Gap Inc. (NYSE:GPS) today reported that second quarter diluted earnings
per share increased to $0.64, compared with $0.49 last year. Given its
progress year-to-date, the company raised its estimate for fiscal year
2013 diluted earnings per share to be in the range of $2.57 to $2.65.
“We delivered strength in both our top and bottom lines this quarter,”
said Glenn Murphy, chairman and chief executive officer of Gap Inc. “As
we move into the second half of the year, we remain focused on growing
revenue and driving continued momentum across our portfolio of brands.”
Positive customer response to our assortments drove net sales for the
second quarter, which ended August 3, 2013, to increase 8 percent to
$3.87 billion compared with $3.58 billion for the second quarter last
year. Net sales increased 10 percent on a constant currency basis. In
calculating net sales growth 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 business
trends, excluding the impact of foreign currency exchange rate
fluctuations.
Due to the 53rd week in fiscal year 2012, comparable sales
for the second quarter of fiscal year 2013 are compared with the 13-week
period ended August 4, 2012. On this basis, the company’s second quarter
comparable sales increased 5 percent compared with a 4 percent increase
in the second quarter last year.
Second Quarter 2013 Financial and Business Highlights
-
Positive 5 percent comparable sales versus positive 4 percent last
year, driven by strength in its largest global brands: Gap and Old
Navy.
-
Second quarter gross margin increased 60 basis points to 40.5 percent;
operating margin expanded by 160 basis points to 13.5 percent.
-
Net earnings were up $60 million, or 25 percent compared with the
second quarter last year.
-
The company announced its intention to increase its annual dividend
per share from $0.60 to $0.80 beginning in the third quarter of 2013.
This represents a 60 percent increase over the fiscal 2012 dividend
per share of $0.50.
-
In line with its strategy to expand Old Navy internationally, today
the company is announcing plans to open the brand’s first store in
Shanghai and launch an Old Navy e-commerce site in China in the first
half of 2014. In addition, the company ended the quarter with 10 Old
Navy stores in Japan, on pace to open 15 to 20 stores for the year.
-
The company continued to expand its Gap store base in mainland China,
opening 6 additional stores, for a total of 55 stores. In addition,
today the company is announcing its intention to bring its Gap brand
to Taiwan with its first store opening in the first half of 2014,
along with a Gap e-commerce site.
-
Gap Inc. opened 6 Athleta stores in the second quarter, for a total of
46 stores open to date, and the brand is on pace to end fiscal 2013
with about 65 stores.
-
The company continued to build upon its online success with 27 percent
online sales growth in the quarter, in part driven by its
industry-leading omni-channel platform for consumers, inclusive of
ship-from-store, find-in-store and reserve-in-store capabilities.
Second Quarter Comparable Sales Results
Comparable sales by global brand for the second quarter of fiscal year
2013 were as follows:
-
Gap Global: positive 6 percent versus positive 3 percent last
year
-
Banana Republic Global: negative 1 percent versus positive 6
percent last year
-
Old Navy Global: positive 6 percent versus positive 3 percent
last year
Net Sales Results
The following table details the company’s second quarter net sales:
($ in millions)
|
|
Gap Global
|
|
Old Navy Global
|
|
Banana Republic Global
|
|
Other (2)
|
|
Total
|
|
Percentage of Net Sales
|
Quarter Ended August 3, 2013
|
|
|
|
|
|
|
U.S. (1)
|
|
$
|
894
|
|
$
|
1,406
|
|
$
|
566
|
|
$
|
170
|
|
$
|
3,036
|
|
79
|
%
|
Canada
|
|
|
96
|
|
|
115
|
|
|
54
|
|
|
1
|
|
|
266
|
|
7
|
%
|
Europe
|
|
|
188
|
|
|
—
|
|
|
22
|
|
|
—
|
|
|
210
|
|
5
|
%
|
Asia
|
|
|
254
|
|
|
19
|
|
|
38
|
|
|
—
|
|
|
311
|
|
8
|
%
|
Other regions
|
|
|
39
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
45
|
|
1
|
%
|
Total
|
|
$
|
1,471
|
|
$
|
1,540
|
|
$
|
686
|
|
$
|
171
|
|
$
|
3,868
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
Gap Global
|
|
Old Navy Global
|
|
Banana Republic Global
|
|
Other (2)
|
|
Total
|
|
Percentage of Net Sales
|
Quarter Ended July 28, 2012
|
|
|
|
|
|
|
U.S. (1)
|
|
$
|
840
|
|
$
|
1,283
|
|
$
|
560
|
|
$
|
100
|
|
$
|
2,783
|
|
78
|
%
|
Canada
|
|
|
83
|
|
|
106
|
|
|
52
|
|
|
—
|
|
|
241
|
|
7
|
%
|
Europe
|
|
|
176
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
197
|
|
5
|
%
|
Asia
|
|
|
265
|
|
|
2
|
|
|
42
|
|
|
—
|
|
|
309
|
|
9
|
%
|
Other regions
|
|
|
40
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
45
|
|
1
|
%
|
Total
|
|
$
|
1,404
|
|
$
|
1,391
|
|
$
|
680
|
|
$
|
100
|
|
$
|
3,575
|
|
100
|
%
|
(1) U.S. includes the United States, Puerto Rico, and Guam.
(2)
Includes Piperlime, Athleta, and fiscal year 2013 includes Intermix.
Total online sales were $466 million and $367 million for the thirteen
weeks ended August 3, 2013 and July 28, 2012, respectively.
Additional Second Quarter Results and 2013 Outlook
Earnings per Share
Second quarter diluted earnings per share
of $0.64 increased 31 percent compared with $0.49 for the second quarter
last year. Given its progress to date, the company raised its estimate
for full year 2013 diluted earnings per share to be in the range of
$2.57 to $2.65.
Depreciation and Amortization
The company continues to
expect depreciation and amortization expense, net of amortization of
lease incentives, for fiscal year 2013 to be about $475 million.
Operating Expenses
Second quarter operating expenses were $1
billion, up $44 million compared with the second quarter of last year.
Marketing expenses for the quarter were $148 million, up $1 million
compared with the second quarter of last year.
Operating Margin
The company’s operating margin was 13.5
percent in the second quarter versus 11.9 percent last year.
The company continues to expect that operating margin for fiscal year
2013 will be about 13 percent.
Effective Tax Rate
The effective tax rate was 39.8 percent
for the second quarter of fiscal year 2013. The company continues to
expect its full year tax rate to be about 39 percent in fiscal year 2013.
Inventory
On a year-over-year basis, inventory dollars per
store were up 6 percent at the end of the second quarter of fiscal year
2013.
The company expects inventory dollars per store to be up in the
mid-single digits at the end of the third quarter of fiscal year 2013
compared with the third quarter last year.
Cash and Cash Equivalents
The company ended the second
quarter of fiscal year 2013 with $1.9 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 $542 million compared with an inflow of $673 million last
year. 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.
Share Repurchases
Second quarter share repurchases were $27
million and the company ended the second quarter of fiscal year 2013
with 468 million shares outstanding.
Dividends
The company paid a dividend of $0.15 per share
during the second quarter of fiscal year 2013. Reinforcing its
commitment to returning cash to shareholders, the company announced
today its intention to increase its annual dividend, beginning in the
third quarter of 2013, from $0.60 per share to $0.80 per share. This
represents a 60 percent increase over the fiscal 2012 dividend per share
of $0.50.
Capital Expenditures
Fiscal year-to-date, capital
expenditures were $315 million.
For fiscal year 2013, the company continues to expect capital spending
to be approximately $675 million in support of its outlined strategies.
Real Estate
The company ended the second quarter of fiscal
year 2013 with a total of 3,444 store locations, 3,106 of which were
company-operated.
During the second quarter of fiscal year 2013, the company opened 34 and
closed 33 company-operated stores. Square footage of company-operated
stores was flat compared with the second quarter of fiscal year 2012.
In fiscal year 2013, the company expects to open about 160
company-operated stores, focused on Athleta, Gap China, Old Navy Japan,
and global outlet stores. The company expects that it will close about
80 company-operated stores. The closures are weighted towards Gap North
America, consistent with the company’s previously stated strategy. Given
its focus on growing through new channels and geographies, the company
continues to expect square footage to increase about 1 percent in fiscal
year 2013.
Store count, openings, closings, and square footage for our stores are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended August 3, 2013
|
|
|
|
Store Locations Beginning of Q2
|
|
Store Locations Opened
|
|
Store Locations Closed
|
|
Store Locations End of Q2
|
|
Square Feet (millions)
|
|
Gap North America
|
|
983
|
|
8
|
|
22
|
|
969
|
|
10.1
|
|
Gap Europe
|
|
198
|
|
-
|
|
2
|
|
196
|
|
1.7
|
|
Gap Asia
|
|
196
|
|
6
|
|
-
|
|
202
|
|
2.0
|
|
Old Navy North America
|
|
1,005
|
|
5
|
|
7
|
|
1,003
|
|
17.3
|
|
Old Navy Asia
|
|
10
|
|
-
|
|
-
|
|
10
|
|
0.2
|
|
Banana Republic North America
|
|
589
|
|
5
|
|
1
|
|
593
|
|
4.9
|
|
Banana Republic Asia
|
|
41
|
|
1
|
|
-
|
|
42
|
|
0.2
|
|
Banana Republic Europe
|
|
10
|
|
-
|
|
-
|
|
10
|
|
0.1
|
|
Athleta North America
|
|
40
|
|
6
|
|
-
|
|
46
|
|
0.2
|
|
Piperlime North America
|
|
1
|
|
-
|
|
-
|
|
1
|
|
-
|
|
Intermix North America
|
|
32
|
|
3
|
|
1
|
|
34
|
|
0.1
|
|
Company-operated stores total
|
|
3,105
|
|
34
|
|
33
|
|
3,106
|
|
36.8
|
|
Franchise
|
|
323
|
|
15
|
|
-
|
|
338
|
|
N/A
|
|
Total
|
|
3,428
|
|
49
|
|
33
|
|
3,444
|
|
36.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Webcast and Conference Call Information
Katrina O'Connell, vice president of Corporate Finance and Investor
Relations at Gap Inc., will host a summary of the company’s second
quarter fiscal year 2013 results during a conference call and webcast at
approximately 2:00 p.m. Pacific Time today. Ms. O’Connell will be joined
by Glenn Murphy, Gap Inc. chairman and 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: 7045156). International callers
may dial 913-643-0954. The webcast can be accessed at www.gapinc.com.
August Sales
The company will report August sales on September 5, 2013.
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 fiscal year 2013;
-
driving growth and performance;
-
future dividends per share;
-
international expansion, including Old Navy in China and Japan, and
Gap stores in Taiwan;
-
additional Athleta stores;
-
online expansion;
-
depreciation and amortization for fiscal year 2013;
-
operating margin for fiscal year 2013;
-
effective tax rate for fiscal year 2013;
-
inventory dollars per store at the end of the third quarter of fiscal
year 2013
-
capital expenditures for fiscal year 2013;
-
store openings and closings for fiscal year 2013, and weightings by
channel;
-
real estate square footage for fiscal year 2013;
-
impact of foreign exchange rates;
-
impact of calendar shifts;
-
spread between total sales and comparable sales;
-
gaining market share.
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 adoption of new accounting pronouncements will impact
future results;
-
the risk that changes in general 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 the company or its franchisees will be unsuccessful in
gauging apparel trends and changing consumer preferences;
-
the risk to the company’s business associated with global sourcing and
manufacturing, including sourcing costs, events causing disruptions in
product shipment, or an inability to secure sufficient manufacturing
capacity;
-
the risk that the company’s franchisees will be unable to successfully
open, operate, and grow their franchised stores in a manner consistent
with the company’s requirements regarding its brand identities and
customer experience standards;
-
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 its access to the capital markets and
adversely impact its financial results or business initiatives;
-
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 updates or changes to the company’s information
technology (“IT”) systems may disrupt its operations;
-
the risk that actual or anticipated cyber attacks, and other
cybersecurity risks, may cause the company to incur increasing costs;
-
the risk that natural disasters, public health crises, political
crises, or other catastrophic events could adversely affect the
company’s operations and financial results;
-
the risk that acts or omissions by the company’s third-party vendors,
including a failure to comply with the company’s code of vendor
conduct, could have a negative impact on its reputation or operations;
-
the risk that the company does not repurchase some or all of the
shares it anticipates purchasing pursuant to its repurchase program;
-
the risk that the company will not be successful in defending various
proceedings, lawsuits, disputes, claims, and audits; and
-
the risk that changes in the regulatory or administrative landscape
could adversely affect the company’s financial condition, strategies,
and results of operations.
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 2, 2013, as well as the company’s subsequent
filings with the Securities and Exchange Commission.
These forward-looking statements are based on information as of August
22, 2013. 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, children, and babies under
the Gap, Banana Republic, Old Navy, Piperlime, Athleta, and Intermix
brands. Fiscal year 2012 net sales were $15.7 billion. Gap Inc. products
are available for purchase in more than 90 countries worldwide through
about 3,100 company-operated stores, over 300 franchise stores, and
e-commerce sites. For more information, please visit www.gapinc.com.
The Gap, Inc.
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
UNAUDITED
|
|
|
|
|
|
($ in millions)
|
|
August 3, 2013
|
|
July 28, 2012
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash, cash equivalents, and short-term investments
|
|
$
|
1,925
|
|
$
|
2,114
|
Merchandise inventory
|
|
|
1,837
|
|
|
1,668
|
Other current assets
|
|
|
824
|
|
|
758
|
Total current assets
|
|
|
4,586
|
|
|
4,540
|
Property and equipment, net
|
|
|
2,646
|
|
|
2,521
|
Other long-term assets
|
|
|
688
|
|
|
600
|
Total assets
|
|
$
|
7,920
|
|
$
|
7,661
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Current maturities of debt
|
|
$
|
-
|
|
$
|
48
|
Accounts payable
|
|
|
1,227
|
|
|
1,201
|
Accrued expenses and other current liabilities
|
|
|
994
|
|
|
977
|
Income taxes payable
|
|
|
57
|
|
|
12
|
Total current liabilities
|
|
|
2,278
|
|
|
2,238
|
Long-term liabilities:
|
|
|
|
|
Long-term debt
|
|
|
1,247
|
|
|
1,566
|
Lease incentives and other long-term liabilities
|
|
|
937
|
|
|
959
|
Total long-term liabilities
|
|
|
2,184
|
|
|
2,525
|
Total stockholders' equity
|
|
|
3,458
|
|
|
2,898
|
Total liabilities and stockholders' equity
|
|
$
|
7,920
|
|
$
|
7,661
|
|
|
|
|
|
|
|
The Gap, Inc.
|
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
|
UNAUDITED
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
26 Weeks Ended
|
($ and shares in millions except per share amounts)
|
|
August 3, 2013
|
|
July 28, 2012
|
|
August 3, 2013
|
|
July 28, 2012
|
Net sales
|
|
$
|
3,868
|
|
$
|
3,575
|
|
$
|
7,597
|
|
$
|
7,062
|
Cost of goods sold and occupancy expenses
|
|
|
2,301
|
|
|
2,148
|
|
|
4,486
|
|
|
4,260
|
Gross profit
|
|
|
1,567
|
|
|
1,427
|
|
|
3,111
|
|
|
2,802
|
Operating expenses
|
|
|
1,046
|
|
|
1,002
|
|
|
2,060
|
|
|
1,982
|
Operating income
|
|
|
521
|
|
|
425
|
|
|
1,051
|
|
|
820
|
Interest, net
|
|
|
18
|
|
|
20
|
|
|
18
|
|
|
42
|
Income before income taxes
|
|
|
503
|
|
|
405
|
|
|
1,033
|
|
|
778
|
Income taxes
|
|
|
200
|
|
|
162
|
|
|
397
|
|
|
302
|
Net income
|
|
$
|
303
|
|
$
|
243
|
|
$
|
636
|
|
$
|
476
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares - basic
|
|
|
468
|
|
|
486
|
|
|
466
|
|
|
487
|
Weighted-average number of shares - diluted
|
|
|
473
|
|
|
491
|
|
|
472
|
|
|
493
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic
|
|
$
|
0.65
|
|
$
|
0.50
|
|
$
|
1.36
|
|
$
|
0.98
|
Earnings per share - diluted
|
|
$
|
0.64
|
|
$
|
0.49
|
|
$
|
1.35
|
|
$
|
0.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Gap, Inc.
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
UNAUDITED
|
|
|
|
|
|
|
|
26 Weeks Ended
|
($ in millions)
|
|
August 3, 2013
|
|
July 28, 2012
|
Cash flows from operating activities:
|
|
|
|
|
Net income
|
|
$
|
636
|
|
|
$
|
476
|
|
Depreciation and amortization (a)
|
|
|
235
|
|
|
|
245
|
|
Change in merchandise inventory
|
|
|
(90
|
)
|
|
|
(56
|
)
|
Other, net
|
|
|
76
|
|
|
|
305
|
|
Net cash provided by operating activities
|
|
|
857
|
|
|
|
970
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Purchases of property and equipment
|
|
|
(315
|
)
|
|
|
(297
|
)
|
Purchases of short-term investments
|
|
|
-
|
|
|
|
(125
|
)
|
Maturities of short-term investments
|
|
|
50
|
|
|
|
50
|
|
Other
|
|
|
(4
|
)
|
|
|
(6
|
)
|
Net cash used for investing activities
|
|
|
(269
|
)
|
|
|
(378
|
)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Payments of short-term debt
|
|
|
-
|
|
|
|
(11
|
)
|
Payments of long-term debt
|
|
|
-
|
|
|
|
(40
|
)
|
Proceeds from issuances under share-based compensation plans, net of
withholding tax payments
|
|
|
73
|
|
|
|
91
|
|
Repurchases of common stock
|
|
|
(85
|
)
|
|
|
(369
|
)
|
Excess tax benefit from exercise of stock options and vesting of
stock units
|
|
|
48
|
|
|
|
17
|
|
Cash dividends paid
|
|
|
(140
|
)
|
|
|
(121
|
)
|
Other
|
|
|
(1
|
)
|
|
|
-
|
|
Net cash used for financing activities
|
|
|
(105
|
)
|
|
|
(433
|
)
|
|
|
|
|
|
Effect of foreign exchange rate fluctuations on cash and cash
equivalents
|
|
|
(18
|
)
|
|
|
(5
|
)
|
Net increase in cash and cash equivalents
|
|
|
465
|
|
|
|
154
|
|
Cash and cash equivalents at beginning of period
|
|
|
1,460
|
|
|
|
1,885
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,925
|
|
|
$
|
2,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Depreciation and amortization is net of amortization of lease
incentives.
|
|
The Gap, Inc.
|
|
|
|
|
SEC REGULATION G
|
|
|
|
|
UNAUDITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO
FREE CASH FLOW
|
|
|
|
|
|
|
|
|
|
|
|
26 Weeks Ended
|
($ in millions)
|
|
August 3, 2013
|
|
July 28, 2012
|
Net cash provided by operating activities
|
|
$
|
857
|
|
|
$
|
970
|
|
Less: purchases of property and equipment
|
|
|
(315
|
)
|
|
|
(297
|
)
|
Free cash flow (a)
|
|
$
|
542
|
|
|
$
|
673
|
|
_________
|
|
|
|
|
(a) 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.
|
Copyright Business Wire 2013