- Third quarter comparable sales increased 5% and net sales were
down 1% compared to 2019 pre-COVID levels
- Significant supply chain constraints in the quarter impacted
both comparable sales and net sales
- Online sales for the quarter increased 48% compared to
2019
- Gross Margin of 42.1% for the quarter represented the highest
third quarter rate in over ten years
- The company is revising its full-year 2021 guidance as a result
of ongoing supply chain disruption
Gap Inc. (NYSE: GPS), a portfolio of purpose-led, billion-dollar
lifestyle brands including Old Navy, Gap, Banana Republic, and
Athleta, and the largest specialty apparel company in the U.S.,
reported a third quarter fiscal year 2021 diluted loss per share of
$0.40. Excluding fees associated with restructuring the company’s
long-term debt and net charges related to strategic changes in its
European operating model, adjusted diluted earnings per share were
$0.27. Additional information regarding adjusted diluted earnings
per share, which is a non-GAAP financial measure, is provided at
the end of this press release along with a reconciliation of this
measure from the most directly comparable GAAP financial
measure.
This press release features multimedia. View
the full release here:
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Highlights from Gap Inc. Q3 earnings
(Graphic: Business Wire)
“While we entered the third quarter with growing momentum, acute
supply chain headwinds affected our ability to fully meet strong
customer demand. Still, we made an intentional investment in
building enduring customer loyalty with accelerated use of air
freight to serve them this holiday, choosing long-term growth
opportunity over near-term impact to profitability,” said Sonia
Syngal, CEO, Gap Inc. “Current pressures have not distracted us
from what matters: growing our billion-dollar brands, delighting
our over 64 million customers with product and experiences that
drive lifetime value and restructuring and digitizing our business
with an eye on creating a better future, faster.”
Consistent with the company’s quarterly releases in the first
half of this year, financial comparisons for the third quarter of
fiscal year 2021 are being made primarily to 2019 due to unique
comparisons to 2020 as a result of COVID-19. Financial results for
the third quarter of fiscal 2020 and 2019 can be found in the
tables at the end of this press release.
Third Quarter 2021 Net Sales Results
Global supply chain disruption, including COVID-related factory
closures and continued port congestion, caused significant product
delays in the third quarter. Meaningfully reduced inventory
positions throughout the quarter negatively impacted sales as
brands were unable to fully meet strong consumer demand. The
company noted that while supply chain constraints continue, it is
leveraging increased air freight and port diversification to
navigate ongoing delivery challenges for holiday.
The company’s third quarter fiscal year 2021 net sales of $3.9
billion were down 1% compared to 2019 with supply chain disruption
driving an estimated 8 percentage point negative impact due to
constrained inventory.1 The company remains focused on digital
dominance through investing in its ecommerce platform,
strategically closing unprofitable stores and partnering to amplify
in international markets. Online sales grew 48% compared to the
third quarter of 2019 and represented 38% of the total business,
even as store traffic continues to rebound. Investments in
technology are driving an enhanced online experience as the company
accelerates its digital strategy. Third quarter comparable sales
were up 5% versus 2019. The comparable sales calculation reflects
online sales and comparable sales days in stores that were
open.
Net sales and comparable sales by global brand for the quarter
were as follows:
- Old Navy: Net sales were up 8% versus 2019. Comparable
sales were down 9% year-over-year and increased 6% versus 2019.
Sales in the quarter outpaced available inventory as the brand was
disproportionately impacted by supply chain delays, particularly
within the women’s assortment. Following the launch of BODEQUALITY,
Old Navy’s extended-size customer file has doubled since last
quarter, with 15% of extended-size customers being new to the
brand. These customers are increasingly shopping for the family
across multiple categories, driving an increase in average
transaction value.
- Gap: Net sales declined 10% versus 2019, with permanent
store closures resulting in an estimated 18% net sales decline.
Global comparable sales increased 7% year-over-year and increased
3% versus 2019. North America two-year comparable sales were
positive for the third consecutive quarter, up 13% versus 2019,
with net sales only 1% below 2019 levels despite nearly 190 store
closures in the region since the third quarter of 2019. To date,
Gap has entered into partnership agreements in the UK, Ireland,
France, and Italy, which are expected to improve the profitability
of its European business. The brand’s Partner to Amplify strategy
continues to ignite relevance with the launch of the Yeezy Gap
Hoodie delivering the most sales by an item in a single day in
Gap.com history with 70% of customers being new to the brand.
Additionally, the launch of a second Gap Home collection at
Walmart.com has expanded its assortment to include furniture and
rugs.
- Banana Republic: Net sales declined 18% versus 2019,
with permanent store closures resulting in an estimated 10% sales
decline. Comparable sales increased 28% year-over-year and
decreased 10% versus 2019. Following the brand’s relaunch in
September, Banana Republic is focused on improving every touchpoint
of the customer experience – including elevated high-quality
product, differentiated omni experiences, and relevant marketing.
Banana Republic was able to expand product margins in the quarter
compared to both last year and 2019 through lower discount rates
and higher selling prices.
- Athleta: Net sales were up 48% versus 2019. Comparable
sales increased 2% year-over-year and 41% versus 2019. As part of
its plan to reach $2 billion in sales, Athleta continues to invest
in new touchpoints to increase awareness and drive customer
engagement. During the quarter, Athleta expanded its footprint by
launching its Canadian online business at the end of August and
opening its first company-operated Canadian store in Vancouver at
the end of September, followed by its second store which opened in
Toronto last week. The brand is laying the foundation for greater
international expansion with franchise partnerships in Costa Rica
and Europe. Last month, Athleta released its first item with Simone
Biles, a limited-edition Girl’s hoodie, with a bigger collection
planned for Spring 2022.
Third Quarter 2021 Additional Results:
Compared to the third quarter of fiscal 2019:
- Reported gross margin of 42.1% increased 310 basis points
versus 2019. Excluding a benefit related to transitioning the
company’s European business to a partnership model, adjusted gross
margin was 41.9%, an increase of 290 basis points driven by:
- Rent, Occupancy and Depreciation (ROD) leverage of 300 basis
points versus 2019 due to online growth, strategic store closures
and rent negotiations.
- Merchandise margins were down just 10 basis points versus 2019
as strong product acceptance offset nearly 200 basis points of
online shipping costs and about 250 basis points of short-term
headwinds related to air freight.
- Operating expenses were $1.51 billion or 38.2% of net sales on
a reported basis. Excluding a charge of $26 million related to
transitioning the company’s European business to a partnership
model, adjusted operating expenses were $1.48 billion or 37.6% of
net sales, 610 basis points higher than 2019 adjusted operating
expenses. The third quarter rate reflects an increased investment
in marketing to support new initiatives, investments in technology
to build out digital and supply chain capabilities, and higher
incentive compensation and fulfillment expenses, partially offset
by reductions in store expenses.
- Operating margin for the quarter was 3.9% on a reported basis.
Adjusted operating margin of 4.3% decreased 320 basis points
compared to 2019 adjusted operating margin and includes an
estimated $300 million in lost sales due to constrained inventory,
as well as approximately $100 million in transitory air freight
costs.
- During the quarter, the company restructured its long-term debt
by retiring $2.25 billion of senior secured notes and issuing $1.5
billion of lower coupon senior unsecured notes, which is
anticipated to generate approximately $140 million in annual
interest expense savings. Interest, net for the quarter was $43
million. In conjunction with the long-term debt restructuring, the
company incurred a loss on extinguishment of debt of $325
million.
- The effective tax rate for the third quarter was 29.3%.
Excluding the net impact related to strategic changes in the
company’s European business and loss on extinguishment of debt, the
adjusted effective tax rate was 19.7%.
- On a reported basis, the diluted loss per share was $0.40.
Excluding fees associated with our long-term debt restructuring and
the transition of our European markets to a partnership model,
adjusted earnings per share for the quarter were $0.27.
- During the quarter, the company repurchased 2.9 million shares
for $73 million and ended the third quarter of fiscal year 2021
with 374 million shares outstanding.
- The company paid a dividend of $0.12 per share during the third
quarter of fiscal year 2021. In addition, on November 10, 2021, the
company announced that its Board of Directors authorized a fourth
quarter dividend of $0.12 per share.
- Third quarter ending inventory was down 1% year-over-year and
flat versus 2019. The company expects fourth quarter ending
inventory to be up high single digits versus last year, although
this outlook may change given continued volatility in the supply
chain.
- The company ended the third quarter of fiscal year 2021 with
$1.1 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 $196
million.
- Fiscal year-to-date capital expenditures were $486
million.
- The company ended the third quarter of fiscal year 2021 with
3,459 store locations in over 40 countries, of which 2,873 were
company operated.
Additional information regarding adjusted gross margin, adjusted
operating expenses, adjusted operating margin, adjusted effective
tax rate, and free cash flow, all of which are non-GAAP financial
measures, is provided at the end of this press release along with a
reconciliation of these measures from the most directly comparable
GAAP financial measures.
2021 Outlook
The company now expects its reported full-year diluted earnings
per share to be in the range of $0.45 to $0.60, which includes a
$325 million loss on extinguishment of debt and approximately $120
million in net charges primarily related to divestitures and
changes to its European operating model. Excluding these charges,
adjusted full-year diluted earnings per share are expected to be in
the range of $1.25 to $1.40, which contemplates a range of on-time
delivery rates for our holiday flows and other supply chain
challenges. This guidance includes an estimated $550 to $650
million of lost sales from supply chain constraints on available
inventory, as well as approximately $450 million in total air
freight expense for the year. The company noted that when adjusting
for transitory costs and sales lost from the acute disruption, the
business momentum is strong.
Net Sales: The company now expects full-year revenue
growth to be about twenty percent versus fiscal year 2020.
Operating Margin: The company now expects its reported
operating margin for fiscal year 2021 to be about 4.5%, with
adjusted operating margin expected to be about 5%, on track to
achieving a 10% operating margin by the end of 2023.
Interest Expense, Net: The company expects full-year net
interest expense of $163 million, down $47 million versus prior
guidance, which reflects lower interest rates for the third and
fourth quarters and a reduction in the company’s overall debt
balance.
Effective Tax Rate: The company now expects its reported
fiscal year 2021 effective tax rate to be about 23%. Excluding the
net impact related to divestitures, strategic changes to its
European business and loss on extinguishment of debt, the company
expects its adjusted fiscal year 2021 effective tax rate to be
about 26%.
Capital Expenditures: The company continues to expect
capital spending to be approximately $800 million in fiscal year
2021. Consistent with the company’s Power Plan 2023 strategy,
capital spending is expected to primarily support growth
investments including digital, loyalty, and supply chain capacity
projects, along with investment in store growth for Old Navy and
Athleta.
Real Estate: The company continues to expect to open
about 30-40 Old Navy and 20-30 Athleta stores in 2021, as well as
close approximately 75 Gap and Banana Republic stores in North
America.
“While there is still hard work ahead to navigate near-term
challenges in the macro environment, the team has made tremendous
progress, adapting quickly while never taking their focus off of
our long-term objectives,” said Katrina O’Connell, Executive Vice
President and Chief Financial Officer, Gap Inc. “We have strong
demand for our brands and our fleet rationalization and
divestitures are progressing well and adding value. Our operating
margin remains on track to hit 10% by 2023, in line with our plan,
even as we navigate these near-term disruptions. While our
mitigation efforts are driving significant transitory costs, we
view these as investments in preserving market share and driving
overall health and relevance for our brands.”
Webcast and Conference Call Information
Joe Scheeline, Head of Corporate Finance and Investor Relations
at Gap Inc., will host a summary of the company’s third quarter
fiscal year 2021 results during a conference call and webcast from
approximately 2:00 p.m. to 3:00 p.m. Pacific Time today. Joe will
be joined by Chief Executive Officer Sonia Syngal and Chief
Financial Officer Katrina O’Connell.
To access the conference call, please use the “Click to Join”
link below to have the conference call you. The link becomes active
15 minutes prior to the scheduled start time.
Click to Join
If you prefer to dial in, you can join by calling 1-855-5000-GPS
or 1-855-500-0477 (participant passcode: 4762521). International
callers may dial 1-323-794-2078. The webcast can be accessed at
investors.gapinc.com.
Non-GAAP Disclosure
This press release includes financial measures that have not
been calculated in accordance with U.S. generally accepted
accounting principles (GAAP) and are therefore referred to as
non-GAAP financial measures. The non-GAAP measures described below
are intended to provide investors with additional useful
information about the company’s financial performance, to enhance
the overall understanding of its past performance and future
prospects and to allow for greater transparency with respect to
important metrics used by management for financial and operating
decision-making. The company presents these non-GAAP financial
measures to assist investors in seeing its financial performance
from management's view and because it believes they provide an
additional tool for investors to use in computing the company's
core financial performance over multiple periods with other
companies in its industry. Additional information regarding the
intended use of each non-GAAP measure included in this press
release is provided in the tables to this press release.
The non-GAAP measures included in this press release are
adjusted gross margin, adjusted operating expenses, adjusted
operating income, adjusted effective tax rate, adjusted diluted
earnings per share, and free cash flow. These non-GAAP measures
exclude the impact of certain items that are set forth in the
tables to this press release.
The non-GAAP measures used by the company should not be
considered as a substitute for, or superior to, measures of
financial performance prepared in accordance with GAAP and may not
be the same as similarly titled measures used by other companies
due to possible differences in method and in items or events being
adjusted. The company urges investors to review the reconciliation
of these non-GAAP financial measures to the most directly
comparable GAAP financial measures included in the tables to this
press release below, and not to rely on any single financial
measure to evaluate its business. The Non-GAAP financial measures
used by the company have limitations in their usefulness to
investors because they have no standardized meaning prescribed by
GAAP and are not prepared under any comprehensive set of accounting
rules or principles.
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: sales growth in 2021; lost sales and the adverse
earnings impact in 2021 due to supply chain disruptions; reported
and adjusted operating margin in 2021; reported and adjusted
earnings per share in 2021; the impact of supply chain constraints,
including COVID-related factory closures, port congestion and
constrained inventory; our efforts to mitigate supply chain
disruptions, including increased air freight and port
diversification; air freight expense and transitory costs
associated with supply chain disruption in 2021 and 2022; on-time
delivery rates; our efforts to accelerate capabilities to mitigate
logistics challenges and increase speed to market; the scale of our
business and supply chain; our relationships with manufacturers and
transportation partners; leveraging more multinational vendors; our
Power Plan 2023 strategy and our ability to execute against it; our
business performance relative to plan; demand for our brands;
extending our customer reach; our investments in demand generation;
our investments in growth, cost reduction, loyalty, speed and
agility; accelerating our digital transformation and benefits
associated therewith; our digital, ecommerce, artificial
intelligence, inventory management and technology investments and
efforts; our investments in supply chain capabilities; the strength
of our ecommerce channel; our use of data science and ecommerce
tools; inclusive sizing and BODEQUALITY at Old Navy; Athleta’s
growth strategy and expansion into Canada; AthletaWell and related
monetization opportunities; Banana Republic’s brand relaunch and
enhanced customer experience; restructuring our long-term debt and
estimated benefits associated therewith; interest expense in 2021;
future share repurchases, including the potential timing and
amounts thereof; the expected timing, cost and scope of the
strategic review of our operating model in Europe and estimated
cost impacts associated therewith; our partnerships in
international markets; the impact of our divestitures; operating
margin in 2023; reported and adjusted effective tax rate in 2021;
capital expenditures in 2021; store openings and closings in 2021;
store traffic; product acceptance by our customers; our discount
rates; the health of our customer file; our key initiatives,
strategies and business priorities; demand and customer spending
trends; market share and brand awareness rankings; our omni-channel
capabilities; apparel trends; apparel and accessory sales
expectations across the industry in 2021 and 2022; expectations for
average retail units in 2022; our marketing investments’ ability to
attract and maintain customers; revenues in 2021 from our Active +
Fleece and Denim businesses; our Gap Home venture with Walmart.com
and other existing and potential future partnerships; our Partner
to Amplify strategy and partnerships with public figures;
rationalizing the Gap and Banana Republic brands; restructuring our
business and store fleet; improving the core health of the Gap
brand; the impact of COVID-19; SG&A spend; marketing spend;
inventory growth and fourth quarter 2021 ending inventory;
inventory for the 2021 holiday season; our dividend policy,
including the potential timing and amounts of future dividends; Gap
and Banana Republic store closings; Old Navy and Athleta store
openings; investments in Old Navy and Athleta store growth; the
strength of our balance sheet; our loyalty programs, including our
recently launched integrated loyalty program; and our fixed cost
structure.
Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause our
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 our financial condition, results of operations, and
reputation: the risk that additional information may arise during
our close process or as a result of subsequent events that would
require us to make adjustments to our financial information; the
overall global economic environment and risks associated with the
COVID-19 pandemic; the risk that economic conditions worsen beyond
what is currently estimated by management; the risk that our
inability to mitigate the impact of global supply chain disruptions
on our business and operations and maintain inventory commensurate
with customer demand may adversely affect our results of
operations; the risk that we or our franchisees will be
unsuccessful in gauging apparel trends and changing consumer
preferences; the risk that failure to maintain, enhance and protect
our brand image could have an adverse effect on our results of
operations; the highly competitive nature of our business in the
United States and internationally; engaging in or seeking to engage
in strategic transactions that are subject to various risks and
uncertainties; the risk that our investments in customer, digital,
loyalty, supply chain and omni-channel shopping initiatives may not
deliver the results we anticipate; the risk that the failure to
manage key executive succession and retention and to continue to
attract qualified personnel could have an adverse impact on our
results of operations; the risk that if we are unable to manage our
inventory effectively, our gross margins will be adversely
affected; the risks to our business, including our costs and supply
chain, associated with global sourcing and manufacturing; the risks
to our reputation or operations associated with importing
merchandise from foreign countries, including failure of our
vendors to adhere to our Code of Vendor Conduct; the risk that we
are 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 our security measures, which
could have an adverse effect on our results of operations and our
reputation; the risk that a failure of, or updates or changes to,
our information technology systems may disrupt our operations; the
risks to our efforts to expand internationally, including our
ability to operate in regions where we have less experience; the
risk that our arrangements with franchise partners to operate
stores in Europe will not be successful in growing our brands and
amplifying our reach; the risk that we or our 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 our
franchisees’ operation of franchise stores is not directly within
our control and could impair the value of our brands; the risk that
trade matters could increase the cost or reduce the supply of
apparel available to us and adversely affect our business,
financial condition, and results of operations; the risk that
foreign currency exchange rate fluctuations could adversely impact
our financial results; the risk that comparable sales and margins
will experience fluctuations; the risk that natural disasters,
public health crises (similar to and including the ongoing COVID-19
pandemic), political crises, negative global climate patterns, or
other catastrophic events could adversely affect our operations and
financial results, or those of our franchisees or vendors; the risk
that changes in global economic conditions or consumer spending
patterns could adversely impact our results of operations; the risk
that we will not be successful in defending various proceedings,
lawsuits, disputes, and claims; the risk that changes in the
regulatory or administrative landscape could adversely affect our
financial condition and results of operations; the risk that
reductions in income and cash flow from our credit card arrangement
related to our private label and co-branded credit cards could
adversely affect our operating results and cash flows; the risk
that changes in our credit profile or deterioration in market
conditions may limit our access to the capital markets and
adversely impact our financial position or our business
initiatives; the risk that we and our subsidiaries may be unable to
meet our obligations under our outstanding long-term debt; the risk
that the adoption of new accounting pronouncements will impact
future results; and the risk that we do not repurchase some or all
of the shares we anticipate purchasing pursuant to our repurchase
program.
Additional information regarding factors that could cause
results to differ can be found in our Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 16,
2021, as well as our subsequent filings with the Securities and
Exchange Commission.
These forward-looking statements are based on information as of
November 23, 2021. We assume no obligation to publicly update or
revise our 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., a collection of purpose-led lifestyle brands, is the
largest American specialty apparel company offering clothing,
accessories, and personal care products for men, women, and
children under the Old Navy, Gap, Banana Republic, and Athleta
brands. The company uses omni-channel capabilities to bridge the
digital world and physical stores to further enhance its shopping
experience. Gap Inc. is guided by its purpose, Inclusive, by
Design, and takes pride in creating products and experiences its
customers love while doing right by its employees, communities, and
planet. Gap Inc. products are available for purchase worldwide
through company-operated stores, franchise stores, and e-commerce
sites. Fiscal year 2020 net sales were $13.8 billion. For more
information, please visit www.gapinc.com.
1 The Company's third quarter 2021 estimated impact of lost
sales due to supply chain disruption reflects the difference
between the expected net sales by brand, which incorporated the
growth trends from the first half of fiscal 2021 versus the first
half of fiscal 2019, and the reported net sales for the third
quarter of fiscal 2021.
The Gap, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED ($ in millions) October 30,
2021 October 31, 2020 November 2, 2019 (a) ASSETS
Current assets: Cash and cash equivalents
$
801
$
2,471
$
788
Short-term investments
275
178
294
Merchandise inventory
2,721
2,747
2,720
Other current assets
1,410
966
770
Total current assets
5,207
6,362
4,572
Property and equipment, net
2,924
2,846
3,225
Operating lease assets
3,788
4,460
5,796
Other long-term assets
861
705
525
Total assets
$
12,780
$
14,373
$
14,118
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable
$
1,630
$
2,284
$
1,241
Accrued expenses and other current liabilities
1,414
1,283
974
Current portion of operating lease liabilities
746
823
934
Income taxes payable
33
41
43
Total current liabilities
3,823
4,431
3,192
Long-term liabilities: Long-term debt
1,484
2,214
1,249
Long-term operating lease liabilities
4,163
4,899
5,650
Other long-term liabilities
523
458
393
Total long-term liabilities
6,170
7,571
7,292
Total stockholders' equity
2,787
2,371
3,634
Total liabilities and stockholders' equity
$
12,780
$
14,373
$
14,118
____________________ (a) Third quarter of fiscal 2019 information
provided for comparability.
The Gap, Inc. CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED
13 Weeks Ended 39 Weeks Ended ($ and shares in
millions except per share amounts) October 30, 2021
October 31, 2020 November 2, 2019 (a) October 30,
2021 October 31, 2020 November 2, 2019 (a) Net
sales
$
3,943
$
3,994
$
3,998
$
12,145
$
9,376
$
11,709
Cost of goods sold and occupancy expenses
2,282
2,374
2,439
7,031
6,339
7,250
Gross profit
1,661
1,620
1,559
5,114
3,037
4,459
Operating expenses
1,508
1,445
1,338
4,312
4,033
3,640
Operating income (loss)
153
175
221
802
(996
)
819
Loss on extinguishment of debt
325
-
-
325
58
-
Interest, net
43
54
12
146
125
37
Income (loss) before income taxes
(215
)
121
209
331
(1,179
)
782
Income taxes
(63
)
26
69
59
(280
)
247
Net income (loss)
$
(152
)
$
95
$
140
$
272
$
(899
)
$
535
Weighted-average number of shares - basic
376
374
375
377
373
377
Weighted-average number of shares - diluted
376
380
376
385
373
379
Earnings (loss) per share - basic
$
(0.40
)
$
0.25
$
0.37
$
0.72
$
(2.41
)
$
1.42
Earnings (loss) per share - diluted
$
(0.40
)
$
0.25
$
0.37
$
0.71
$
(2.41
)
$
1.41
____________________ (a) Third quarter of fiscal 2019
quarter-to-date and year-to-date information provided for
comparability.
The Gap, Inc. CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS UNAUDITED 39 Weeks
Ended ($ in millions) October 30,2021 (a)
October 31,2020 (a) Cash flows from operating activities:
Net income (loss)
$
272
$
(899
)
Depreciation and amortization
372
381
Impairment of operating lease assets
6
361
Impairment of store assets
1
127
Loss on extinguishment of debt
325
58
Loss on divestiture activity
59
-
Change in merchandise inventory
(288
)
(590
)
Change in accounts payable
(119
)
1,120
Other, net
54
(159
)
Net cash provided by operating activities
682
399
Cash flows from investing activities: Purchases of property
and equipment
(486
)
(288
)
Purchases of short-term investments
(634
)
(237
)
Proceeds from sales and maturities of short-term investments
768
348
Net cash paid for divestiture activity
(21
)
-
Payments for acquisition activity, net of cash acquired
(135
)
Other
-
2
Net cash used for investing activities
(508
)
(175
)
Cash flows from financing activities: Proceeds from
revolving credit facility
-
500
Payments for revolving credit facility
-
(500
)
Proceeds from issuance of long-term debt
1,500
2,250
Payments to extinguish debt
(2,546
)
(1,307
)
Payments for debt issuance costs
(16
)
(61
)
Proceeds from issuances under share-based compensation plans
48
16
Withholding tax payments related to vesting of stock units
(34
)
(8
)
Repurchases of common stock
(128
)
-
Cash dividends paid
(182
)
-
Net cash provided by (used for) financing activities
(1,358
)
890
Effect of foreign exchange rate fluctuations on cash, cash
equivalents, and restricted cash
(3
)
4
Net increase (decrease) in cash, cash equivalents, and restricted
cash
(1,187
)
1,118
Cash, cash equivalents, and restricted cash at beginning of period
2,016
1,381
Cash, cash equivalents, and restricted cash at end of period
$
829
$
2,499
____________________ (a) For the thirty-nine weeks ended October
30, 2021 and October 31, 2020, total cash, cash equivalents, and
restricted cash includes $28 million of restricted cash recorded in
other current assets and other long-term assets on the Condensed
Consolidated Balance Sheets.
The Gap, Inc.
NON-GAAP FINANCIAL MEASURES
UNAUDITED
FREE CASH FLOW Free cash flow is a non-GAAP
financial measure. We believe free cash flow is an important metric
because it represents a measure of how much cash a company has
available for discretionary and non-discretionary items after the
deduction of capital expenditures. We require regular capital
expenditures including technology improvements to automate
processes, engage with customers, and optimize our supply chain in
addition to building and maintaining stores. We use this metric
internally, as we believe our sustained ability to generate free
cash flow is an important driver of value creation. However, this
non-GAAP financial measure is not intended to supersede or replace
our GAAP results.
39 Weeks Ended ($ in
millions) October 30, 2021 October 31, 2020 Net
cash provided by operating activities
$
682
$
399
Less: Purchases of property and equipment
(486
)
(288
)
Free cash flow
$
196
$
111
The Gap, Inc.
NON-GAAP FINANCIAL MEASURES
UNAUDITED
ADJUSTED STATEMENT OF OPERATIONS METRICS FOR THE THIRD
QUARTER OF FISCAL YEAR 2021 The following adjusted
statement of operations metrics are non-GAAP financial measures.
These measures are provided to enhance visibility into the
Company's underlying results for the period excluding the impacts
of strategic changes related to our operating model in Europe and
the loss on extinguishment of debt. Management believes that
excluding certain items from statement of operations metrics that
are not part of the Company's core operations provides additional
information to investors to facilitate the comparison of results
against past and future years. However, these non-GAAP financial
measures are not intended to supersede or replace the GAAP
measures.
($ in millions)13 Weeks Ended October 30,
2021 GrossProfit GrossMargin
OperatingExpenses OperatingExpenses as a% of Net
Sales(b) OperatingIncome OperatingMargin Loss
onExtinguishmentof Debt IncomeTaxes
NetIncome(Loss) Earnings (Loss)per Share -Diluted
GAAP metrics, as reported
$
1,661
42.1
%
$
1,508
38.2
%
$
153
3.9
%
$
325
$
(63
)
$
(152
)
$
(0.40
)
Adjustments for: Strategic actions in Europe (a)
(9
)
(0.2
)%
(26
)
(0.7
)%
17
0.4
%
-
5
12
0.03
Loss on extinguishment of debt
-
-
%
-
-
%
-
-
%
(325
)
83
242
0.63
Non-GAAP metrics
$
1,652
41.9
%
$
1,482
37.6
%
$
170
4.3
%
$
-
$
25
$
102
$
0.27
____________________ (a) Represents the net impacts from the
strategic review of our European operating model which resulted in
the closure of stores in the United Kingdom, and Ireland, as well
as the sale of our stores in France to a third party partner. These
impacts primarily include employee-related and lease-related costs.
(b) Operating expenses as a percent of net sales was computed
individually for each line item; therefore, the sum of the
individual lines may not equal the total.
The Gap, Inc.
NON-GAAP FINANCIAL MEASURES UNAUDITED
ADJUSTED STATEMENT OF OPERATIONS METRICS FOR THE THIRD QUARTER
OF FISCAL YEAR 2019 The following adjusted statement of
operations metrics are non-GAAP financial measures. These measures
are provided to enhance visibility into the Company's underlying
results for the period excluding the impacts of separation-related
costs and specialty fleet restructuring costs. Management believes
that excluding certain items from statement of operations metrics
that are not part of the Company's core operations provides
additional information to investors to facilitate the comparison of
results against past and future years. However, these non-GAAP
financial measures are not intended to supersede or replace the
GAAP measures.
($ in millions)13 Weeks Ended November 2,
2019 Gross Profit GrossMargin
OperatingExpenses OperatingExpenses asa % of NetSales
OperatingIncome OperatingIncome as a% of NetSales
IncomeTaxes NetIncome Earningsper Share
-Diluted GAAP metrics, as reported
$
1,559
39.0
%
$
1,338
33.5
%
$
221
5.5
%
$
69
$
140
$
0.37
Adjustments for: Separation-related costs (a)
-
-
%
(70
)
(1.8
)%
70
1.8
%
19
51
0.14
Specialty fleet restructuring costs (b)
1
-
%
(7
)
(0.2
)%
8
0.2
%
-
8
0.02
Non-GAAP metrics
$
1,560
39.0
%
$
1,261
31.5
%
$
299
7.5
%
$
88
$
199
$
0.53
____________________ (a) Represents the impact of costs related to
the Old Navy spin-off transaction that was subsequently cancelled.
Separation-related amounts primarily consist of costs associated
with information technology and fees for consulting and advisory
services. (b) Represents the impact of costs related to previously
announced plans to restructure the specialty fleet and revitalize
the Gap brand. These costs primarily include lease and
employee-related costs.
The Gap, Inc.
NON-GAAP FINANCIAL MEASURES
UNAUDITED
EXPECTED ADJUSTED EARNINGS PER SHARE FOR FISCAL YEAR
2021 Expected adjusted diluted earnings per share is a
non-GAAP financial measure. Expected adjusted diluted earnings per
share for fiscal year 2021 is provided to enhance visibility into
the Company's expected underlying results for the period excluding
the expected impact of strategic changes to the operating model in
Europe, the loss on divestiture activity for the Janie and Jack and
Intermix brands, and the loss on extinguishment of debt. This
non-GAAP financial measure is not intended to supersede or replace
the GAAP measure.
52 Weeks EndingJanuary 29, 2022
Low End High End Expected earnings per share -
diluted
$
0.45
$
0.60
Add: Estimated impact of loss on extinguishment of debt (a)
0.64
0.64
Add: Estimated impact of strategic actions and divestiture activity
(b)
0.22
0.22
Less: Estimated incremental tax benefit (c)
(0.06
)
(0.06
)
Expected adjusted earnings per share - diluted
$
1.25
$
1.40
____________________ (a) Represents the earnings per share impact
of the loss on extinguishment of debt, calculated net of tax at the
adjusted effective tax rate. There was no incremental tax impact as
a result of our loss on extinguishment of debt. (b) Represents the
earnings per share impact, calculated net of tax at the adjusted
effective tax rate, of estimated net costs related to strategic
changes to our operating model in Europe and the loss on
divestiture activity for the Janie and Jack and Intermix brands.
Net costs related to Europe primarily include employee-related and
lease-related costs. (c) Represents the incremental tax benefit
related to divestiture activity.
The Gap, Inc. NET SALES
RESULTS UNAUDITED The following table details the
Company’s third quarter net sales for the fiscal years 2021, 2020,
and 2019 (unaudited):
($ in millions) 13 Weeks
Ended October 30, 2021 Old NavyGlobal Gap Global
BananaRepublic Global Athleta (2) Other
Total U.S. (1)
$
1,899
$
676
$
410
$
317
$
-
$
3,302
Canada
185
102
47
3
-
337
Europe
1
89
2
-
-
92
Asia
-
141
14
-
-
155
Other regions
20
31
6
-
-
57
Total
$
2,105
$
1,039
$
479
$
320
$
-
$
3,943
($ in millions) 13 Weeks Ended October 31,
2020 Old NavyGlobal Gap Global BananaRepublic
Global Athleta (2) Other (3) Total U.S.
(1)
$
2,034
$
611
$
323
$
292
$
78
$
3,338
Canada
193
86
39
-
3
321
Europe
-
115
3
-
-
118
Asia
1
169
18
-
-
188
Other regions
14
12
3
-
-
29
Total
$
2,242
$
993
$
386
$
292
$
81
$
3,994
($ in millions) 13 Weeks Ended November 2,
2019 Old NavyGlobal Gap Global BananaRepublic
Global(4) Athleta (2) Other (5) Total U.S.
(1)
$
1,769
$
689
$
532
$
216
$
58
$
3,264
Canada
151
97
55
-
1
304
Europe
-
128
3
-
-
131
Asia
9
220
21
-
-
250
Other regions
18
24
7
-
-
49
Total
$
1,947
$
1,158
$
618
$
216
$
59
$
3,998
____________________ (1) U.S. includes the United States, Puerto
Rico, and Guam. (2) Previously, net sales for the Athleta brand
were grouped within the "Other" column. Beginning in fiscal 2021,
we have made a change for all periods presented to break out
Athleta net sales into its own column. (3) The "Other" column
primarily consists of net sales for the Intermix, Janie and Jack,
and Hill City brands. The divestiture of Janie and Jack was
completed on April 8, 2021. The divestiture of Intermix was
completed on May 21, 2021. Hill City brand was closed in January
2021. (4) Banana Republic Global fiscal year 2019 net sales include
the Janie and Jack brand. (5) Primarily consists of net sales for
the Intermix and Hill City brands as well as a portion of income
related to our credit card agreement.
The Gap, Inc. REAL
ESTATE Store count, openings, closings, and square
footage for our stores are as follows:
January 30,
2021 39 Weeks Ended October 30, 2021 October 30,
2021 Number of StoreLocations Number of
StoresOpened Number of StoresClosed Number of
StoreLocations Square Footage(in millions) Old Navy
North America
1,220
42
5
1,257
20.1
Gap North America
556
1
19
538
5.7
Gap Asia
340
11
16
335
2.8
Gap Europe (2)
117
1
86
11
0.1
Banana Republic North America
471
2
12
461
3.9
Banana Republic Asia
47
6
2
51
0.2
Athleta North America
199
22
1
220
0.9
Intermix North America (1)
31
-
-
-
-
Janie and Jack North America (1)
119
-
-
-
-
Company-operated stores total
3,100
85
141
2,873
33.7
Franchise (2)
615
58
108
586
N/A
Total
3,715
143
249
3,459
33.7
____________________ (1) On April 8, 2021, the Company completed
the divestiture of the Janie and Jack brand. The 119 stores
divested are not included as store closures or in the ending
balance for fiscal 2021. On May 21, 2021, the Company completed the
divestiture of the Intermix business. The 31 stores divested are
not included as store closures or in the ending balance for fiscal
2021. (2) The 21 Gap France stores that were transitioned to
Hermione People & Brands during the period are not included as
store closures or openings for Company-operated and Franchise store
activity. The ending balance for Gap Europe excludes these stores
and the ending balance for Franchise includes these stores.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211123006072/en/
Investor Relations Contact: Emily Gacka (415) 427-1972
Investor_relations@gap.com
Media Relations Contact: Megan Foote (415) 832-1989
Press@gap.com
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