Form 8-K GAP INC For: Feb 25
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
__________________________________________
Date of Report
(Date of earliest event reported)
February 25, 2019
THE GAP, INC.
(Exact name of registrant as specified in its charter)
Delaware | 1-7562 | 94-1697231 | ||
(State of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
Two Folsom Street San Francisco, California | 94105 | |
(Address of principal executive offices) | (Zip Code) | |
(415) 427-0100
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
[ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Item 2.02. Results of Operations and Financial Condition
On February 28, 2019, The Gap, Inc. (the “Company”) issued a press release announcing the Company’s earnings for the fourth quarter and fiscal year ended February 2, 2019. A copy of this press release is attached hereto as Exhibit 99.1.
Item 2.05. Costs Associated with Exit or Disposal Activities
On February 28, 2019, the Company announced plans to restructure the specialty fleet and revitalize the Gap brand, including closing about 230 Gap specialty stores during fiscal 2019 and fiscal 2020.
During the two-year period, the Company expects to recognize estimated pre-tax costs between $250 million and $300 million related to the plans, the majority of which are expected to be cash expenditures for lease-related costs. The balance of the charges is expected to primarily include employee-related costs and the net impact of write-offs related to long-term assets and liabilities.
The Company believes these actions will drive a healthier specialty fleet and will serve as a more appropriate foundation for brand revitalization. The Company expects that the actions will be substantially completed by the end of the Company’s 2020 fiscal year ending January 30, 2021, and are expected to result in annualized pre-tax savings of about $90 million beginning in fiscal 2021.
This disclosure contains 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. Forward-looking statements include statements regarding annualized savings and restructuring costs from, and the timing of, these measures. These forward-looking statements involve risks and uncertainties, and there are important factors that could cause the estimated future impact of these annualized savings and restructuring costs to differ materially from the forward-looking statements, including without limitation, the risk that subsequent unanticipated events, including unanticipated costs, may occur in connection with these measures. Additional information regarding factors that could cause results to differ can be found in our Annual Report on Form 10-K for the fiscal year ended February 3, 2018, and our subsequent filings with the U.S. Securities and Exchange Commission, all of which are available on gapinc.com.
Item 7.01. Regulation FD Disclosure.
On February 26, 2019, the Company issued a press release announcing a new $1 billion share repurchase authorization, and its intent to maintain its annual dividend for 2019. A copy of this press release is attached hereto as Exhibit 99.4.
On February 28, 2019, the Company issued a press release announcing that its Board of Directors has approved a plan to separate the Company into two independent publicly-traded companies: Old Navy and a yet-to-be-named company, which will consist of Gap, Athleta, Banana Republic, Intermix and Hill City. The transaction is subject to certain conditions, including final approval by the Company’s Board of Directors, receipt of a tax opinion from counsel, and the filing and effectiveness of a registration statement with the U.S. Securities and Exchange Commission. A copy of the press release is attached hereto as Exhibit 99.5.
A table outlining historical comparable sales of the Company and by global brand is attached hereto as Exhibit 99.2. Supplemental slides referenced during the Company's fourth quarter earnings call on February 28, 2019 are attached hereto as Exhibit 99.3.
Item 9.01. Financial Statements and Exhibits
Press Release dated February 28, 2019 announcing the Company’s earnings for the fourth quarter and fiscal year ended February 2, 2019. | ||
Historical comparable sales. | ||
Supplemental slides provided in connection with the Company's fourth quarter 2018 earnings call. | ||
Press Release dated February 26, 2019 announcing share repurchase authorization and annual dividend plan. | ||
Press Release dated February 28, 2019. | ||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
THE GAP, INC. | |||
(Registrant) | |||
Date: February 28, 2019 | By: | /s/ Teri List-Stoll | |
Teri List-Stoll | |||
Executive Vice President and | |||
Chief Financial Officer | |||
EXHIBIT INDEX
Exhibit Number | Description | |
99.1 | Press Release dated February 28, 2019 announcing the Company’s earnings for the fourth quarter and fiscal year ended February 2, 2019. |
99.2 | Historical comparable sales. |
99.3 | Supplemental slides provided in connection with the Company's fourth quarter 2018 earnings call. |
99.4 | Press Release dated February 26, 2019 announcing share repurchase authorization and annual dividend plan. |
99.5 | Press release dated February 28, 2019. |
Exhibit 99.1
GAP INC. REPORTS FOURTH QUARTER AND FISCAL YEAR 2018 RESULTS
Company outlines plans to restructure specialty fleet and revitalize Gap brand health
SAN FRANCISCO - February 28, 2019 - Gap Inc. (NYSE: GPS) today reported fourth quarter and fiscal year 2018 results, announced plans to restructure the Gap brand specialty fleet and revitalize brand health, and provided guidance for fiscal year 2019.
Today the company also announced plans to separate into two publicly traded companies: Old Navy, and a yet-to-be-named company (“NewCo”), which will consist of the iconic Gap brand, Athleta, Banana Republic, Intermix and Hill City. Details of the separation were disclosed in a separate press release.
“We’re pleased that progress on our productivity goals and operational discipline allowed us to deliver our earnings per share guidance even in the face of macro headwinds and softer trends,” said Art Peck, president and chief executive officer, Gap Inc. “As we look ahead to 2019 and beyond, we know what we need to do to win and, combined with the separation we announced today, we will be well positioned to leverage the power of our brands and the talented teams that lead them to accelerate the pace of change, improve execution and deliver profitable growth.”
Specialty Fleet Restructuring and Gap Brand Revitalization
Fleet Restructuring:
The company announced a plan today to restructure the specialty fleet, including the closure of about 230 Gap specialty stores over the next two years.
The company estimates an annualized sales loss of approximately $625 million as a result of these store closures. Additionally, the company estimates pre-tax costs associated with these actions to be about $250 million to $300 million, with the majority expected to be cash expenditures. The company estimates that these actions will result in annualized pretax savings of about $90 million.
The remaining specialty fleet will serve as a more appropriate foundation for future growth of the brand across the specialty, outlet and online channels. There will be a healthier channel mix after the restructuring, with nearly 40% of sales coming from online, and the remainder split fairly evenly between the specialty and value channels.
Brand Revitalization:
While stores are an important part of the customer journey, the Company is actively working on multiple initiatives to revitalize the Gap brand by re-engaging with customers and expanding its loyal customer base, leveraging the multigenerational, democratic appeal of the brand. Improving the product by recapturing the traditional Gap attributes of style, quality, fit and value is a top priority. The company intends to modernize its marketing model to efficiently build engagement and loyalty.
Fourth Quarter and Fiscal Year 2018 Results
The company reported fourth quarter fiscal year 2018 diluted earnings per share of $0.72 compared with fourth quarter fiscal year 2017 reported diluted earnings per share of $0.52, or $0.61 on an adjusted basis.
Please see the reconciliation of adjusted diluted earnings per share, a non-GAAP financial measure, from the GAAP financial measure in the tables at the end of this press release.
The company reported fiscal year 2018 diluted earnings per share of $2.59, compared with fiscal year 2017 reported diluted earnings per share of $2.14, or $2.13 on an adjusted basis.
The company noted that foreign currency fluctuations positively impacted earnings per share for the fourth quarter and fiscal year 2018 by an estimated $0.01 and $0.04, respectively.1
Comparable Sales Results
Due to the 53rd week in fiscal 2017, comparable sales for the fourth quarter and fiscal year 2018 are compared with the 13-week and 52-week periods ended February 3, 2018. On this basis, the company’s fourth quarter comparable sales were down 1% compared with a 5% increase last year. Comparable sales by global brand for the fourth quarter were as follows:
• | Old Navy Global: flat versus positive 9% last year |
• | Gap Global: negative 5% versus flat last year |
• | Banana Republic Global: negative 1% versus positive 1% last year |
For fiscal year 2018, the company’s comparable sales were flat compared with a 3% increase last year. Comparable sales by global brand for fiscal year 2018 were as follows:
• | Old Navy Global: positive 3% versus positive 6% last year |
• | Gap Global: negative 5% versus negative 1% last year |
• | Banana Republic Global: positive 1% versus negative 2% 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 presentation of certain line items within the Consolidated Statements of Income, but does not have a significant impact to operating income, net income or earnings per share. The most significant presentation changes are the reclassifications from operating expenses to net sales for revenue sharing associated with the company’s credit card programs and breakage income for our gift cards, as well as reclassifications from cost of goods sold and occupancy expenses to net sales for reimbursements of loyalty program discounts associated with the company’s credit card programs.
The company adopted this standard in the first quarter of fiscal 2018, on a modified retrospective basis. For the fourth quarter of fiscal 2018, the presentation changes resulted in an increase of $170 million to net sales, an increase of $47 million to cost of goods sold and occupancy expenses, and an increase of $123
1In estimating the earnings per share impact from foreign currency exchange rate fluctuations, the
company estimates current gross margins using the appropriate prior year rates (including the impact of
merchandise-related hedges), translates current period foreign earnings at prior year rates, and excludes
the year-over-year earnings impact of balance sheet remeasurement and gains or losses from non-merchandise-related foreign currency hedges. This is done in order to enhance the visibility of business results excluding the direct impact of foreign currency exchange rate fluctuations.
million to operating expenses. For fiscal year 2018, the presentation changes resulted in an increase of $619 million to net sales, an increase of $176 million to cost of goods sold and occupancy expenses, and an increase of $443 million to operating expenses. Other changes resulting from the adoption did not have a material impact on the company’s operating income, net income, or earnings per share for either the fourth quarter or fiscal year 2018.
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 presentation changes for revenue sharing and reimbursements of loyalty program discounts associated with the company’s credit card programs and breakage income for our gift cards.
Additional Fourth Quarter and Fiscal Year 2018 Results
• | The company noted that fiscal year 2018 had 52 weeks compared with 53 weeks in fiscal year 2017. As a result, fourth quarter and fiscal year 2018 results were negatively impacted by the loss of the 53rd week. For fiscal 2018, the loss of the 53rd week was a detriment of approximately $0.06 to diluted earnings per share. |
• | Fourth quarter fiscal year 2018 net sales were $4.6 billion and fiscal year 2018 net sales were $16.6 billion. Excluding the presentation changes from the adoption of the new revenue recognition standard, fourth quarter 2018 net sales decreased 7% compared with last year and fiscal year 2018 net sales increased 1% compared with last year. |
◦ | The translation of foreign currencies into U.S. dollars negatively impacted the company’s net sales for the fourth quarter of fiscal year 2018 by about $28 million and positively impacted the company’s net sales for fiscal year 2018 by about $17 million.2 Fourth quarter and fiscal year 2018 net sales details appear in the tables at the end of this press release. |
• | Fourth quarter fiscal year 2018 gross profit was $1.65 billion, a decrease of 6% compared with last year. Excluding the impact of presentation changes from the adoption of the new revenue recognition standard, gross profit decreased about 13% compared with last year. |
• | Fiscal year 2018 gross profit was $6.32 billion, an increase of 4% compared with last year. Excluding the impact of presentation changes from the adoption of the new revenue recognition standard, gross profit decreased about 3% compared with last year. |
• | Fourth quarter fiscal year 2018 gross margin was 35.6%, a decrease of 120 basis points compared with last year. Excluding the impact of presentation changes from the adoption of the new revenue recognition standard, fourth quarter fiscal year 2018 gross margin was 34.2%, a decrease of 260 basis points compared with last year, largely driven by elevated promotional activity at Old Navy and Gap brand. |
• | Fiscal year 2018 gross margin was 38.1%, a decrease of 20 basis points compared with last year. Excluding the impact of presentation changes from the adoption of the new revenue recognition standard, fiscal year 2018 gross margin was 36.8%, a decrease of 150 basis points compared with last year. |
• | Fourth quarter fiscal year 2018 operating margin was 8.0%, a decrease of 30 basis points compared with last year. Excluding the impact of presentation changes from the adoption of the new revenue |
2The translation impact on net sales is calculated by applying foreign exchange rates applicable for the fourth quarter and fiscal year 2018 to net sales for the fourth quarter and fiscal year 2017. This is done to enhance the visibility of underlying sales trends, excluding the impact of foreign currency exchange rate fluctuations.
recognition standard, fourth quarter fiscal year 2018 operating margin was 8.4%, an increase of 10 basis points compared with last year.
• | Fiscal year 2018 operating margin was 8.2%, a decrease of 110 basis points compared with operating margin of 9.3% last year. Excluding the impact of presentation changes from the adoption of the new revenue recognition standard, fiscal year 2018 operating margin was 8.5%, a decrease of 40 basis points compared with adjusted operating margin of 8.9% last year. Please see the reconciliation of adjusted operating margin, a non-GAAP financial measure, from the GAAP financial measure in the tables at the end of this press release. |
• | The effective tax rate was 24.4% for the fourth quarter of fiscal year 2018. The company finalized its provisional amounts related to the enactment of the U.S. Tax Cuts and Jobs Act of 2017 (“TCJA”) in the fourth quarter of fiscal year 2018, with no material impacts. |
• | The effective tax rate for fiscal year 2018 was 24.1%. The effective tax rate reflects the benefits of the enactment of TCJA, as well as certain adjustments to the liability for the one-time transition tax enacted as part of the TCJA in fiscal year 2017, partially offset by increases to liabilities recorded in connection with examinations by taxing authorities. |
• | During the quarter, the company repurchased 3.8 million shares for $98 million. For fiscal year 2018, the Company repurchased 13.8 million shares for $398 million and ended fiscal year 2018 with 378 million shares outstanding. Underscoring Gap Inc.’s continued commitment to distributing cash to shareholders, on February 26, 2019, the company announced that its Board of Directors approved a new $1 billion share repurchase authorization for the company’s common stock, superseding the company’s existing authorization dated February 25, 2016. |
• | The company paid a dividend of $0.2425 per share during the fourth quarter of fiscal year 2018, an increase of over 5% compared with last year. In addition, on February 26, 2019, the company announced that its Board of Directors authorized a first quarter dividend of $0.2425 per share. |
The company ended the fourth quarter of fiscal year 2018 with $1.4 billion in cash, cash equivalents, and restricted cash, as well as $288 million of short-term investments. Fiscal year 2018 free cash flow, defined as net cash from operating activities less purchases of property and equipment, net of insurance proceeds related to loss of property and equipment, was $676 million, compared to fiscal year 2017 free cash flow of $715 million, which included $66 million in insurance proceeds related to loss on property and equipment due to the Fishkill fire. 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.
Fiscal year 2018 capital expenditures were $705 million.
The company ended fiscal year 2018 with 3,666 store locations in 43 countries, of which 3,194 were company-operated.
Recent Accounting Pronouncement - Leases
In the first quarter of fiscal 2019, the company will adopt ASU No. 2016-02, Leases. The adoption is not expected to have a significant impact on the company’s consolidated statement of income, but it will result in a substantial gross-up on the company’s consolidated balance sheet to recognize a lease liability and right of use asset for leases. The company will apply the standard prospectively with a cumulative adjustment to retained earnings in the first quarter of fiscal 2019.
2019 Outlook
Earnings per Share
For fiscal year 2019, the company expects reported diluted earnings per share to be in the range of $2.11 to $2.26. Excluding the estimated costs related to the Gap brand fleet restructuring, diluted earnings per share is expected to be in the range of $2.40 to $2.55. Please see the reconciliation of expected adjusted diluted earnings per share, a non-GAAP financial measure, from the GAAP financial measure in the tables at the end of this press release.
Comparable Sales
The company expects comparable sales for fiscal year 2019 to be flat to up slightly.
Effective Tax Rate
For fiscal 2019, the company expects the effective tax rate to be about 26%. The effective tax rate may be materially impacted as additional guidance related to TCJA is issued by the U.S. Treasury Department and Internal Revenue Service.
Share Repurchases
The company currently expects to repurchase approximately $200 million in fiscal year 2019.
Capital Expenditures
The company expects fiscal 2019 capital spending to be approximately $750 million, including about $100 million of expansion costs related to a headquarters building and a buildout of its Ohio distribution center. In addition, at the beginning of fiscal 2019, the company entered into an agreement to purchase its Old Navy headquarters building and anticipates selling another property during fiscal 2019. The company expects a net cash outflow of about $100 to $150 million related to these real estate transactions.
Real Estate
The company expects to close about 50 company-operated stores, net of openings and repositions in fiscal year 2019. This guidance includes about 130 closures related to the Gap brand fleet restructuring announced today, the majority of which are expected to close in the fourth quarter of fiscal 2019. The company expects store openings to be focused on Old Navy and Athleta locations.
Webcast and Conference Call Information
Tina Romani, Senior Director of Investor Relations at Gap Inc., will host a summary of the company’s fourth quarter and 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: 5575210). 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: plans to restructure the Gap brand specialty fleet, including anticipated store closures and timing, impact to annualized sales, associated costs, and effect on annualized savings; earnings per share for first half and the full year of fiscal year 2019; comparable sales for fiscal year 2019; effective tax rate for fiscal year 2019; share repurchases in fiscal year 2019; capital expenditures for fiscal year 2019; store openings and closings, net
of closures and repositions, and weighting by brand in fiscal year 2019; improvement in Gap brand’s margin trend in fiscal year 2019; dividends and share repurchases in fiscal year 2019; impact from foreign exchange in fiscal year 2019; and impact of the adoption of new accounting standards.
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 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 agreement 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 February 28, 2019. 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, Athleta, Intermix, and Hill City brands. Fiscal year 2018 net sales were $16.6 billion. Gap Inc. products are available for purchase in more than 90 countries worldwide through company-operated stores, franchise stores, and e-commerce sites. For more information, please visit www.gapinc.com.
Investor Relations Contact:
Tina Romani
(415) 427-5264
Media Relations Contact:
Trina Somera
(415) 427-3145
The Gap, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
($ in millions) | February 2, 2019 | February 3, 2018 | |||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 1,081 | $ | 1,783 | |||
Short-term investments | 288 | — | |||||
Merchandise inventory | 2,131 | 1,997 | |||||
Other current assets | 751 | 788 | |||||
Total current assets | 4,251 | 4,568 | |||||
Property and equipment, net | 2,912 | 2,805 | |||||
Other long-term assets | 886 | 616 | |||||
Total assets | $ | 8,049 | $ | 7,989 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 1,126 | $ | 1,181 | |||
Accrued expenses and other current liabilities | 1,024 | 1,270 | |||||
Income taxes payable | 24 | 10 | |||||
Total current liabilities | 2,174 | 2,461 | |||||
Long-term liabilities: | |||||||
Long-term debt | 1,249 | 1,249 | |||||
Lease incentives and other long-term liabilities | 1,073 | 1,135 | |||||
Total long-term liabilities | 2,322 | 2,384 | |||||
Total stockholders' equity | 3,553 | 3,144 | |||||
Total liabilities and stockholders' equity | $ | 8,049 | $ | 7,989 | |||
The Gap, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
13 Weeks Ended | 14 Weeks Ended | 52 Weeks Ended | 53 Weeks Ended | ||||||||||||
($ and shares in millions except per share amounts) | February 2, 2019 | February 3, 2018 | February 2, 2019 | February 3, 2018 | |||||||||||
Net sales | $ | 4,623 | $ | 4,778 | $ | 16,580 | $ | 15,855 | |||||||
Cost of goods sold and occupancy expenses | 2,978 | 3,019 | 10,258 | 9,789 | |||||||||||
Gross profit | 1,645 | 1,759 | 6,322 | 6,066 | |||||||||||
Operating expenses | 1,273 | 1,363 | 4,960 | 4,587 | |||||||||||
Operating income | 372 | 396 | 1,362 | 1,479 | |||||||||||
Interest, net | 7 | 13 | 40 | 55 | |||||||||||
Income before income taxes | 365 | 383 | 1,322 | 1,424 | |||||||||||
Income taxes | 89 | 178 | 319 | 576 | |||||||||||
Net income | $ | 276 | $ | 205 | $ | 1,003 | $ | 848 | |||||||
Weighted-average number of shares - basic | 381 | 389 | 385 | 393 | |||||||||||
Weighted-average number of shares - diluted | 383 | 393 | 388 | 396 | |||||||||||
Earnings per share - basic | $ | 0.72 | $ | 0.53 | $ | 2.61 | $ | 2.16 | |||||||
Earnings per share - diluted | $ | 0.72 | $ | 0.52 | $ | 2.59 | $ | 2.14 | |||||||
Cash dividends declared and paid per share | $ | 0.2425 | $ | 0.23 | $ | 0.97 | $ | 0.92 | |||||||
The Gap, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
52 Weeks Ended | 53 Weeks Ended | ||||||
($ in millions) | February 2, 2019 (b) | February 3, 2018 (b) | |||||
Cash flows from operating activities: | |||||||
Net income | $ | 1,003 | $ | 848 | |||
Depreciation and amortization (a) | 517 | 499 | |||||
Change in merchandise inventory | (154 | ) | (142 | ) | |||
Other, net | 15 | 175 | |||||
Net cash provided by operating activities | 1,381 | 1,380 | |||||
Cash flows from investing activities: | |||||||
Purchases of property and equipment | (705 | ) | (731 | ) | |||
Insurance proceeds related to loss on property and equipment | — | 66 | |||||
Purchases of short-term investments | (464 | ) | — | ||||
Sales and maturities of short-term investments | 177 | — | |||||
Other | (9 | ) | (1 | ) | |||
Net cash used for investing activities | (1,001 | ) | (666 | ) | |||
Cash flows from financing activities: | |||||||
Payments of short-term debt | — | (67 | ) | ||||
Proceeds from issuances under share-based compensation plans | 46 | 30 | |||||
Withholding tax payments related to vesting of stock units | (23 | ) | (18 | ) | |||
Repurchases of common stock | (398 | ) | (315 | ) | |||
Cash dividends paid | (373 | ) | (361 | ) | |||
Other | (1 | ) | — | ||||
Net cash used for financing activities | (749 | ) | (731 | ) | |||
Effect of foreign exchange rate fluctuations on cash, cash equivalents, and restricted cash | (10 | ) | 19 | ||||
Net decrease in cash, cash equivalents, and restricted cash | (379 | ) | 2 | ||||
Cash, cash equivalents, and restricted cash at beginning of period | 1,799 | 1,797 | |||||
Cash, cash equivalents, and restricted cash at end of period | $ | 1,420 | $ | 1,799 | |||
__________
(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 $339 million and $16 million for the fifty-two weeks ended February 2, 2019 and the fifty-three weeks ended February 3, 2018, respectively, have been included above with cash and cash equivalents. Restricted cash is recorded in other current assets and other long-term assets on the Consolidated Balance Sheets. The restricted cash balance as of February 2, 2019 primarily relates to consideration held by a third party in connection with the purchase of a corporate facility that is included in other long-term assets on the Consolidated Balance Sheet.
The Gap, Inc.
NON-GAAP FINANCIAL MEASURES
UNAUDITED
FREE CASH FLOW
Free cash flow is a non-GAAP financial measure. We believe free cash flow is an important metric because it represents a measure of how much cash a company has available for discretionary and non-discretionary items after the deduction of capital expenditures, net of insurance proceeds related to loss on property and equipment, as we require regular capital expenditures to build and maintain stores and purchase new equipment to improve our business. We use this metric internally, as we believe our sustained ability to generate free cash flow is an important driver of value creation. However, this non-GAAP financial measure is not intended to supersede or replace our GAAP results.
52 Weeks Ended | 53 Weeks Ended | ||||||
($ in millions) | February 2, 2019 | February 3, 2018 | |||||
Net cash provided by operating activities | $ | 1,381 | $ | 1,380 | |||
Less: Purchases of property and equipment | (705 | ) | (731 | ) | |||
Add: Insurance proceeds related to loss on property and equipment (a) | — | 66 | |||||
Free cash flow | $ | 676 | $ | 715 | |||
__________
(a) Represents insurance proceeds related to loss on property and equipment from the fire that occurred at a company- owned distribution center campus in Fishkill, New York on August 29, 2016.
The Gap, Inc.
NON-GAAP FINANCIAL MEASURES
UNAUDITED
ADJUSTED INCOME STATEMENT METRICS FOR FOURTH QUARTER AND FISCAL YEAR 2017
The following adjusted income statement metrics are non-GAAP financial measures. These measures are provided to enhance visibility into the company's underlying results for the period excluding the impact of the gain from insurance proceeds in the second quarter of fiscal year 2017 and federal tax reform in the fourth quarter of fiscal year 2017. Management believes the adjusted metrics are useful for the assessment of ongoing operations as we believe the adjusted items are not indicative of our ongoing operations due to the nature of the adjustments, and management believes that the presentation of adjusted financial information provides additional information to investors to facilitate the comparison of results against prior years. However, these non-GAAP financial measures are not intended to supersede or replace the GAAP measures.
($ in millions) | Operating Expenses | Operating Expenses as a % of Net Sales | Operating Income | Operating Income as a % of Net Sales | Income Taxes | Net Income | Earnings per Share - Diluted | |||||||||||||||||||
14 Weeks Ended February 3, 2018 | ||||||||||||||||||||||||||
GAAP metrics, as reported | $ | 1,363 | 28.5 | % | $ | 396 | 8.3 | % | $ | 178 | $ | 205 | $ | 0.52 | ||||||||||||
Adjustment for: | ||||||||||||||||||||||||||
Net provisional tax impact of federal tax reform (a) | — | — | % | — | — | % | (34 | ) | 34 | 0.09 | ||||||||||||||||
Non-GAAP metrics | $ | 1,363 | 28.5 | % | $ | 396 | 8.3 | % | $ | 144 | $ | 239 | $ | 0.61 | ||||||||||||
($ in millions) | Operating Expenses | Operating Expenses as a % of Net Sales | Operating Income | Operating Income as a % of Net Sales | Income Taxes | Net Income | Earnings per Share - Diluted | |||||||||||||||||||
53 Weeks Ended February 3, 2018 | ||||||||||||||||||||||||||
GAAP metrics, as reported | $ | 4,587 | 28.9 | % | $ | 1,479 | 9.3 | % | $ | 576 | $ | 848 | $ | 2.14 | ||||||||||||
Adjustment for: | ||||||||||||||||||||||||||
Gain from insurance proceeds (b) | 64 | 0.4 | % | (64 | ) | (0.4 | )% | (24 | ) | (40 | ) | (0.10 | ) | |||||||||||||
Net provisional tax impact of federal tax reform (a) | — | — | % | — | — | % | (34 | ) | 34 | 0.09 | ||||||||||||||||
Non-GAAP metrics | $ | 4,651 | 29.3 | % | $ | 1,415 | 8.9 | % | $ | 518 | $ | 842 | $ | 2.13 | ||||||||||||
__________
(a) Represents the net provisional tax impact of federal tax reform.
(b) Represents the gain from insurance proceeds, net of tax, related to the fire that occurred in one of the buildings at a company-owned distribution center campus in Fishkill, New York and related impact on percentage of net sales. The tax impact of the gain from insurance proceeds is calculated at the adjusted effective tax rate.
The Gap, Inc.
NON-GAAP FINANCIAL MEASURES
UNAUDITED
EXPECTED ADJUSTED EARNINGS PER SHARE FOR FISCAL YEAR 2019
Expected adjusted diluted earnings per share is a non-GAAP financial measure. Expected adjusted diluted earnings per share for fiscal year 2019 is provided to enhance visibility into the company's expected underlying results for the period excluding the estimated impact of costs related to the specialty fleet restructuring plan and revitalization efforts for Gap brand. However, this non-GAAP financial measure is not intended to supersede or replace the GAAP measure.
52 Weeks Ending February 1, 2020 | ||||||||
Low End | High End | |||||||
Expected earnings per share - diluted | $ | 2.11 | $ | 2.26 | ||||
Add: Estimated impact of fiscal year 2019 restructuring costs (a) | 0.29 | 0.29 | ||||||
Expected adjusted earnings per share - diluted | $ | 2.40 | $ | 2.55 | ||||
__________
(a) Represents the earnings per share impact of fiscal year 2019 restructuring costs primarily related to store closures and revitalization efforts for Gap brand, calculated net of tax at our estimated effective tax rate. The costs primarily include lease termination fees, employee-related costs, and the net impact of write-offs related to long-term assets and liabilities.
The Gap, Inc.
NET SALES RESULTS
UNAUDITED
The following table details the Company’s fourth quarter and fiscal year 2018 net sales (unaudited):
($ in millions) | Old Navy Global | Gap Global | Banana Republic Global | Other (3) | Total | Percentage of Net Sales | |||||||||||||||||
13 Weeks Ended February 2, 2019 (1) | |||||||||||||||||||||||
U.S. (2) | $ | 1,959 | $ | 844 | $ | 592 | $ | 331 | $ | 3,726 | 80 | % | |||||||||||
Canada | 154 | 104 | 60 | 1 | 319 | 7 | % | ||||||||||||||||
Europe | — | 164 | 3 | — | 167 | 4 | % | ||||||||||||||||
Asia | 14 | 310 | 26 | — | 350 | 8 | % | ||||||||||||||||
Other regions | 29 | 26 | 6 | — | 61 | 1 | % | ||||||||||||||||
Total | $ | 2,156 | $ | 1,448 | $ | 687 | $ | 332 | $ | 4,623 | 100 | % | |||||||||||
($ in millions) | Old Navy Global | Gap Global | Banana Republic Global | Other (3) | Total | Percentage of Net Sales | |||||||||||||||||
14 Weeks Ended February 3, 2018 (1) | |||||||||||||||||||||||
U.S. (2) | $ | 1,961 | $ | 928 | $ | 621 | $ | 283 | $ | 3,793 | 80 | % | |||||||||||
Canada | 160 | 121 | 69 | 1 | 351 | 7 | % | ||||||||||||||||
Europe | — | 191 | 4 | — | 195 | 4 | % | ||||||||||||||||
Asia | 16 | 337 | 27 | — | 380 | 8 | % | ||||||||||||||||
Other regions | 24 | 29 | 6 | — | 59 | 1 | % | ||||||||||||||||
Total | $ | 2,161 | $ | 1,606 | $ | 727 | $ | 284 | $ | 4,778 | 100 | % | |||||||||||
($ in millions) | Old Navy Global | Gap Global | Banana Republic Global | Other (3) | Total | Percentage of Net Sales | |||||||||||||||||
52 Weeks Ended February 2, 2019 (1) | |||||||||||||||||||||||
U.S. (2) | $ | 7,134 | $ | 2,990 | $ | 2,095 | $ | 1,121 | $ | 13,340 | 81 | % | |||||||||||
Canada | 584 | 379 | 227 | 3 | 1,193 | 7 | % | ||||||||||||||||
Europe | — | 589 | 14 | — | 603 | 4 | % | ||||||||||||||||
Asia | 50 | 1,089 | 94 | — | 1,233 | 7 | % | ||||||||||||||||
Other regions | 72 | 113 | 26 | — | 211 | 1 | % | ||||||||||||||||
Total | $ | 7,840 | $ | 5,160 | $ | 2,456 | $ | 1,124 | $ | 16,580 | 100 | % | |||||||||||
($ in millions) | Old Navy Global | Gap Global | Banana Republic Global | Other (3) | Total | Percentage of Net Sales | |||||||||||||||||
53 Weeks Ended February 3, 2018 (1) | |||||||||||||||||||||||
U.S. (2) | $ | 6,570 | $ | 3,065 | $ | 2,017 | $ | 916 | $ | 12,568 | 80 | % | |||||||||||
Canada | 547 | 398 | 225 | 3 | 1,173 | 7 | % | ||||||||||||||||
Europe | — | 626 | 15 | — | 641 | 4 | % | ||||||||||||||||
Asia | 50 | 1,117 | 96 | — | 1,263 | 8 | % | ||||||||||||||||
Other regions | 71 | 112 | 27 | — | 210 | 1 | % | ||||||||||||||||
Total | $ | 7,238 | $ | 5,318 | $ | 2,380 | $ | 919 | $ | 15,855 | 100 | % | |||||||||||
__________
(1) | Net sales for the thirteen and fifty-two weeks ended February 2, 2019, reflect the adoption of the new revenue recognition standard. Prior period amounts have not been restated and continue to be reported under accounting standards in effect for those periods. |
(2) | U.S. includes the United States, Puerto Rico, and Guam. |
(3) Primarily consists of net sales for the Athleta and Intermix brands. Beginning in the third quarter of fiscal 2018, the Hill City brand is also included.
The Gap, Inc.
REAL ESTATE
Store count, openings, closings, and square footage for our stores are as follows:
13 Weeks Ended February 2, 2019 | ||||||||||||||
Store Locations Beginning of Q4 | Store Locations Opened | Store Locations Closed | Store Locations End of Q4 | Square Feet (millions) | ||||||||||
Old Navy North America | 1,117 | 25 | 3 | 1,139 | 18.6 | |||||||||
Old Navy Asia | 14 | 1 | — | 15 | 0.2 | |||||||||
Gap North America | 798 | 5 | 45 | 758 | 7.8 | |||||||||
Gap Asia | 323 | 17 | 8 | 332 | 3.1 | |||||||||
Gap Europe | 154 | 1 | 3 | 152 | 1.3 | |||||||||
Banana Republic North America | 574 | 1 | 19 | 556 | 4.7 | |||||||||
Banana Republic Asia | 45 | — | — | 45 | 0.2 | |||||||||
Athleta North America | 157 | 4 | — | 161 | 0.7 | |||||||||
Intermix North America | 36 | — | — | 36 | 0.1 | |||||||||
Company-operated stores total | 3,218 | 54 | 78 | 3,194 | 36.7 | |||||||||
Franchise | 470 | 6 | 4 | 472 | N/A | |||||||||
Total | 3,688 | 60 | 82 | 3,666 | 36.7 | |||||||||
Exhibit 99.2 GAP INC. Historical Comparable Sales by Global Brand Fiscal 2014 to Present Final Fiscal 2018 1Q18 2Q18 3Q18 4Q18 FY-18 Gap Global -4% -5% -7% -5% -5% Banana Republic Global 3% 2% 2% -1% 1% Old Navy Global 3% 5% 4% 0% 3% Gap Inc. 1% 2% 0% -1% 0% Fiscal 2017 1Q17 2Q17 3Q17 4Q17 FY-17 Gap Global -4% -1% 1% 0% -1% Banana Republic Global -4% -5% -1% 1% -2% Old Navy Global 8% 5% 4% 9% 6% Gap Inc. 2% 1% 3% 5% 3% Fiscal 2016 1Q16 2Q16 3Q16 4Q16 FY-16 Gap Global -3% -3% -8% 0% -3% Banana Republic Global -11% -9% -8% -3% -7% Old Navy Global -6% 0% 3% 5% 1% Gap Inc. -5% -2% -3% 2% -2% Fiscal 2015 1Q15 2Q15 3Q15 4Q15 FY-15 Gap Global -10% -6% -4% -3% -6% Banana Republic Global -8% -4% -12% -14% -10% Old Navy Global 3% 3% 4% -8% 0% Gap Inc. -4% -2% -2% -7% -4% Fiscal 2014 1Q14 2Q14 3Q14 4Q14 FY-14 Gap Global -5% -5% -5% -6% -5% Banana Republic Global -1% 0% 0% 1% 0% Old Navy Global 1% 4% 1% 11% 5% Gap Inc. -1% 0% -2% 2% 0% Comp sales include the results of Company-operated stores and sales through online channels in those countries where we have existing Comp store sales. The calculation of Gap Inc. Comp sales includes the results of Athleta and Intermix Company-operated stores but excludes the results of the franchise business. Between August 2013 and February 2015 the Comp sales calculations for Gap Inc. included Piperlime store sales but excluded Piperlime online. A store is included in the Comp sales calculations when it has been open and operated by Gap Inc. for at least one year and the selling square footage has not changed by 15 percent or more within the past year.
Exhibit 99.3
Exhibit 99.4
GAP INC. ANNOUNCES SHARE REPURCHASE AUTHORIZATION AND DIVIDEND
SAN FRANCISCO – February 26, 2019 – Gap Inc. (NYSE: GPS) today announced its board of directors approved a new $1 billion share repurchase authorization for the company’s common stock, superseding the existing authorization dated February 25, 2016.
The company also announced today its intent to maintain an annual dividend at the current level of $0.97 per share in fiscal year 2019.
Additionally, the board of directors has authorized a first quarter fiscal year 2019 dividend of $0.2425 per share, payable on or after May 1, 2019 to shareholders of record at the close of business on April 10, 2019.
Forward-Looking Statements
This press release contains 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: future share repurchases; returning excess cash to shareholders; and annual per share dividend.
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 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 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 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 risk that comparable sales and margins will experience fluctuations; 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 agreement related to its private label and co-branded credit cards; 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 February 26, 2019. 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, Athleta, Intermix and Hill City 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.
Investor Relations Contact:
Tina Romani
(415) 427-5264
Media Relations Contact:
Trina Somera
(415) 427-3145
Exhibit 99.5
GAP INC. ANNOUNCES PLAN TO SEPARATE INTO
TWO INDEPENDENT PUBLICLY TRADED COMPANIES
Old Navy to Become Standalone Company
Separation Will Enable Both Companies to Capitalize on Distinct Priorities, Growth Drivers and
Unique Positioning in Evolving Apparel Market
SAN FRANCISCO – February 28, 2019 – Gap Inc. (NYSE: GPS) today announced plans to create two independent publicly traded companies: Old Navy, a category-leader in family apparel, and a yet-to-be-named company (“NewCo”), which will consist of the iconic Gap brand, Athleta, Banana Republic, Intermix and Hill City. Gap Inc. expects to effect the separation through a spin-off that is intended to generally be tax-free to Gap Inc.’s shareholders for U.S. federal income tax purposes. The spin-off will enable each company to maximize focus and flexibility, align investments and incentives to meet its unique business needs and optimize its cost structure to deliver profitable growth.
“Following a comprehensive review by the Gap Inc. Board of Directors, it’s clear that Old Navy’s business model and customers have increasingly diverged from our specialty brands over time, and each company now requires a different strategy to thrive moving forward,” said Robert Fisher, Gap Inc.’s Board Chairman. “Recognizing that, we determined that pursuing a separation is the most compelling path forward for our brands – creating two separate companies with distinct financial profiles, tailored operating priorities and unique capital allocation strategies, both well positioned to achieve their strategic goals and create significant value for our customers, employees and shareholders.”
Art Peck, President and CEO of Gap Inc., added, “We have made significant progress executing on our balanced growth strategy and investing in the capabilities to position our brands for growth: expanding the omni-channel customer experience, building our digital capabilities and improving operational efficiencies across the company. Today’s spin-off announcement enables us to embed those capabilities within two stand-alone companies, each with a sharpened strategic focus and tailored operating structure. As a result, both companies will be well positioned to capitalize on their respective opportunities and act decisively in an evolving retail environment.”
NewCo
NewCo, with approximately $9 billion in annual revenue and a strong balance sheet, will have a unique and differentiated portfolio, with significant opportunity to create value. The company will be well positioned to drive sustainable growth and improve profitability by leveraging its loyal and complementary customer base and an appropriately scaled operating platform with advantaged digital capabilities to deliver distinct products and experiences. With enhanced strategic and operational focus, it can deliver improved results at Gap, Banana Republic and Intermix, while capitalizing on the momentum of B-Corp certified Athleta and newly-launched Hill City. The program announced today to restructure the Gap brand specialty fleet is an important part of the plan to enhance the profitability of that channel. As a stand-alone company, NewCo also will be better positioned to continue to evolve its leadership role in sustainability and social responsibility.
Old Navy
As one of the fastest growing apparel brands in the U.S. with approximately $8 billion in annual revenue, Old Navy will be able to capitalize on its scale, broad customer awareness and unique positioning to extend its category leadership and deliver profitable growth as an independent company. Through this separation, Old Navy will have the flexibility, focus and control needed to increase customer access by further applying its strategic real estate strategy, evolving its omni-channel model and expanding its product categories to continue to successfully resonate with value-focused customers. Old Navy will be well positioned to invest in capabilities and initiatives that will continue to grow its market share.
Management
Both companies will have experienced leadership teams, well suited to lead these organizations on their separate, defined paths.
Gap Inc.’s current President and Chief Executive Officer, Art Peck, will hold the same position with NewCo after the separation. With more than a decade of retail leadership experience, Mr. Peck is well positioned to lead NewCo going forward. Over the last several years, he has led significant improvements at Gap Inc. and reinvigorated growth across several specialty brands by strengthening the supply chain and pivoting quickly to leverage technology and capitalize on new customer trends.
Following the separation, Sonia Syngal, current President and Chief Executive Officer of Old Navy, will continue to lead the brand as a standalone company. Ms. Syngal — who has led Old Navy since 2016 — has a proven track record of leading Old Navy’s transformation and driving product-to-market innovations, as well as deep experience in supply chain and manufacturing in both retail apparel and other industries.
Transaction Details
Upon separation, Gap Inc. shareholders are expected to receive a pro-rata stock distribution and as a result own shares in both NewCo and Old Navy in equal proportion. The transaction is currently targeted to be completed in 2020, and is subject to certain conditions, including final approval by Gap Inc.’s Board of Directors, receipt of a tax opinion from counsel and the filing and effectiveness of a registration statement with the U.S. Securities and Exchange Commission. There can be no assurances regarding the ultimate timing or terms of the separation or that the separation will be completed.
After the separation, NewCo and Old Navy are expected to be appropriately capitalized with sufficient cash to support planned operating and investment plans.
NewCo will be based in Gap Inc.’s current headquarters and Old Navy will remain at its current headquarters, both located in San Francisco.
Morgan Stanley & Co. LLC is serving as financial advisor and Wachtell, Lipton, Rosen & Katz is serving as legal advisor to Gap Inc.
Fourth Quarter and Full Year Fiscal 2018 Results and Conference Call Information
Gap Inc. also today announced its fourth quarter and full year fiscal 2018 financial results in a separate press release that can be found on Gap Inc.’s website at www.gapinc.com. Gap Inc. management – including Art Peck, Gap Inc.’s President and CEO; Teri List-Stoll, Gap Inc.’s Executive Vice President and CFO – will discuss this announcement as well as its financial results on its previously scheduled conference call and webcast from approximately 2:00 p.m. to 3:00 p.m. Pacific Time today.
The conference call can be accessed by calling 1-855-5000-GPS or 1-855-500-0477 (participant passcode: 5575210). International callers may dial 1-323-794-2078. The webcast can be accessed at www.gapinc.com.
For additional information on the separation, please visit the dedicated transaction website at www.gapinc.transactionannouncement.com
Forward-Looking Statements
This press release contains 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: relating to future sales, earnings, cash flow, results of operations, uses of cash, and other measures of financial performance or potential future plans, strategies or transactions of the company or the independent companies following the proposed separation transaction, the structure, benefits, capitalization, and timing of completion of the separation transaction, and estimated costs associated with the separation transaction.
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 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 agreement 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; the risk that the company will not be successful in defending various proceedings, lawsuits, disputes, and claims; risks associated with the impact, timing or terms of the separation transaction; the risks associated with the expected benefits and costs of the separation transaction, including the risk that the expected benefits of the separation transaction will not be realized within the expected time frame, in full or at all, and the risk that conditions to the separation transaction will not be satisfied and/or that the separation transaction will not be completed within the expected time frame, on the expected terms or at all; the expected qualification of the separation transaction as a tax-free transaction for U.S. federal income tax purposes, including whether or not an IRS ruling will be sought or obtained; the risk that any consents or approvals required in connection with the separation transaction will not be received or obtained within the expected time frame, on the expected terms or at all; risks associated with expected financing transactions undertaken in connection with the separation transaction and risks associated with indebtedness incurred in connection with the separation transaction; the risk that dissynergy costs, costs of restructuring transactions and other costs incurred in connection with the separation transaction will exceed our estimates; and the impact of the separation transaction on our businesses and the risk that the separation transaction may be more difficult, time-consuming or costly than expected, including the impact on our resources, systems, procedures and controls, diversion of management’s attention and the impact on relationships with customers, suppliers, employees and other business counterparties. There can be no assurance that the company’s separation transaction will in fact be completed in the manner described or at all.
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 February 28, 2019. 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, Athleta, Intermix, and Hill City brands. Fiscal year 2018 net sales were $16.6 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.
Investor Relations Contact:
Tina Romani
(415) 427-5264
Media Relations Contacts:
Sarah Meron
(415) 427-3145
Sard Verbinnen & Co
John Christiansen/Meghan Gavigan/Devin Broda
(415) 618-8750; (212) 687-8080