balance Sheets have
been included with cash and cash equivalents above for the first
quarters of 2018 and 2017, respectively.
The Gap,
Inc. NON-GAAP FINANCIAL MEASURES UNAUDITED
FREE CASH FLOW Free cash flow is a
non-GAAP financial measure. We believe free cash flow is an
important metric because it represents a measure of how much cash a
company has available for discretionary and non-discretionary items
after the deduction of capital expenditures, net of insurance
proceeds related to loss on property and equipment, as we require
regular capital expenditures to build and maintain stores and
purchase new equipment to improve our business. We use this metric
internally, as we believe our sustained ability to generate free
cash flow is an important driver of value creation. However, this
non-GAAP financial measure is not intended to supersede or replace
our GAAP results.
13 Weeks Ended ($ in
millions)
May
5, 2018
April
29, 2017
Net cash (used for) provided by operating activities $ (66 ) $ 91
Less: Purchases of property and equipment (138 ) (110 ) Add:
Insurance proceeds related to loss on property and equipment (a)
- 14 Free cash flow $ (204 ) $ (5 )
____________________ (a) Represents insurance
proceeds related to loss on property and equipment primarily from
the fire that occurred on the company-owned distribution center
campus in Fishkill, New York on August 29, 2016.
The Gap,
Inc. IMPACTS OF ADOPTING ASC 606 ON OUR CONDENSED
CONSOLIDATED STATEMENTS OF INCOME UNAUDITED
The following table summarizes the impacts of
adopting ASC 606 on our Condensed Consolidated Statements of Income
for the thirteen weeks ended May 5, 2018:
13 Weeks Ended
May 5, 2018 ($ in millions) As reported
Adjustments(a)
Balanceswithoutadoption
ofASC 606
Net sales $ 3,783 $ (141 ) $ 3,642 Cost of goods sold and occupancy
expenses 2,356 (50 ) 2,306 Gross profit 1,427
(91 ) 1,336 Operating expenses 1,198 (92 )
1,106 Operating income 229 1 230 Interest, net 10 -
10 Income before income taxes 219 1 220 Income taxes
55 - 55 Net income $ 164 $ 1 $
165 ____________________ (a) Primarily consists of
$92 million in income from revenue sharing associated with our
Credit Card programs, which was previously recorded as a reduction
to operating expenses in our Condensed Consolidated Statements of
Income, and $44 million in reimbursements of loyalty program
discounts associated with our Credit Card programs, which was
previously recorded as a reduction to cost of goods sold and
occupancy expenses in our Condensed Consolidated Statements of
Income.
The Gap, Inc. NET SALES RESULTS
UNAUDITED The
following table details the company’s first quarter net sales
(unaudited):
($ in millions) Old Navy
Banana Percentage of
13 Weeks Ended May 5, 2018
Global Gap Global Republic Global Other
(2) Total Net Sales U.S. (1) $ 1,590 $ 680 $ 479
$ 269 $ 3,018 80 % Canada 127 77 50 1 255 7 % Europe - 135 4 - 139
4 % Asia 12 284 25 - 321 8 % Other regions 16 28
6 - 50 1 % Total $ 1,745 $ 1,204 $ 564 $ 270 $
3,783 100 %
($ in millions) Old Navy
Banana Percentage of
13 Weeks Ended April 29, 2017
(3)
Global Gap Global Republic Global Other
(2) Total Net Sales U.S. (1) $ 1,426 $ 668 $
437
$ 202 $ 2,733 79 % Canada 111 77 45 1 234 7 % Europe - 133 4 - 137
4 % Asia 9 250 24 - 283 8 % Other regions 16 30
7 - 53 2 % Total $ 1,562 $ 1,158 $ 517 $ 203 $
3,440 100 % ____________________ (1) U.S. includes
the United States, Puerto Rico, and Guam. (2) Primarily consists of
net sales for the Athleta and Intermix brands. (3) Prior period
amounts have not been restated due to adoption of the new revenue
standard and continue to be reported under accounting standards in
effect for those periods.
The Gap, Inc. REAL
ESTATE Store count,
openings, closings, and square footage for our stores are as
follows:
13 Weeks Ended May 5, 2018
Store LocationsBeginning of
Q1
Store LocationsOpened
Store LocationsClosed
Store LocationsEnd of Q1
Square Feet(millions)
Old Navy North America 1,066 9 1 1,074 17.8 Old Navy Asia 14 - - 14
0.2 Gap North America 810 3 7 806 8.4 Gap Asia 313 8 1 320 3.1 Gap
Europe 155 3 3 155 1.3 Banana Republic North America 576 1 5 572
4.8 Banana Republic Asia 45 2 2 45 0.2 Athleta North America 148 -
1 147 0.6 Intermix North America 38 - - 38 0.1 Company-operated
stores total 3,165 26 20 3,171 36.5 Franchise 429 36 19 446 N/A
Total 3,594 62 39 3,617 36.5
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180524006138/en/
Gap Inc.Investor Relations:Tina Romani,
415-427-5264Investor_relations@gap.comorMedia
Relations:Trina Somera, 415-427-3145Press@gap.com
Gap (NYSE:GPS)
Historical Stock Chart
From Apr 2024 to May 2024
Gap (NYSE:GPS)
Historical Stock Chart
From May 2023 to May 2024