Gap Inc. Reports Second Quarter Fiscal 2024 Results, Provides Updated Full Year Outlook
Net sales increased 5% versus last year with market share gains for the 6th consecutive quarter
Comparable sales were up 3% driven by strength at
Operating margin of 7.9% improved 490 basis points versus last year
Increases outlook for fiscal 2024 gross margin and operating income growth
"
Second Quarter Fiscal 2024 – Financial Results
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Net sales of
$3.7 billion were up 5% compared to last year. Comparable sales were up 3% year-over-year. Due to the 53rd week in fiscal 2023, in order to maintain consistency, comparable sales for the second quarter of fiscal 2024 are compared to the 13 weeks endedAugust 5, 2023 .- Store sales increased 4% compared to last year. The company ended the quarter with 3,568 store locations in about 40 countries, of which 2,541 were company operated.
- Online sales increased 7% compared to last year and represented 33% of total net sales.
-
Gross margin of 42.6% increased 500 basis points versus last year's gross margin.
- Merchandise margin increased 410 basis points versus last year primarily driven by a benefit from lower commodity costs, incremental sales in the quarter related to the company's revenue sharing agreement with its credit card partner, as well as improved promotional activity.
- Rent, occupancy, and depreciation (ROD) as a percent of sales leveraged 90 basis points versus last year.
-
Operating expense was
$1.3 billion . -
Operating income was
$293 million ; operating margin of 7.9%. - The effective tax rate of 30% included the impact of adjusting certain income tax reserves.
-
Net income of
$206 million ; diluted earnings per share of$0.54 .
Balance Sheet and Cash Flow Highlights
- Ended the quarter with cash, cash equivalents and short-term investments of
$2.1 billion , an increase of 59% from the prior year. -
Net cash from operating activities was
$579 million . Free cash flow, defined as net cash from operating activities less purchases of property and equipment, was$397 million . - Ending inventory of
$2.11 billion was down 5% compared to last year. -
Capital expenditures were
$182 million . - Paid a second quarter dividend of
$0.15 per share, totaling$56 million . The company's Board of Directors approved a third quarter fiscal 2024 dividend of$0.15 per share.
Additional information regarding free cash flow, 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 for the applicable period.
Second Quarter Fiscal 2024 – Global Brand Results
Comparable Sales
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Second Quarter |
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2024 |
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2023 |
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5 % |
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(6) % |
Gap |
3 % |
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(1) % |
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— % |
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(8) % |
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(4) % |
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(7) % |
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3 % |
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(6) % |
- Second quarter net sales of
$2.1 billion were up 8% compared to last year. Comparable sales were up 5%. This represents the fourth consecutive quarter of positive comparable sales at the brand as its continued focus on operational rigor is driving improved consistency in performance.
Gap:
- Second quarter net sales of
$766 million were up 1% compared to last year. Comparable sales were up 3% representing the third consecutive quarter of positive comparable sales at the brand. Gap's reinvigoration efforts have helped drive market share gains at the brand for the past five quarters.
- Second quarter net sales of
$479 million were flat compared to last year. Comparable sales were also flat. The brand continues to focus on fixing the fundamentals and is actively working to improve its pricing and assortment architecture.
- Second quarter net sales of
$338 million were down 1% compared to last year. Comparable sales were down 4%. The company expectsAthleta to return to positive comparable sales growth for the remainder of the year.
Fiscal 2024 Outlook
As a result of its strong second quarter results, the company is reaffirming its net sales and operating expense outlook for fiscal 2024 and increasing its outlook for gross margin and operating income growth compared to prior expectations. This outlook takes into consideration the unchanged and continued uncertain consumer and macro environment.
Please note that the company's projected full year fiscal 2024 operating income growth below is provided in comparison to its full year fiscal 2023 adjusted operating income, which excludes
Full Year Fiscal 2024
|
Current FY 2024 Outlook |
|
Prior FY 2024 Outlook |
|
FY 2023 Results |
Net sales |
Up slightly on a 52-week basis |
|
Up slightly on a 52-week basis |
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Gross margin |
Approximately 200 bps expansion |
|
At least 150 bps expansion |
|
38.8 % |
Operating expense |
Approximately
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Approximately
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Operating income |
Mid to High 50% growth range |
|
Mid 40% growth range |
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Effective tax rate |
Approximately 28% |
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Approximately 28% |
|
9.7 % |
Capital expenditures |
Approximately
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|
Approximately
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|
1 Fiscal year 2023 adjusted operating expense of |
Third Quarter Fiscal 2024
|
Q3 2024 Outlook |
|
Q3 2023 Results |
Net sales |
Up slightly |
|
|
Gross margin |
50 to 75 bps expansion |
|
41.3 % |
Operating expense |
Approximately |
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Webcast and Conference Call Information
A live webcast of the conference call and accompanying materials will be available online at investors.gapinc.com. A replay of the webcast will be available at the same location.
Non-GAAP Disclosure
This press release and related conference call include financial measures that have not been calculated in accordance with
The non-GAAP measures included in this press release and related conference call are adjusted operating expense/adjusted SG&A, adjusted operating income, adjusted operating margin, 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. In addition, the company's outlook includes projected full year fiscal 2024 operating income growth compared to its full year fiscal 2023 adjusted operating income.
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 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 accompanying materials 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: unlocking our full potential; our four strategic priorities including maintaining and delivering financial and operational rigor, the reinvigoration of our brands, strengthening our operating platform, and energizing our culture; driving relevance and revenue by executing on our brand reinvigoration playbook; leaning into denim through in-store and online experiences and new campaigns;
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 business, financial condition, results of operations, or reputation: the overall global economic and geopolitical environment, including the ongoing
Additional information regarding factors that could cause results to differ can be found in our Annual Report on Form 10-K filed with the
These forward-looking statements are based on information as of
About
Investor Relations Contact:
Investor_relations@gap.com
Media Relations Contact:
Megan Foote
Press@gap.com
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CONDENSED CONSOLIDATED BALANCE SHEETS |
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UNAUDITED |
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($ in millions) |
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ASSETS |
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Current assets: |
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|
||||
Cash and cash equivalents |
$ 1,900 |
|
$ 1,350 |
||||
Short-term investments |
246 |
|
- |
||||
Merchandise inventory |
2,107 |
|
2,226 |
||||
Other current assets |
556 |
|
663 |
||||
Total current assets |
4,809 |
|
4,239 |
||||
Property and equipment, net of accumulated depreciation |
2,525 |
|
2,595 |
||||
Operating lease assets |
3,185 |
|
3,113 |
||||
Other long-term assets |
990 |
|
903 |
||||
Total assets |
$ 11,509 |
|
$ 10,850 |
||||
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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||||
Current liabilities: |
|
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|
||||
Accounts payable |
$ 1,522 |
|
$ 1,406 |
||||
Accrued expenses and other current liabilities |
1,029 |
|
1,007 |
||||
Current portion of operating lease liabilities |
613 |
|
578 |
||||
Income taxes payable |
60 |
|
16 |
||||
Total current liabilities |
3,224 |
|
3,007 |
||||
Long-term liabilities: |
|
|
|
||||
Revolving credit facility |
- |
|
150 |
||||
Long-term debt |
1,489 |
|
1,487 |
||||
Long-term operating lease liabilities |
3,357 |
|
3,433 |
||||
Other long-term liabilities |
538 |
|
510 |
||||
Total long-term liabilities |
5,384 |
|
5,580 |
||||
Total stockholders' equity |
2,901 |
|
2,263 |
||||
Total liabilities and stockholders' equity |
$ 11,509 |
|
$ 10,850 |
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
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UNAUDITED |
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13 Weeks Ended |
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26 Weeks Ended |
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($ and shares in millions except per share amounts) |
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Net sales |
$ 3,720 |
|
$ 3,548 |
|
$ 7,108 |
|
$ 6,824 |
|||
Cost of goods sold and occupancy expenses |
2,137 |
|
2,215 |
|
4,128 |
|
4,277 |
|||
Gross profit |
1,583 |
|
1,333 |
|
2,980 |
|
2,547 |
|||
Operating expenses |
1,290 |
|
1,227 |
|
2,482 |
|
2,451 |
|||
Operating income |
293 |
|
106 |
|
498 |
|
96 |
|||
Interest, net |
(3) |
|
(2) |
|
(6) |
|
8 |
|||
Income before income taxes |
296 |
|
108 |
|
504 |
|
88 |
|||
Income tax expense (benefit) |
90 |
|
(9) |
|
140 |
|
(11) |
|||
Net income |
$ 206 |
|
$ 117 |
|
$ 364 |
|
$ 99 |
|||
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares - basic |
376 |
|
369 |
|
375 |
|
368 |
|||
Weighted-average number of shares - diluted |
383 |
|
371 |
|
383 |
|
372 |
|||
|
|
|
|
|
|
|
|
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|
Earnings per share - basic |
$ 0.55 |
|
$ 0.32 |
|
$ 0.97 |
|
$ 0.27 |
|||
Earnings per share - diluted |
$ 0.54 |
|
$ 0.32 |
|
$ 0.95 |
|
$ 0.27 |
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|
|||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|||||
UNAUDITED |
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|||||
|
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26 Weeks Ended |
||
($ in millions) |
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|||||
Cash flows from operating activities: |
|
|
|
|||||
Net income |
$ 364 |
|
$ 99 |
|||||
Depreciation and amortization |
247 |
|
267 |
|||||
Gain on sale of building |
- |
|
(47) |
|||||
Change in merchandise inventory |
(118) |
|
160 |
|||||
Change in accounts payable |
155 |
|
104 |
|||||
Change in accrued expenses and other current liabilities |
(88) |
|
(76) |
|||||
Change in income taxes payable, net of receivables and other tax-related items |
61 |
|
5 |
|||||
Other, net |
(42) |
|
16 |
|||||
Net cash provided by operating activities |
579 |
|
528 |
|||||
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|||||
Purchases of property and equipment |
(182) |
|
(199) |
|||||
Net proceeds from sale of buildings |
- |
|
76 |
|||||
Purchases of short-term investments |
(276) |
|
- |
|||||
Proceeds from sales and maturities of short-term investments |
33 |
|
- |
|||||
Proceeds from divestiture activity |
- |
|
11 |
|||||
Net cash used for investing activities |
(425) |
|
(112) |
|||||
|
|
|
|
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|
|
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Cash flows from financing activities: |
|
|
|
|||||
Repayments of revolving credit facility |
- |
|
(200) |
|||||
Proceeds from issuances under share-based compensation plans |
21 |
|
13 |
|||||
Withholding tax payments related to vesting of stock units |
(33) |
|
(11) |
|||||
Cash dividends paid |
(112) |
|
(111) |
|||||
Net cash used for financing activities |
(124) |
|
(309) |
|||||
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|
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|
Effect of foreign exchange rate fluctuations on cash, cash equivalents, and restricted cash |
(2) |
|
(2) |
|||||
Net increase in cash, cash equivalents, and restricted cash |
28 |
|
105 |
|||||
Cash, cash equivalents, and restricted cash at beginning of period |
1,901 |
|
1,273 |
|||||
Cash, cash equivalents, and restricted cash at end of period |
$ 1,929 |
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_________________ |
(a) For the twenty-six weeks ended |
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NON-GAAP FINANCIAL MEASURES |
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UNAUDITED |
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FREE CASH FLOW |
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Free cash flow is a non-GAAP financial measure. We believe free cash flow is an important metric because it represents a |
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26 Weeks Ended |
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($ in millions) |
|
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Net cash provided by operating activities |
$ 579 |
|
$ 528 |
||
Less: Purchases of property and equipment |
(182) |
|
(199) |
||
Free cash flow |
$ 397 |
|
$ 329 |
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NON-GAAP FINANCIAL MEASURES |
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UNAUDITED |
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ADJUSTED STATEMENT OF OPERATIONS METRICS FOR THE SECOND QUARTER OF FISCAL YEAR 2023 |
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The following adjusted statement of operations metrics are non-GAAP financial measures. These measures are provided to enhance visibility into the Company's |
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Operating |
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Operating |
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Operating |
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Operating |
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Income Tax |
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Net Income |
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Earnings per |
($ in millions)
|
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|||||||
GAAP metrics, as reported |
|
|
$ 1,227 |
|
34.6 % |
|
$ 106 |
|
3.0 % |
|
$ (9) |
|
$ 117 |
|
$ 0.32 |
Adjustments for: |
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Restructuring costs (a) |
|
|
(13) |
|
(0.4) % |
|
13 |
|
0.4 % |
|
3 |
|
10 |
|
0.03 |
Non-GAAP metrics |
|
|
$ 1,214 |
|
34.2 % |
|
$ 119 |
|
3.4 % |
|
$ (6) |
|
$ 127 |
|
$ 0.34 |
_________________ |
(a) Includes |
(b) Earnings per share was computed individually for each line item; therefore, the sum of the individual lines may not equal the total. |
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NET SALES RESULTS |
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UNAUDITED |
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The following table details the Company's second quarter fiscal year 2024 and 2023 net sales (unaudited): |
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($ in millions) |
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Gap Global |
|
Banana
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Other (2) |
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Total |
13 Weeks Ended |
|
|
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|||||||
U.S. (1) |
|
|
$ 1,953 |
|
$ 579 |
|
$ 414 |
|
$ 327 |
|
$ 14 |
|
$ 3,287 |
|
|
|
159 |
|
77 |
|
43 |
|
10 |
|
- |
|
289 |
Other regions |
|
|
11 |
|
110 |
|
22 |
|
1 |
|
- |
|
144 |
Total |
|
|
$ 2,123 |
|
$ 766 |
|
$ 479 |
|
$ 338 |
|
$ 14 |
|
$ 3,720 |
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|
($ in millions) |
|
|
|
|
Gap Global |
|
Banana
|
|
|
|
Other (2) |
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Total |
13 Weeks Ended |
|
|
|
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|||||||
U.S. (1) |
|
|
$ 1,777 |
|
$ 542 |
|
$ 415 |
|
$ 327 |
|
$ 11 |
|
$ 3,072 |
|
|
|
165 |
|
76 |
|
44 |
|
13 |
|
- |
|
298 |
Other regions |
|
|
19 |
|
137 |
|
21 |
|
1 |
|
- |
|
178 |
Total |
|
|
$ 1,961 |
|
$ 755 |
|
$ 480 |
|
$ 341 |
|
$ 11 |
|
$ 3,548 |
_________________ |
(1) U.S. includes |
(2) Primarily consists of net sales from revenue-generating strategic initiatives. |
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REAL ESTATE |
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Store count, openings, closings, and square footage for our stores are as follows: |
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26 Weeks Ended |
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Number of
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Number of |
|
Number of |
|
Number of
|
|
Square Footage
|
|
|
|
|
|
|
|
|
|
|
|
1,243 |
|
10 |
|
5 |
|
1,248 |
|
19.8 |
|
472 |
|
1 |
|
13 |
|
460 |
|
4.9 |
Gap |
134 |
|
- |
|
7 |
|
127 |
|
1.1 |
|
400 |
|
1 |
|
8 |
|
393 |
|
3.3 |
Banana Republic Asia |
43 |
|
1 |
|
2 |
|
42 |
|
0.2 |
|
270 |
|
2 |
|
1 |
|
271 |
|
1.1 |
Company-operated stores total |
2,562 |
|
15 |
|
36 |
|
2,541 |
|
30.4 |
Franchise |
998 |
|
81 |
|
52 |
|
1,027 |
|
N/A |
Total |
3,560 |
|
96 |
|
88 |
|
3,568 |
|
30.4 |
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