UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 28, 20172023
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-7562
THE GAP, INC.
(Exact name of registrant as specified in its charter)
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| Delaware | | 94-1697231 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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Two Folsom Street, San Francisco, California | | 94105 |
(Address of principal executive offices) | | (Zip code) |
Two Folsom Street
San Francisco, California 94105
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (415) 427-0100
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | | Trading Symbol | | Name of each exchange on which registered |
| Common Stock, $0.05 par value | | GPS | | The New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑No ☐
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | | | | | 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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Yes ☐ No ☑
The number of shares of the registrant’s common stock outstanding as of November 15, 201714, 2023 was 388,857,073.
370,833,344.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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, but are not limited to, statements regarding the following:
•the potential impact of global economic conditions on the assumptions and estimates used when preparing the Condensed Consolidated Financial Statements;
•the impact of recent accounting pronouncements;
•the adoptiontiming of revenue recognition of upfront payments related to our new accounting standards;credit card program agreements with Barclays and Mastercard;
•the timing of recognition in income of unrealized gains and losses from designated cash flow hedges into income;hedges;
the impact of the potential settlement of outstanding tax matters;
•the impact of losses due to indemnification obligations;obligations on the Condensed Consolidated Financial Statements;
•the outcome of proceedings, lawsuits, disputes, and claims;
claims, including the impact of such actions on the Condensed Consolidated Financial Statements and our financial results;
•our arrangements with third parties to operate stores and websites selling apparel and related products under our brand names;
•our plans to rationalize the Gap and Banana Republic store fleet by reducing the number of Gap and Banana Republic stores in North America;
•managing inventory to facilitate margin recovery and optimizing our cost structure with operational and financial rigor;
•reinvigorating our brands to drive relevance and an engaging omni-channel experience;
•creating trend-right product assortments while driving creative excellence and delivering consistent product with storytelling that excites our customers;
•rationalizing the Gap and Banana Republic store fleet;
•attracting and retaining strong talent in our businesses and functions;
•continuing depreciation of certain foreign currencies on gross margins for our foreign subsidiaries;
current cash balancesto integrate social and cash flows being sufficientenvironmental sustainability into business practices to support long-term growth;
•our business operations, including growth initiatives and planned capital expenditures;
ability to supplement near-term liquidity, if necessary, with our $500 million revolving credit facilitythe ABL Facility or other available market instruments;
•the impact of seasonality and global economic conditions on certain asset and liability accounts as well as cash inflows and outflows;
•the seasonalityability of our operations;cash flows from our operations, current balances of cash and cash equivalents, the Senior Notes and the ABL Facility, and other available market instruments to support our business operations and liquidity requirements;
•the importance of our sustained ability to generate free cash flow, which is a non-GAAP financial measure and is defined and discussed in more detail in Item 2 of Part 1 of this Form 10-Q below;
•our dividend paymentspolicy, including the potential timing and amounts of future dividends;
•the impact of reductions in fiscal 2017;our credit ratings on our interest expense on future borrowings; and
•the impact of changes in internal control over financial reporting, including the impact of our restructuring plan on our internal control over financial reporting.
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:
•the overall global economic and geopolitical environment and the impact on consumer spending patterns;
•the risk that we orfail to maintain, enhance, and protect our franchisees will be unsuccessful in gauging apparel trendsbrand image and changing consumer preferences, including channel preferences;reputation;
•the highly competitive nature of our business in the United States and internationally;
•the risk that failurewe may be unable to maintain, enhance, andmanage or protect our brand image could have an adverse effectinventory effectively and the resulting impact on our gross margins, sales, and results of operations;
•the risk that the failurewe fail to manage key executive succession and retention and to continue to attract and retain key personnel, or effectively manage succession, could have an adverse impact on our results of operations;qualified personnel;
•the risk that trade matters could increase the costwe or reduce the supply ofour franchisees may be unsuccessful in gauging apparel available to ustrends and adversely affect our business, financial condition, and results of operations;changing consumer preferences or responding with sufficient lead time;
•the risk that changes inrestructuring our business may not generate the regulatoryintended benefits and projected cost savings to the extent or administrative landscape could adversely affect our financial condition, strategies, and results of operations;on the timeline as expected;
•the risk that our investments in digital and customer initiatives may not deliver the results we anticipate;
the riskinflationary pressures continue to negatively impact gross margins or that if we are unable to manage our inventory effectively, our gross margins will be adversely affected;pass along price increases;
the risk that we are subject to data or other security breaches that may result in increased costs, violations of law, significant legal and financial exposure, and a loss of confidence in our security measures, which could have an adverse effect on our results of operations and our reputation;
the risk that foreign currency exchange rate fluctuations could adversely impact our financial results;
•the risks to our business, including our costs and supply chain, associated with global sourcing and manufacturing;
the risk that changes in global economic conditions or consumer spending patterns could adversely impact our results of operations;
the risks to our efforts to expand internationally, including our ability to operate under a global brand structure and operating in regions where we have less experience;
•the risks to our reputation or operations associated with importing merchandise from foreign countries, including failure of our vendors to adhere to our Code of Vendor Conduct;
•the risk that trade matters could increase the cost or reduce the supply of apparel available to us;
•reductions in income and cash flow from our credit card arrangement related to our private label and co-branded credit cards;
•the risk of data or other security breaches or vulnerabilities that may result in increased costs, violations of law, significant legal and financial exposure, and a loss of confidence in our security measures;
•the risk that failures of, or updates or changes to, our IT systems may disrupt our operations;
•the risk that our franchisees’ operation of franchise stores is not directly within our controlfranchisees and licensees could impair the value of our brands;brands or fail to make payments for which we are liable;
•natural disasters, public health crises, political crises, negative global climate patterns, or other catastrophic events;
•acts of terrorism or war, including the conflict between Russia and Ukraine and the conflict in Israel, and the impact on global market stability;
•the risk that our investments in customer, digital, and omni-channel shopping initiatives may not deliver the results we anticipate;
•engaging in or seeking to engage in strategic transactions that are subject to various risks and uncertainties;
•the risk that our efforts to expand internationally may not be successful;
•the risk of foreign currency exchange rate fluctuations;
•the risk that our comparable sales and margins may experience fluctuations, that the seasonality of our business may experience changes, or that we may fail to meet financial market expectations;
•the risk that we or our franchisees willmay be unsuccessful in identifying, negotiating, and securing new store locations and renewing, modifying, or terminating leases for existing store locations effectively;
•the adverse effects of climate change on our operations and those of our franchisees, vendors and other business partners;
•the risk that comparable saleswe will not be successful in defending various proceedings, lawsuits, disputes, and margins will experience fluctuations;claims;
•our failure to comply with applicable laws and regulations and changes in the regulatory or administrative landscape;
•our failure to satisfy regulations and market expectations related to our ESG initiatives;
•the risk that changes in our credit profile or deterioration in market conditions may limit our access to the capital markets and adversely impact our financial position or our business initiatives;markets;
•the risk that updates or changesour level of indebtedness may impact our ability to operate and expand our information technology (“IT”) systems may disrupt our operations;business;
•the risk that natural disasters, public health crises, political crises, or other catastrophic events could adversely affectwe and our operations and financial results, or those ofsubsidiaries may be unable to meet our franchisees or vendors;obligations under our indebtedness agreements;
•the risk that reductionsworsening global economic and geopolitical conditions could result in incomechanges to the assumptions and cash flow from our marketing and servicing arrangement related to our private label and co-branded credit cards could adversely affect our operating results and cash flows;estimates used when preparing the Condensed Consolidated Financial Statements;
•the risk that changes in our business structure, our performance or our industry could result in reductions in our pre-tax income or utilization of existing tax carryforwards in future periods, and require additional deferred tax valuation allowances;
•the risk that changes in the geographic mix and level of income or losses, the expected or actual outcome of audits, changes in deferred tax valuation allowances, and new legislation could impact our effective tax rate; and
•the risk that the adoption of new accounting pronouncements will impact future results;
the risk that we do not repurchase some or all of the shares we anticipate purchasing pursuant to our repurchase program; and
the risk that we will not be successful in defending various proceedings, lawsuits, disputes, claims, and audits.results.
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 January 28, 20172023 and our other filings with the U.S. Securities and Exchange Commission.
Future economic and industry trends that could potentially impact net sales and profitability are difficult to predict. These forward-looking statements are based on information as of November 22, 2017, and we21, 2023. We assume no obligation to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
We suggest that this document be read in conjunction with Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.2023.
THE GAP, INC.
TABLE OF CONTENTS
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| Item 1. | | |
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Item 1. | | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 1. | | |
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| Item 1A. | | |
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| Item 2. | | |
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Item 6.5. | | |
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| Item 6. | | |
PART I – FINANCIAL INFORMATION
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Item 1. | Financial Statements. |
Item 1. Financial Statements. THE GAP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | | ($ and shares in millions except par value) | October 28,
2017 | | January 28,
2017 | | October 29,
2016 | ($ and shares in millions except par value) | October 28,
2023 | | January 28,
2023 | | October 29,
2022 |
| ASSETS | | | | | | ASSETS | | | | | |
| Current assets: | | | | | | Current assets: | |
| Cash and cash equivalents | $ | 1,353 |
| | $ | 1,783 |
| | $ | 1,522 |
| Cash and cash equivalents | $ | 1,351 | | | $ | 1,215 | | | $ | 679 | |
| | Merchandise inventory | 2,476 |
| | 1,830 |
| | 2,398 |
| Merchandise inventory | 2,377 | | | 2,389 | | | 3,043 | |
| Other current assets | 654 |
| | 702 |
| | 751 |
| Other current assets | 646 | | | 1,013 | | | 1,316 | |
| Total current assets | 4,483 |
| | 4,315 |
| | 4,671 |
| Total current assets | 4,374 | | | 4,617 | | | 5,038 | |
| Property and equipment, net of accumulated depreciation of $6,041, $5,813, and $5,900 | 2,686 |
| | 2,616 |
| | 2,662 |
| |
| Property and equipment, net of accumulated depreciation of $4,890, $4,837, and $4,957 | | Property and equipment, net of accumulated depreciation of $4,890, $4,837, and $4,957 | 2,552 | | | 2,688 | | | 2,788 | |
| Operating lease assets | | Operating lease assets | 3,200 | | | 3,173 | | | 3,341 | |
| Other long-term assets | 726 |
| | 679 |
| | 674 |
| Other long-term assets | 926 | | | 908 | | | 833 | |
| Total assets | $ | 7,895 |
| | $ | 7,610 |
| | $ | 8,007 |
| Total assets | $ | 11,052 | | | $ | 11,386 | | | $ | 12,000 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | |
| Current liabilities: | | | | | | Current liabilities: | |
| Current maturities of debt | $ | — |
| | $ | 65 |
| | $ | 424 |
| |
| Accounts payable | 1,330 |
| | 1,243 |
| | 1,413 |
| Accounts payable | $ | 1,433 | | | $ | 1,320 | | | $ | 1,388 | |
| Accrued expenses and other current liabilities | 1,132 |
| | 1,113 |
| | 1,059 |
| Accrued expenses and other current liabilities | 1,078 | | | 1,219 | | | 1,245 | |
| Current portion of operating lease liabilities | | Current portion of operating lease liabilities | 604 | | | 667 | | | 691 | |
| Income taxes payable | 134 |
| | 32 |
| | 19 |
| Income taxes payable | 24 | | | 50 | | | 57 | |
| Total current liabilities | 2,596 |
| | 2,453 |
| | 2,915 |
| Total current liabilities | 3,139 | | | 3,256 | | | 3,381 | |
| Long-term liabilities: | | | | | | Long-term liabilities: | | | | | |
| Revolving credit facility | | Revolving credit facility | — | | | 350 | | | 350 | |
| Long-term debt | 1,248 |
| | 1,248 |
| | 1,320 |
| Long-term debt | 1,488 | | | 1,486 | | | 1,486 | |
| Lease incentives and other long-term liabilities | 1,027 |
| | 1,005 |
| | 1,046 |
| |
| Long-term operating lease liabilities | | Long-term operating lease liabilities | 3,456 | | | 3,517 | | | 3,673 | |
| Other long-term liabilities | | Other long-term liabilities | 509 | | | 544 | | | 539 | |
| Total long-term liabilities | 2,275 |
| | 2,253 |
| | 2,366 |
| Total long-term liabilities | 5,453 | | | 5,897 | | | 6,048 | |
| Commitments and contingencies (see Note 11) |
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| Commitments and contingencies (see Note 10) | | Commitments and contingencies (see Note 10) | | | | | |
| Stockholders’ equity: | | | | | | Stockholders’ equity: | |
| Common stock $0.05 par value | | | | | | Common stock $0.05 par value | |
| Authorized 2,300 shares for all periods presented; Issued and Outstanding 389, 399, and 399 shares | 19 |
| | 20 |
| | 20 |
| |
| Authorized 2,300 shares for all periods presented; Issued and Outstanding 371, 366, and 365 shares | | Authorized 2,300 shares for all periods presented; Issued and Outstanding 371, 366, and 365 shares | 18 | | | 18 | | | 18 | |
| Additional paid-in capital | — |
| | 81 |
| | 57 |
| Additional paid-in capital | 93 | | | 27 | | | 16 | |
| Retained earnings | 2,965 |
| | 2,749 |
| | 2,621 |
| Retained earnings | 2,291 | | | 2,140 | | | 2,468 | |
| Accumulated other comprehensive income | 40 |
| | 54 |
| | 28 |
| Accumulated other comprehensive income | 58 | | | 48 | | | 69 | |
| Total stockholders’ equity | 3,024 |
| | 2,904 |
| | 2,726 |
| Total stockholders’ equity | 2,460 | | | 2,233 | | | 2,571 | |
| Total liabilities and stockholders’ equity | $ | 7,895 |
| | $ | 7,610 |
| | $ | 8,007 |
| Total liabilities and stockholders’ equity | $ | 11,052 | | | $ | 11,386 | | | $ | 12,000 | |
See Accompanying Notes to Condensed Consolidated Financial Statements
THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
(Unaudited)
| | | | 13 Weeks Ended | | 39 Weeks Ended | | 13 Weeks Ended | | 39 Weeks Ended |
| ($ and shares in millions except per share amounts) | October 28,
2017 | | October 29,
2016 | | October 28,
2017 | | October 29,
2016 | ($ and shares in millions except per share amounts) | October 28,
2023 | | October 29,
2022 | | October 28,
2023 | | October 29,
2022 |
| Net sales | $ | 3,838 |
| | $ | 3,798 |
| | $ | 11,077 |
| | $ | 11,087 |
| Net sales | $ | 3,767 | | | $ | 4,039 | | | $ | 10,591 | | | $ | 11,373 | |
| Cost of goods sold and occupancy expenses | 2,313 |
| | 2,305 |
| | 6,770 |
| | 6,948 |
| Cost of goods sold and occupancy expenses | 2,211 | | | 2,530 | | | 6,488 | | | 7,438 | |
| Gross profit | 1,525 |
| | 1,493 |
| | 4,307 |
| | 4,139 |
| Gross profit | 1,556 | | | 1,509 | | | 4,103 | | | 3,935 | |
| Operating expenses | 1,147 |
| | 1,104 |
| | 3,224 |
| | 3,249 |
| Operating expenses | 1,306 | | | 1,323 | | | 3,757 | | | 3,974 | |
| Operating income | 378 |
| | 389 |
| | 1,083 |
| | 890 |
| |
| Operating income (loss) | | Operating income (loss) | 250 | | | 186 | | | 346 | | | (39) | |
| | Interest expense | 18 |
| | 20 |
| | 53 |
| | 57 |
| Interest expense | 28 | | | 22 | | | 66 | | | 63 | |
| Interest income | (4 | ) | | (3 | ) | | (11 | ) | | (6 | ) | Interest income | (28) | | | (4) | | | (58) | | | (6) | |
| Income before income taxes | 364 |
| | 372 |
| | 1,041 |
| | 839 |
| |
| Income taxes | 135 |
| | 168 |
| | 398 |
| | 383 |
| |
| Income (loss) before income taxes | | Income (loss) before income taxes | 250 | | | 168 | | | 338 | | | (96) | |
| Income tax expense (benefit) | | Income tax expense (benefit) | 32 | | | (114) | | | 21 | | | (167) | |
| Net income | $ | 229 |
| | $ | 204 |
| | $ | 643 |
| | $ | 456 |
| Net income | $ | 218 | | | $ | 282 | | | $ | 317 | | | $ | 71 | |
| Weighted-average number of shares - basic | 391 |
| | 399 |
| | 395 |
| | 398 |
| Weighted-average number of shares - basic | 371 | | | 365 | | | 369 | | | 367 | |
| Weighted-average number of shares - diluted | 393 |
| | 400 |
| | 397 |
| | 400 |
| Weighted-average number of shares - diluted | 375 | | | 366 | | | 373 | | | 370 | |
| Earnings per share - basic | $ | 0.59 |
| | $ | 0.51 |
| | $ | 1.63 |
| | $ | 1.15 |
| Earnings per share - basic | $ | 0.59 | | | $ | 0.77 | | | $ | 0.86 | | | $ | 0.19 | |
| Earnings per share - diluted | $ | 0.58 |
| | $ | 0.51 |
| | $ | 1.62 |
| | $ | 1.14 |
| Earnings per share - diluted | $ | 0.58 | | | $ | 0.77 | | | $ | 0.85 | | | $ | 0.19 | |
| Cash dividends declared and paid per share | $ | 0.23 |
| | $ | 0.23 |
| | $ | 0.69 |
| | $ | 0.69 |
| |
|
See Accompanying Notes to Condensed Consolidated Financial Statements
THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | | | 13 Weeks Ended | | 39 Weeks Ended | | 13 Weeks Ended | | 39 Weeks Ended |
| ($ in millions) | October 28,
2017 | | October 29,
2016 | | October 28,
2017 | | October 29,
2016 | ($ in millions) | October 28,
2023 | | October 29,
2022 | | October 28,
2023 | | October 29,
2022 |
| Net income | $ | 229 |
| | $ | 204 |
| | $ | 643 |
| | $ | 456 |
| Net income | $ | 218 | | | $ | 282 | | | $ | 317 | | | $ | 71 | |
| Other comprehensive income (loss) | | | | | | | | |
| Other comprehensive income, net of tax | | Other comprehensive income, net of tax | | | | | | | |
| Foreign currency translation | (5 | ) | | (10 | ) | | 12 |
| | (1 | ) | Foreign currency translation | 5 | | | 6 | | | 1 | | | 13 | |
| Change in fair value of derivative financial instruments, net of tax (tax benefit) of $2, $4, $(6), and $(5) | 23 |
| | 39 |
| | (20 | ) | | (57 | ) | |
| Reclassification adjustment for (gains) losses on derivative financial instruments, net of (tax) tax benefit of $6, $-, $4, and $(6) | (1 | ) | | — |
| | (6 | ) | | 1 |
| |
| Other comprehensive income (loss), net of tax | 17 |
| | 29 |
| | (14 | ) | | (57 | ) | |
| Change in fair value of derivative financial instruments, net of tax expense of $1, $1, $3, $3 | | Change in fair value of derivative financial instruments, net of tax expense of $1, $1, $3, $3 | 16 | | | 31 | | | 22 | | | 40 | |
| Reclassification adjustment for gains on derivative financial instruments, net of tax benefit of $1, $—, $—, $— | | Reclassification adjustment for gains on derivative financial instruments, net of tax benefit of $1, $—, $—, $— | (7) | | | (14) | | | (13) | | | (22) | |
| Other comprehensive income, net of tax | | Other comprehensive income, net of tax | 14 | | | 23 | | | 10 | | | 31 | |
| Comprehensive income | $ | 246 |
| | $ | 233 |
| | $ | 629 |
| | $ | 399 |
| Comprehensive income | $ | 232 | | | $ | 305 | | | $ | 327 | | | $ | 102 | |
See Accompanying Notes to Condensed Consolidated Financial Statements
THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income | | |
| ($ and shares in millions except per share amounts) | | Shares | | Amount | | Total |
| Balance as of July 29, 2023 | | 369 | | | $ | 18 | | | $ | 73 | | | $ | 2,128 | | | $ | 44 | | | $ | 2,263 | |
| Net income for the 13 weeks ended October 28, 2023 | | | | | | | | 218 | | | | | 218 | |
| Other comprehensive income, net of tax | | | | | | | | | | | | |
| Foreign currency translation | | | | | | | | | | 5 | | | 5 | |
| Change in fair value of derivative financial instruments | | | | | | | | | | 16 | | | 16 | |
| Amounts reclassified from accumulated other comprehensive income | | | | | | | | | | (7) | | | (7) | |
| | | | | | | | | | | | |
| Issuance of common stock related to stock options and employee stock purchase plans | | 1 | | | — | | | 5 | | | | | | | 5 | |
| Issuance of common stock and withholding tax payments related to vesting of stock units | | 1 | | | — | | | (5) | | | | | | | (5) | |
| Share-based compensation, net of forfeitures | | | | | | 20 | | | | | | | 20 | |
| Common stock dividends declared and paid ($0.15 per share) | | | | | | | | (55) | | | | | (55) | |
| Balance as of October 28, 2023 | | 371 | | | $ | 18 | | | $ | 93 | | | $ | 2,291 | | | $ | 58 | | | $ | 2,460 | |
| | | | | | | | | | | | |
| Balance as of July 30, 2022 | | 364 | | | $ | 18 | | | $ | — | | | $ | 2,241 | | | $ | 46 | | | $ | 2,305 | |
| | | | | | | | | | | | |
| Net income for the 13 weeks ended October 29, 2022 | | | | | | | | 282 | | | | | 282 | |
| Other comprehensive income, net of tax | | | | | | | | | | | | |
| Foreign currency translation | | | | | | | | | | 6 | | | 6 | |
| Change in fair value of derivative financial instruments | | | | | | | | | | 31 | | | 31 | |
| Amounts reclassified from accumulated other comprehensive income | | | | | | | | | | (14) | | | (14) | |
| Repurchases and retirement of common stock | | (2) | | | — | | | (12) | | | | | | | (12) | |
| Issuance of common stock related to stock options and employee stock purchase plans | | 1 | | | — | | | 8 | | | | | | | 8 | |
| Issuance of common stock and withholding tax payments related to vesting of stock units | | 2 | | | — | | | (2) | | | | | | | (2) | |
| Share-based compensation, net of forfeitures | | | | | | 22 | | | | | | | 22 | |
| Common stock dividends declared and paid ($0.15 per share) | | | | | | | | (55) | | | | | (55) | |
| Balance as of October 29, 2022 | | 365 | | | $ | 18 | | | $ | 16 | | | $ | 2,468 | | | $ | 69 | | | $ | 2,571 | |
See Accompanying Notes to Condensed Consolidated Financial Statements
THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income | | |
| ($ and shares in millions except per share amounts) | | Shares | | Amount | | Total |
| Balance as of January 28, 2023 | | 366 | | | $ | 18 | | | $ | 27 | | | $ | 2,140 | | | $ | 48 | | | $ | 2,233 | |
| Net income for the 39 weeks ended October 28, 2023 | | | | | | | | 317 | | | | 317 | |
| Other comprehensive income, net of tax | | | | | | | | | |
| | |
| Foreign currency translation | | | | | | | | | | 1 | | | 1 | |
| Change in fair value of derivative financial instruments | | | | | | | | | | 22 | | | 22 | |
| Amounts reclassified from accumulated other comprehensive income | | | | | | | | | | (13) | | | (13) | |
| | | | | | | | | | | | |
| Issuance of common stock related to stock options and employee stock purchase plans | | 2 | | | — | | | 18 | | | | | | | 18 | |
| Issuance of common stock and withholding tax payments related to vesting of stock units | | 3 | | | — | | | (16) | | | | | | | (16) | |
| Share-based compensation, net of forfeitures | | | | | | 64 | | | | | | | 64 | |
| Common stock dividends declared and paid ($0.45 per share) | | | | | | | | (166) | | | | | (166) | |
| Balance as of October 28, 2023 | | 371 | | $ | 18 | | | $ | 93 | | | $ | 2,291 | | | $ | 58 | | | $ | 2,460 | |
| | | | | | | | | | | | |
| Balance as of January 29, 2022 | | 371 | | | $ | 19 | | | $ | 43 | | | $ | 2,622 | | | $ | 38 | | | $ | 2,722 | |
| Net income for the 39 weeks ended October 29, 2022 | | | | | | | | 71 | | | | | 71 | |
| Other comprehensive income, net of tax | | | | | | | | | | | | |
| Foreign currency translation | | | | | | | | | | 13 | | | 13 | |
| Change in fair value of derivative financial instruments | | | | | | | | | | 40 | | | 40 | |
| Amounts reclassified from accumulated other comprehensive income | | | | | | | | | | (22) | | | (22) | |
| Repurchases and retirement of common stock | | (11) | | | (1) | | | (63) | | | (59) | | | | (123) | |
| Issuance of common stock related to stock options and employee stock purchase plans | | 2 | | | — | | | 23 | | | | | | | 23 | |
| Issuance of common stock and withholding tax payments related to vesting of stock units | | 3 | | | — | | | (17) | | | | | | | (17) | |
| Share-based compensation, net of forfeitures | | | | | | 30 | | | | | | | 30 | |
| Common stock dividends declared and paid ($0.45 per share) | | | | | | | | (166) | | | | | (166) | |
| Balance as of October 29, 2022 | | 365 | | | $ | 18 | | | $ | 16 | | | $ | 2,468 | | | $ | 69 | | | $ | 2,571 | |
See Accompanying Notes to Condensed Consolidated Financial Statements
THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | 39 Weeks Ended | | 39 Weeks Ended |
| ($ in millions) | October 28,
2017 | | October 29,
2016 | ($ in millions) | October 28,
2023 | | October 29,
2022 |
| Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
| Net income | $ | 643 |
| | $ | 456 |
| Net income | $ | 317 | | | $ | 71 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
| Adjustments to reconcile net income to net cash provided by (used for) operating activities: | | Adjustments to reconcile net income to net cash provided by (used for) operating activities: | |
| Depreciation and amortization | 418 |
| | 449 |
| Depreciation and amortization | 394 | | | 402 | |
| Amortization of lease incentives | (46 | ) | | (47 | ) | |
| | Share-based compensation | 60 |
| | 55 |
| Share-based compensation | 64 | | | 28 | |
| Tax benefit from exercise of stock options and vesting of stock units | — |
| | (4 | ) | |
| Excess tax benefit from exercise of stock options and vesting of stock units | — |
| | (1 | ) | |
| Store asset impairment charges | 17 |
| | 89 |
| |
| Impairment of operating lease assets | | Impairment of operating lease assets | — | | | 16 | |
| Impairment of store assets | | Impairment of store assets | 2 | | | 10 | |
| | Amortization of debt issuance costs | | Amortization of debt issuance costs | 3 | | | 5 | |
| Non-cash and other items | 9 |
| | 12 |
| Non-cash and other items | 36 | | | (8) | |
| Loss on divestiture activity | | Loss on divestiture activity | — | | | 35 | |
| | Gain on sale of building | | Gain on sale of building | (47) | | | (83) | |
| Deferred income taxes | (50 | ) | | (10 | ) | Deferred income taxes | (27) | | | 32 | |
| Changes in operating assets and liabilities: | | | | Changes in operating assets and liabilities: | |
| Merchandise inventory | (636 | ) | | (513 | ) | Merchandise inventory | (5) | | | (78) | |
| Other current assets and other long-term assets | (60 | ) | | (52 | ) | Other current assets and other long-term assets | 81 | | | (34) | |
| | Accounts payable | 55 |
| | 294 |
| Accounts payable | 133 | | | (503) | |
| Accrued expenses and other current liabilities | (46 | ) | | 10 |
| Accrued expenses and other current liabilities | (11) | | | (123) | |
| Income taxes payable, net of prepaid and other tax-related items | 188 |
| | 80 |
| |
| Lease incentives and other long-term liabilities | 48 |
| | (18 | ) | |
| Net cash provided by operating activities | 600 |
| | 800 |
| |
| Income taxes payable, net of receivables and other tax-related items | | Income taxes payable, net of receivables and other tax-related items | 50 | | | 216 | |
| Other long-term liabilities | | Other long-term liabilities | (11) | | | (7) | |
| Operating lease assets and liabilities, net | | Operating lease assets and liabilities, net | (147) | | | (91) | |
| Net cash provided by (used for) operating activities | | Net cash provided by (used for) operating activities | 832 | | | (112) | |
| Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
| Purchases of property and equipment | (463 | ) | | (383 | ) | Purchases of property and equipment | (288) | | | (577) | |
| Insurance proceeds related to loss on property and equipment | 60 |
| | — |
| |
| Other | (3 | ) | | (1 | ) | |
| Net proceeds from sale of buildings | | Net proceeds from sale of buildings | 76 | | | 458 | |
| | Net proceeds from divestiture activity | | Net proceeds from divestiture activity | 9 | | | — | |
| | Net cash used for investing activities | (406 | ) | | (384 | ) | Net cash used for investing activities | (203) | | | (119) | |
| Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
| Payments of current maturities of debt | (67 | ) | | — |
| |
| | Proceeds from revolving credit facility | | Proceeds from revolving credit facility | — | | | 350 | |
| Repayments of revolving credit facility | | Repayments of revolving credit facility | (350) | | | — | |
| | Payments for debt issuance costs | | Payments for debt issuance costs | — | | | (6) | |
| Proceeds from issuances under share-based compensation plans | 23 |
| | 25 |
| Proceeds from issuances under share-based compensation plans | 18 | | | 23 | |
| Withholding tax payments related to vesting of stock units | (15 | ) | | (18 | ) | Withholding tax payments related to vesting of stock units | (16) | | | (17) | |
| Repurchases of common stock | (300 | ) | | — |
| Repurchases of common stock | — | | | (123) | |
| Excess tax benefit from exercise of stock options and vesting of stock units | — |
| | 1 |
| |
| | Cash dividends paid | (272 | ) | | (275 | ) | Cash dividends paid | (166) | | | (166) | |
| Net cash used for financing activities | (631 | ) | | (267 | ) | |
| Effect of foreign exchange rate fluctuations on cash and cash equivalents | 7 |
| | 3 |
| |
| Net increase (decrease) in cash and cash equivalents | (430 | ) | | 152 |
| |
| Cash and cash equivalents at beginning of period | 1,783 |
| | 1,370 |
| |
| Cash and cash equivalents at end of period | $ | 1,353 |
| | $ | 1,522 |
| |
| Other | | Other | (2) | | | (1) | |
| Net cash provided by (used for) financing activities | | Net cash provided by (used for) financing activities | (516) | | | 60 | |
| Effect of foreign exchange rate fluctuations on cash, cash equivalents, and restricted cash | | Effect of foreign exchange rate fluctuations on cash, cash equivalents, and restricted cash | (7) | | | (25) | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | | Net increase (decrease) in cash, cash equivalents, and restricted cash | 106 | | | (196) | |
| Cash, cash equivalents, and restricted cash at beginning of period | | Cash, cash equivalents, and restricted cash at beginning of period | 1,273 | | | 902 | |
| Cash, cash equivalents, and restricted cash at end of period | | Cash, cash equivalents, and restricted cash at end of period | $ | 1,379 | | | $ | 706 | |
| | | | | | |
| Supplemental disclosure of cash flow information: | | | | Supplemental disclosure of cash flow information: | | | |
| Cash paid for interest during the period | $ | 76 |
| | $ | 80 |
| Cash paid for interest during the period | $ | 72 | | | $ | 70 | |
| Cash paid for income taxes during the period, net of refunds | $ | 260 |
| | $ | 318 |
| Cash paid for income taxes during the period, net of refunds | $ | (1) | | | $ | (407) | |
|
See Accompanying Notes to Condensed Consolidated Financial Statements
THE GAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Accounting Policies
Basis of Presentation
The Condensed Consolidated Balance Sheets asIn the opinion ofOctober 28, 2017 and October 29, 2016, and the Condensed Consolidated Statements of Income and the Condensed Consolidated Statements of Comprehensive Income for the thirteen and thirty-nine weeks ended October 28, 2017 and October 29, 2016, and the Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks endedOctober 28, 2017 and October 29, 2016 have been prepared by The Gap, Inc. (the “Company,” “we,” and “our”). In management, the opinion of management, such statements includeaccompanying unaudited Condensed Consolidated Financial Statements contain all normal and recurring adjustments (which include normal recurring adjustments)(except as otherwise disclosed) considered necessary to present fairly our financial position, results of operations, comprehensive income, stockholders' equity, and cash flows as of October 28, 20172023 and October 29, 20162022 and for all periods presented. The Condensed Consolidated Balance Sheet as of January 28, 20172023 has been derived from our audited financial statements.
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted from these interim financial statements, although the Company believes that the disclosures made are adequate to make the information not misleading. We suggest that you read these Condensed Consolidated Financial Statements in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.2023.
The results of operations for the thirteen13 and thirty-nine39 weeks endedOctober 28, 20172023 are not necessarily indicative of the operating results that may be expected for the 53-week period ending February 3, 2018.2024.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Additionally, these estimates and assumptions may change as a result of the impact of global economic conditions such as the uncertainty regarding global inflationary pressures, acts of terrorism or war, global credit and banking markets, and new legislation. We will continue to consider the impact of the global economic conditions on the assumptions and estimates used when preparing these Condensed Consolidated Financial Statements including inventory valuation, income taxes and valuation allowances, sales return and bad debt allowances, deferred revenue, and the impairment of long-lived assets. If the global economic conditions worsen beyond what is currently estimated by management, such future changes may have an adverse impact on the Company's results of operations and financial position. Note 2. Recent Restricted Cash
As of October 28, 2023, restricted cash primarily included consideration that serves as collateral for our insurance obligations and certain other obligations occurring in the normal course of business. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within our Condensed Consolidated Balance Sheets to the total shown on our Condensed Consolidated Statements of Cash Flows:
| | | | | | | | | | | | | | | | | |
| ($ in millions) | October 28,
2023 | | January 28,
2023 | | October 29,
2022 |
| Cash and cash equivalents, per Condensed Consolidated Balance Sheets | $ | 1,351 | | | $ | 1,215 | | | $ | 679 | |
| Restricted cash included in other current assets | — | | | 32 | | | 1 | |
| Restricted cash included in other long-term assets | 28 | | | 26 | | | 26 | |
| Total cash, cash equivalents, and restricted cash, per Condensed Consolidated Statements of Cash Flows | $ | 1,379 | | | $ | 1,273 | | | $ | 706 | |
Accounting Pronouncements
Except as noted below, the Company has considered all recent accounting pronouncements and has concluded that there are no recent accounting pronouncements that may have a material impact on itsour Condensed Consolidated Financial Statements and disclosures, based on current information.
Recent Accounting Pronouncements Related to Revenue RecognitionASU No. 2022-04, Disclosure of Supplier Finance Program Obligations
In May 2014,September 2022, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update (“ASU”("ASU") No. 2014-09, Revenue from Contracts with Customers,2022-04, Disclosure of Supplier Finance Program Obligations. The ASU is intended to clarifyenhance the principlestransparency of recognizing revenuethe use of supplier finance programs by requiring that the buyers in those programs provide additional disclosures about the program’s nature and create common revenue recognition guidance between U.S. GAAPpotential magnitude, including a rollforward of the obligations and International Financial Reporting Standards.activity during the period. The ASU No. 2014-09, as amended, is effective retrospectively for fiscal years and interim periods within those years beginning after December 15, 2017.
While we do not expect2022, except for the adoption of ASU No. 2014-09 and related ASUs to have a material impact on our Consolidated Financial Statements, we expect the adoption to result in change in the timing of recognizing revenue for breakage income for gift cards, gift certificates, and credit vouchers, credit card reward points and certificate liability, as well as sales where we ship the merchandise to the customer from a distribution center or store. Additionally, under the new guidance, we expect to recognize allowances for estimated sales returns on a gross basis rather than net basis on the Consolidated Balance Sheets.
We are currently evaluating the classification of income earned in connection with our private label and co-branded credit cards. We are also evaluating expanded disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
We will adopt these ASUs on a modified retrospective basis beginning in the first quarter of fiscal 2018.
Other Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018. We are still assessing the impact of this ASU on our Consolidated Financial Statements, but it will result in a substantial increase in our long-term assets and liabilities. We will adopt the ASU beginning in the first quarter of fiscal 2019.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The amendments are intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. We adopted the provisions of this ASU in the first quarter of fiscal 2017. Beginning in the first quarter of fiscal 2017, we have made the policy election to account for forfeitures when they occur, rather than estimating expected forfeitures, when recognizing share-based compensation cost. We adopted this provision of the ASU using a modified retrospective transition method,rollforward information, which resulted in the cumulative-effect adjustment of a $3 million increase to retained earnings as of the beginning of the first quarter of fiscal 2017. Also, all excess tax benefits and tax deficiencies related to share-based payment awards are now reflected in the Consolidated Statement of Income as a component of the provision for income taxes on a prospective basis, whereas they were recognized in equity under the previous guidance. Additionally, excess tax benefits related to share-based payment awards are now reflected in operating activities, along with other income tax related cash flows, in our Consolidated Statement of Cash Flows on a prospective basis.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. The amendments simplify the subsequent measurement of goodwill and eliminate the two-step goodwill impairment test. The ASU is effective prospectively for fiscal years and interim periods within those years beginning after December 15, 2019. Early adoption is permitted for interim2023. The ASU does not affect the recognition, measurement, or annual goodwill impairment tests performed on testing dates after January 1, 2017.financial statement presentation of supplier finance program obligations. We early adopted this ASU on January 29, 2023. See Note 13 of Notes to Condensed Consolidated Financial Statements for information regarding our supply chain finance program.
Note 2. Revenue
Disaggregation of Net Sales
We disaggregate our net sales by channel and also by brand and region. Net sales by region are allocated based on the location of the store where the customer paid for and received the merchandise or the distribution center or store from which the products were shipped.
Net sales disaggregated by channel are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended | | 39 Weeks Ended |
| ($ in millions) | October 28, 2023 | | October 29, 2022 | | October 28, 2023 | | October 29, 2022 |
| | | | | | | |
| Store and franchise sales | $ | 2,331 | | | $ | 2,478 | | | $ | 6,771 | | | $ | 7,168 | |
| Online sales (1) | 1,436 | | | 1,561 | | | 3,820 | | | 4,205 | |
| Total net sales | $ | 3,767 | | | $ | 4,039 | | | $ | 10,591 | | | $ | 11,373 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
__________
(1)Online sales primarily include sales originating from our online channel including those that are picked up or shipped from stores and net sales from revenue-generating strategic initiatives.
Net sales disaggregated by brand and region are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | Old Navy Global | | Gap Global | | Banana Republic Global | | Athleta Global | | Other (2) | | Total | | |
| 13 Weeks Ended October 28, 2023 | | | | | | | |
| U.S. (1) | | $ | 1,917 | | | $ | 664 | | | $ | 398 | | | $ | 267 | | | $ | 15 | | | $ | 3,261 | | | |
| Canada | | 193 | | | 96 | | | 42 | | | 10 | | | — | | | 341 | | | |
| Europe | | — | | | 29 | | | 1 | | | — | | | — | | | 30 | | | |
| Asia | | 1 | | | 71 | | | 12 | | | — | | | — | | | 84 | | | |
| Other regions | | 15 | | | 27 | | | 7 | | | 2 | | | — | | | 51 | | | |
| Total | | $ | 2,126 | | | $ | 887 | | | $ | 460 | | | $ | 279 | | | $ | 15 | | | $ | 3,767 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | Old Navy Global | | Gap Global | | Banana Republic Global | | Athleta Global | | Other (2) | | Total | | |
| 13 Weeks Ended October 29, 2022 | | | | | | | |
| U.S. (1) | | $ | 1,936 | | | $ | 690 | | | $ | 448 | | | $ | 326 | | | $ | 4 | | | $ | 3,404 | | | |
| Canada | | 184 | | | 95 | | | 47 | | | 7 | | | — | | | 333 | | | |
| Europe | | 1 | | | 58 | | | 1 | | | 1 | | | — | | | 61 | | | |
| Asia | | — | | | 143 | | | 14 | | | — | | | — | | | 157 | | | |
| Other regions | | 16 | | | 55 | | | 7 | | | 6 | | | — | | | 84 | | | |
| Total | | $ | 2,137 | | | $ | 1,041 | | | $ | 517 | | | $ | 340 | | | $ | 4 | | | $ | 4,039 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | Old Navy Global | | Gap Global | | Banana Republic Global | | Athleta Global | | Other (2) | | Total |
| 39 Weeks Ended October 28, 2023 | | | | | | |
| U.S. (1) | | $ | 5,353 | | | $ | 1,702 | | | $ | 1,187 | | | $ | 903 | | | $ | 29 | | | $ | 9,174 | |
| Canada | | 503 | | | 233 | | | 122 | | | 33 | | | — | | | 891 | |
| Europe | | 1 | | | 87 | | | 2 | | | 1 | | | — | | | 91 | |
| Asia | | 2 | | | 225 | | | 40 | | | — | | | — | | | 267 | |
| Other regions | | 56 | | | 87 | | | 21 | | | 4 | | | — | | | 168 | |
| Total | | $ | 5,915 | | | $ | 2,334 | | | $ | 1,372 | | | $ | 941 | | | $ | 29 | | | $ | 10,591 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | Old Navy Global | | Gap Global | | Banana Republic Global | | Athleta Global | | Other (2) | | Total |
| 39 Weeks Ended October 29, 2022 | | | | | | |
| U.S. (1) | | $ | 5,489 | | | $ | 1,752 | | | $ | 1,324 | | | $ | 1,005 | | | $ | 10 | | | $ | 9,580 | |
| Canada | | 514 | | | 241 | | | 143 | | | 23 | | | — | | | 921 | |
| Europe | | 2 | | | 163 | | | 4 | | | 3 | | | — | | | 172 | |
| Asia | | 1 | | | 425 | | | 48 | | | — | | | — | | | 474 | |
| Other regions | | 62 | | | 132 | | | 19 | | | 13 | | | — | | | 226 | |
| Total | | $ | 6,068 | | | $ | 2,713 | | | $ | 1,538 | | | $ | 1,044 | | | $ | 10 | | | $ | 11,373 | |
__________(1)U.S. includes the United States and Puerto Rico.
(2)Primarily consists of net sales from revenue-generating strategic initiatives.
Deferred Revenue
We defer revenue when cash payments are received in advance of performance for unsatisfied obligations related to our gift cards, licensing agreements, outstanding loyalty points, and reimbursements of loyalty program discounts associated with our credit card agreement. For the 13 weeks ended October 28, 2023, the opening balance of deferred revenue for these obligations was $327 million, of which $119 million was recognized as revenue during the period. For the 39 weeks ended October 28, 2023, the opening balance of deferred revenue for these obligations was $354 million, of which $227 million was recognized as revenue during the period. The closing balance of deferred revenue for these obligations was $315 million as of October 28, 2023.
For the 13 weeks ended October 29, 2022, the opening balance of deferred revenue for these obligations was $321 million, of which $119 million was recognized as revenue during the period. For the 39 weeks ended October 29, 2022, the opening balance of deferred revenue for these obligations was $345 million, of which $212 million was recognized as revenue during the period. The closing balance of deferred revenue for these obligations was $323 million as of October 29, 2022.
In April 2021, the Company entered into agreements with Barclays and Mastercard relating to a new long-term credit card program. In May 2022, the Company launched the new credit card program with Barclays and Mastercard and accordingly, our prior credit card program with Synchrony Financial was discontinued. The Company received an upfront payment of $60 million related to the new agreements prior to the program launch, which is being recognized as revenue over the term of the agreements.
Note 3. Restructuring
On April 25, 2023, the Company's management committed to a restructuring plan (the "Plan") as part of the Company's previously announced efforts to simplify and optimize its operating model and structure. The Plan includes a reduction in workforce of approximately 1,800 employees, primarily in headquarters locations. The actions associated with the reduction of the Company's workforce under the Plan have been substantially completed.
In connection with the Plan, the Company incurred $5 million and $93 million in pre-tax restructuring costs during the 13 and 39 weeks ended October 28, 2023, respectively. The costs incurred in connection with the Plan are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended
October 28, 2023 | | 39 Weeks Ended
October 28, 2023 |
| ($ in millions) | Cost of Goods Sold and Occupancy Expenses | | Operating Expenses | | Total Costs | | Cost of Goods Sold and Occupancy Expenses | | Operating Expenses | | Total Costs |
| Employee-related costs | $ | — | | | $ | (1) | | | $ | (1) | | | $ | 4 | | | $ | 60 | | | $ | 64 | |
| Consulting and other associated costs | — | | | 6 | | | 6 | | | — | | | 29 | | | 29 | |
| Total restructuring costs | $ | — | | | $ | 5 | | | $ | 5 | | | $ | 4 | | | $ | 89 | | | $ | 93 | |
The following table summarizes restructuring costs that will be settled with cash payments and the related liability balances as of October 28, 2023, which are primarily included in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheet:
| | | | | | | | | | | | | | | | | |
| ($ in millions) | Employee-Related Costs | | Consulting and Other Associated Costs | | Total |
| Balance at January 28, 2023 | $ | — | | | $ | — | | | $ | — | |
| 13 Weeks Ended April 29, 2023 | | | | | |
| Provision | 62 | | | 13 | | | 75 | |
| Cash payments | — | | | (10) | | | (10) | |
| Balance at April 29, 2023 | 62 | | | 3 | | | 65 | |
| 13 Weeks Ended July 29, 2023 | | | | | |
| Provision | 3 | | | 10 | | | 13 | |
| | | | | |
| Cash payments | (45) | | | (7) | | | (52) | |
| Balance at July 29, 2023 | 20 | | | 6 | | | 26 | |
| 13 Weeks Ended October 28, 2023 | | | | | |
| Provision | — | | | 6 | | | 6 | |
| Adjustments | (1) | | | — | | | (1) | |
| Cash payments | (11) | | | (12) | | | (23) | |
| Balance at October 28, 2023 | $ | 8 | | | $ | — | | | $ | 8 | |
Note 4. Income Taxes
The effective income tax rate was 12.8 percent for the interim goodwill impairment test13 weeks ended October 28, 2023, compared with negative 67.9 percent for the 13 weeks ended October 29, 2022. The change in the first quartereffective tax rate for the 13 weeks ended October 28, 2023 compared with the 13 weeks ended October 29, 2022 is primarily due to changes in the amount and jurisdictional mix of fiscal 2017. The adoption of this ASU did not have any impact onpre-tax earnings, the Consolidated Financial Statements.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. The amendments are intended to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018. We are currently assessing the potentialcumulative impact of this ASU ona change in the Company's estimated annual effective tax rate recognized in the prior year, and a current year tax benefit from the impact of foreign valuation allowances.
The effective income tax rate was 6.2 percent for the 39 weeks ended October 28, 2023, compared with 174.0 percent for the 39 weeks ended October 29, 2022. The change in the effective tax rate for the 39 weeks ended October 28, 2023 compared with the 39 weeks ended October 29, 2022 is primarily due to changes in the amount and jurisdictional mix of pre-tax earnings, the cumulative impact of a change in the Company's estimated annual effective tax rate recognized in the prior year, and current year tax benefits from the impact of valuation allowances and a U.S. transfer pricing settlement related to our Consolidated Financial Statements.sourcing activities.
Note 3.5. Debt and Credit Facilities
Long-term debt recorded on the Condensed Consolidated Balance Sheets consists of the following:
| | | | | | | | | | | | | | | | | |
| ($ in millions) | October 28,
2023 | | January 28,
2023 | | October 29,
2022 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| 2029 Notes | $ | 750 | | | $ | 750 | | | $ | 750 | |
| 2031 Notes | 750 | | | 750 | | | 750 | |
| Less: Unamortized debt issuance costs | (12) | | | (14) | | | (14) | |
| Total long-term debt | $ | 1,488 | | | $ | 1,486 | | | $ | 1,486 | |
|
| | | | | | | | | | | |
| ($ in millions) | October 28,
2017 | | January 28,
2017 | | October 29,
2016 |
| Notes | $ | 1,248 |
| | $ | 1,248 |
| | $ | 1,248 |
|
| Japan Term Loan | — |
| | 65 |
| | 96 |
|
| Total debt | 1,248 |
| | 1,313 |
| | 1,344 |
|
| Less: Current portion of Japan Term Loan | — |
| | (65 | ) | | (24 | ) |
| Total long-term debt | $ | 1,248 |
| | $ | 1,248 |
| | $ | 1,320 |
|
| | | | | | | | | | | | | | | | | |
| Scheduled Maturity ($ in millions) | Principal | | Interest Rate | | Interest Payments |
| | | | | |
| October 1, 2029 (1) | $ | 750 | | | 3.625 | % | | Semi-Annual |
| October 1, 2031 (2) | 750 | | | 3.875 | % | | Semi-Annual |
| Total issuance | $ | 1,500 | | | | | |
__________(1)Includes an option to redeem the 2029 Notes, in whole or in part at any time, subject to a make-whole premium, prior to October 1, 2024. On or after October 1, 2024, includes an option to redeem the 2029 Notes, in whole or in part at any time, at stated redemption prices.
(2)Includes an option to redeem the 2031 Notes, in whole or in part at any time, subject to a make-whole premium, prior to October 1, 2026. On or after October 1, 2026, includes an option to redeem the 2031 Notes, in whole or in part at any time, at stated redemption prices.
On September 27, 2021, we completed the issuance of $1.5 billion aggregate principal amount of 3.625 percent senior notes due 2029 (“2029 Notes”) and 3.875 percent senior notes due 2031 (“2031 Notes”) (the 2029 Notes and the 2031 Notes, collectively, the “Senior Notes”). As of October 28, 2017, January 28, 2017, and October 29, 2016,2023, the aggregate estimated fair value of our $1.25the Senior Notes was $1.10 billion aggregate principal amount of 5.95 percent notes (the “Notes”) due April 2021 was $1.35 billion, $1.32 billion, and $1.34 billion, respectively, and was based on the quoted market priceprices for each of the Senior Notes (level 1 inputs) as of the last business day of the respective fiscal quarter. The aggregate principal amount of the Senior Notes is recorded in long-term debt inon the Condensed Consolidated Balance Sheets, net of the unamortized discount.debt issuance costs.
As of January 28, 2017 and October 29, 2016, the carrying amount of our 15 billion Japanese yen, four-year, unsecured term loan (“Japan Term Loan”) approximated its fair value, as the interest rate varied depending on quoted market rates (level 1 inputs). Repayments of 2.5 billion Japanese yen were paid on January 15 of each year, and a final repayment of 7.5 billion Japanese yen which was due on January 15, 2018 was paid in full in June 2017. Interest was payable at least quarterly based on an interest rate equal to the Tokyo Interbank Offered Rate plus a fixed margin.
In October 2015,On May 7, 2020, we entered into a $400 million unsecured term loansenior secured asset-based revolving credit agreement (the “Term Loan”"ABL Facility"), which was includedpreviously scheduled to expire in current maturitiesMay 2023. On July 13, 2022, we entered into an amendment and restatement of debt in the Condensed Consolidated Balance Sheet asABL Facility. Among other changes, the amendment and restatement extended the maturity of October 29, 2016. The Term Loan was repaid in full in January 2017. Interest was payable at least quarterly based on an interestthe ABL Facility to July 2027, increased the borrowing capacity from $1.8675 billion to $2.2 billion, modified the reference rate equal tofrom the London Interbank Offered Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR"), and reduced the applicable interest rate margin. Following the amendment and restatement, the ABL Facility generally bears interest at a per annum rate based on SOFR (subject to a zero floor) plus a fixed margin.margin, depending on borrowing base availability. The ABL Facility is available for working capital, capital expenditures, and other general corporate purposes.
We have a $500As of January 28, 2023 and October 29, 2022, the Company's outstanding borrowing under the ABL Facility was $350 million, five-year, unsecured revolving credit facility (the “Facility”), which is scheduled and was recorded in long-term liabilities on the Condensed Consolidated Balance Sheet. In the second quarter of fiscal 2023, the Company repaid an aggregate of $200 million to expire in May 2020.reduce the outstanding borrowing under the ABL Facility to $150 million as of July 29, 2023. During the 13 weeks ended October 28, 2023, the Company repaid the remaining $150 million outstanding borrowing under the ABL Facility. There were no borrowings and no material outstanding standby letters of credit under the ABL Facility as of October 28, 2017.
2023.
We maintain multiple agreements with third parties that make unsecured revolvingalso have the ability to issue letters of credit facilities available foron our operations in foreign locations (the “Foreign Facilities”). These Foreign Facilities are uncommitted and are generally available for borrowings, overdraft borrowings, and the issuance of bank guarantees. The total capacity of the Foreign Facilities was $47 million as of October 28, 2017.ABL Facility. As of October 28, 2017, there were no borrowings under the Foreign Facilities. There were $14 million in bank guarantees issued and outstanding primarily related to store leases under the Foreign Facilities as of October 28, 2017.
We have bilateral unsecured standby letter of credit agreements that are uncommitted and do not have expiration dates. As of October 28, 2017,2023, we had $15$49 million in standby letters of credit issued under these agreements.the ABL Facility.
Note 4.6. Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis. The Company categorizes financial assets and liabilities recorded at fair value based upon a three-level hierarchy that considers the related valuation techniques.
There were no material purchases, sales, issuances, or settlements related to recurring level 3 measurements duringfor the thirteen13 and thirty-nine39 weeks endedOctober 28, 20172023 or October 29, 2016. There were no transfers of financial assets or liabilities into or out of level 1 and level 2 during the thirteen and thirty-nine weeks endedOctober 28, 2017 or October 29, 2016.2022.
Financial Assets and Liabilities
Financial assets and liabilities measured at fair value on a recurring basis and cash equivalents held at amortized cost are as follows:
| | | | | | Fair Value Measurements at Reporting Date Using | | | | Fair Value Measurements at Reporting Date Using |
| ($ in millions) | October 28, 2017 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | ($ in millions) | October 28, 2023 | | Quoted Prices in
Active Markets for
Identical Assets
(Level 1) | | Significant Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Assets: | | | | | | | | Assets: | | | | | | | |
| Cash equivalents | $ | 389 |
| | $ | 28 |
| | $ | 361 |
| | $ | — |
| Cash equivalents | $ | 1 | | | $ | — | | | $ | 1 | | | $ | — | |
| | Derivative financial instruments | 31 |
| | — |
| | 31 |
| | — |
| Derivative financial instruments | 34 | | | — | | | 34 | | | — | |
| Deferred compensation plan assets | 46 |
| | 46 |
| | — |
| | — |
| Deferred compensation plan assets | 31 | | | 31 | | | — | | | — | |
| Other assets | | Other assets | 4 | | | — | | | — | | | 4 | |
| Total | $ | 466 |
| | $ | 74 |
| | $ | 392 |
| | $ | — |
| Total | $ | 70 | | | $ | 31 | | | $ | 35 | | | $ | 4 | |
| Liabilities: | | | | | | | | Liabilities: | | | | | | | |
| Derivative financial instruments | $ | 20 |
| | $ | — |
| | $ | 20 |
| | $ | — |
| Derivative financial instruments | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | Fair Value Measurements at Reporting Date Using | | | | Fair Value Measurements at Reporting Date Using |
| ($ in millions) | January 28, 2017 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | ($ in millions) | January 28, 2023 | | Quoted Prices in
Active Markets for
Identical Assets
(Level 1) | | Significant Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Assets: | | | | | | | | Assets: | | | | | | | |
| Cash equivalents | $ | 697 |
| | $ | 256 |
| | $ | 441 |
| | $ | — |
| Cash equivalents | $ | 15 | | | $ | — | | | $ | 15 | | | $ | — | |
| | Derivative financial instruments | 58 |
| | — |
| | 58 |
| | — |
| Derivative financial instruments | 11 | | | — | | | 11 | | | — | |
| Deferred compensation plan assets | 40 |
| | 40 |
| | — |
| | — |
| Deferred compensation plan assets | 34 | | | 34 | | | — | | | — | |
| Other assets | | Other assets | 4 | | | — | | | — | | | 4 | |
| Total | $ | 795 |
| | $ | 296 |
| | $ | 499 |
| | $ | — |
| Total | $ | 64 | | | $ | 34 | | | $ | 26 | | | $ | 4 | |
| Liabilities: | | | | | | | | Liabilities: | | | | | | | |
| Derivative financial instruments | $ | 21 |
| | $ | — |
| | $ | 21 |
| | $ | — |
| Derivative financial instruments | $ | 20 | | | $ | — | | | $ | 20 | | | $ | — | |
| | | | Fair Value Measurements at Reporting Date Using | | | | Fair Value Measurements at Reporting Date Using |
| ($ in millions) | October 29, 2016 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | ($ in millions) | October 29, 2022 | | Quoted Prices in
Active Markets for
Identical Assets
(Level 1) | | Significant Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| Assets: | | | | | | | | Assets: | | | | | | | |
| Cash equivalents | $ | 596 |
| | $ | 106 |
| | $ | 490 |
| | $ | — |
| Cash equivalents | $ | 19 | | | $ | — | | | $ | 19 | | | $ | — | |
| | Derivative financial instruments | 62 |
| | — |
| | 62 |
| | — |
| Derivative financial instruments | 46 | | | — | | | 46 | | | — | |
| Deferred compensation plan assets | 41 |
| | 41 |
| | — |
| | — |
| Deferred compensation plan assets | 37 | | | 37 | | | — | | | — | |
| Other assets | | Other assets | 4 | | | — | | | — | | | 4 | |
| Total | $ | 699 |
| | $ | 147 |
| | $ | 552 |
| | $ | — |
| Total | $ | 106 | | | $ | 37 | | | $ | 65 | | | $ | 4 | |
| Liabilities: | | | | | | | | Liabilities: | | | | | | | |
| Derivative financial instruments | $ | 49 |
| | $ | — |
| | $ | 49 |
| | $ | — |
| Derivative financial instruments | $ | 2 | | | $ | — | | | $ | 2 | | | $ | — | |
We have highly liquid fixed and variable income investments classified as cash equivalents, which are placed primarily in time deposits and money market funds.equivalents. We value these investments at their original purchase prices plus interest that has accrued at the stated rate.
Our cash equivalents are placed primarily in time deposits.
Derivative financial instruments primarily include foreign exchange forward contracts. TheSee Note 7 of Notes to Condensed Consolidated Financial Statements for information regarding currencies hedged against changes in the U.S. dollar are Canadian dollars, Japanese yen, British pounds, Euro, Mexican pesos, Chinese yuan, and Taiwan dollars. The fair value of the Company’s derivative financial instruments is determined using pricing models based on current market rates. Derivative financial instruments in an asset position are recorded in other current assets or other long-term assets in the Condensed Consolidated Balance Sheets. Derivative financial instruments in a liability position are recorded in accrued expenses and other current liabilities or lease incentives and other long-term liabilities in the Condensed Consolidated Balance Sheets.dollar.
We maintain the Gap, Inc. Deferred Compensation Plan (“DCP”), which allows eligible employees to defer base compensation and bonus up to a maximum percentage, and non-employee directors to defer compensation up toreceipt of a maximum amount.portion of their Board fees. Plan investments are directed by participants and are recorded at market value and designated for the DCP. The fair value of the Company’s DCP assets is determined based on quoted market prices, and the assets are recorded in other long-term assets inon the Condensed Consolidated Balance Sheets.
Nonfinancial Assets
We review the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The fair value of the long-lived assets is determined using level 3 inputs and based on discounted future cash flows of the asset or asset group using a discount rate commensurate with the risk. The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for our retail stores is primarily at the store level.
DuringThere were no material impairment charges recorded for long-lived assets during the thirteen13 and 39 weeks ended October 28, 2017, we2023.
During the 39 weeks ended October 29, 2022, the Company recorded a charge for the impairment of long-livedstore assets of $4$10 million whichand impairment of operating lease assets of $16 million. The impairment of the store assets reduced the then carrying amount of the applicable long-lived assets of $5$12 million to their estimated fair value of $1$2 million. The impairment charge was recorded inof operating expenses in the Condensed Consolidated Statement of Income.
During the thirty-nine weeks ended October 28, 2017, we recorded a charge for the impairment of long-livedlease assets of $17 million, which reduced the then carrying amount of the applicable long-lived assets of $18$62 million to their estimated fair value of $1$46 million. The impairment charge was recorded in operating expenses in the Condensed Consolidated Statement of Income.
In May 2016, the Company announced measures to close its fleet of 53 Old Navy stores in Japan and select Banana Republic stores, primarily internationally. During the thirteen weeks ended October 29, 2016, we recorded charges for impairment of long-lived assets of $2 million related to the announced store closures, and an additional $31 million for long-lived assets that were unrelated to the announced measures. The impairment charges were recorded in operating expenses inon the Condensed Consolidated Statement of Income and reduced the then carrying amount of the applicable long-lived assets of $34 million to their fair value of $1 million.
During the thirty-nine weeks ended October 29, 2016, we recorded charges for impairment of long-lived assets of $54 million related to the announced store closures, primarily related to Old Navy Japan, and an additional $35 million for long-lived assets that were unrelated to the announced measures. The impairment charges were recorded in operating expenses in the Condensed Consolidated Statement of Income and reduced the then carrying amount of the applicable long-lived assets of $102 million to their fair value of $13 million.Operations.
We review the carrying amount of goodwill and other indefinite-lived intangible assets for impairment annually and whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount may not be recoverable.
There were no impairment charges recorded for goodwill or other indefinite-lived intangible assets for the thirteen13 and thirty-nine39 weeks ended October 28, 20172023 or October 29, 2016.2022.
Note 5.7. Derivative Financial Instruments
We operate in foreign countries, which exposes us to market risk associated with foreign currency exchange rate fluctuations. We use derivative financial instruments to manage our exposure to foreign currency exchange rate risk and do not enter into derivative financial contracts for trading purposes. Consistent with our risk management guidelines, we hedge a portion of our transactions related to merchandise purchases for foreign operations and certain intercompany transactions using foreign exchange forward contracts. These contracts are entered into with large, reputable financial institutions that are monitored for counterparty risk. The currencies hedged against changes in the U.S. dollar are the Canadian dollars,dollar, Japanese yen, British pounds, Euro,pound, Mexican pesos, Chinese yuan,peso, New Taiwan dollar, and Taiwan dollars.Euro. Cash flows from derivative financial instruments are classified as cash flows from operating activities inon the Condensed Consolidated Statements of Cash Flows.
Derivative financial instruments are recorded at fair value on the Condensed Consolidated Balance Sheets as other current assets, other long-term assets, accrued expenses and other current liabilities, or other long-term liabilities.
Cash Flow Hedges
We designate the following foreign exchange forward contracts as cash flow hedges: (1) forward contracts used to hedge forecasted merchandise purchases and related costs denominated in U.S. dollars made by our international subsidiaries whose functional currencies are their local currencies; (2) forward contracts used to hedge forecasted intercompany royalty payments denominated in foreign currencies received by entities whose functional currencies are U.S. dollars; and (3) forward contracts used to hedge forecasted intercompany revenue transactions related to merchandise sold from our regional purchasing entity, whose functional currency is the U.S. dollar, to certain international subsidiaries in their local currencies.as cash flow hedges. The foreign exchange forward contracts entered into to hedge forecasted merchandise purchases and related costs intercompany royalty payments, and intercompany revenue transactions generally have terms of up to 24 months. The effective portion of the gain or loss on the derivative financial instruments is reported as a component of other comprehensive income and is recognized ininto net income induring the period in which the underlying transaction impacts the income statement.
Net Investment Hedges
We also use foreign exchange forward contracts to hedge the net assetsCondensed Consolidated Statements of international subsidiaries to offset the foreign currency translation and economic exposures related to our investment in the subsidiaries.
Operations.
Other Derivatives Not Designated as Hedging Instruments
We enter intouse foreign exchange forward contracts to hedge our market risk exposure associated with foreign currency exchange rate fluctuations for certain intercompany balances denominated in currencies other than the functional currency of the entity with the intercompany balance. The gain or loss on the derivative financial instruments that represent economic hedges, as well as the remeasurement impact of the underlying intercompany balances, is recorded in operating expenses inon the Condensed Consolidated Statements of IncomeOperations in the same period and generally offset.offset each other.
Outstanding Notional Amounts
We had foreign exchange forward contracts outstanding in the following notional amounts:
| | | ($ in millions) | October 28,
2017 | | January 28,
2017 | | October 29,
2016 | ($ in millions) | October 28,
2023 | | January 28,
2023 | | October 29,
2022 |
| Derivatives designated as cash flow hedges | $ | 873 |
| | $ | 1,101 |
| | $ | 1,201 |
| Derivatives designated as cash flow hedges | $ | 357 | | | $ | 441 | | | $ | 491 | |
| Derivatives designated as net investment hedges | 30 |
| | 31 |
| | 31 |
| |
| Derivatives not designated as hedging instruments | 581 |
| | 618 |
| | 664 |
| Derivatives not designated as hedging instruments | 526 | | | 645 | | | 583 | |
| Total | $ | 1,484 |
| | $ | 1,750 |
| | $ | 1,896 |
| Total | $ | 883 | | | $ | 1,086 | | | $ | 1,074 | |
Quantitative Disclosures about Derivative Financial Instruments
The fair values of foreign exchange forward contracts are as follows: | | | ($ in millions) | October 28,
2017 | | January 28,
2017 | | October 29,
2016 | ($ in millions) | October 28,
2023 | | January 28,
2023 | | October 29,
2022 |
| Derivatives designated as cash flow hedges: | | | | | | Derivatives designated as cash flow hedges: | | | | | |
| Other current assets | $ | 16 |
| | $ | 28 |
| | $ | 35 |
| Other current assets | $ | 13 | | | $ | 9 | | | $ | 25 | |
| Other long-term assets | $ | 4 |
| | $ | 16 |
| | $ | 13 |
| Other long-term assets | 2 | | | — | | | 4 | |
| Accrued expenses and other current liabilities | $ | 11 |
| | $ | 10 |
| | $ | 26 |
| Accrued expenses and other current liabilities | — | | | 5 | | | — | |
| Lease incentives and other long-term liabilities | $ | 2 |
| | $ | 1 |
| | $ | 8 |
| |
| Other long-term liabilities | | Other long-term liabilities | — | | | — | | | — | |
| | | | | | | |
| Derivatives designated as net investment hedges: | | | | | | |
| Other current assets | $ | — |
| | $ | — |
| | $ | 1 |
| |
| Other long-term assets | $ | — |
| | $ | — |
| | $ | — |
| |
| Accrued expenses and other current liabilities | $ | 2 |
| | $ | — |
| | $ | — |
| |
| Lease incentives and other long-term liabilities | $ | — |
| | $ | — |
| | $ | — |
| |
| | | | | | | | |
| Derivatives not designated as hedging instruments: | | | | | | Derivatives not designated as hedging instruments: | |
| Other current assets | $ | 11 |
| | $ | 13 |
| | $ | 13 |
| Other current assets | 19 | | | 2 | | | 17 | |
| Other long-term assets | $ | — |
| | $ | 1 |
| | $ | — |
| |
| Accrued expenses and other current liabilities | $ | 5 |
| | $ | 10 |
| | $ | 14 |
| Accrued expenses and other current liabilities | — | | | 15 | | | 2 | |
| Lease incentives and other long-term liabilities | $ | — |
| | $ | — |
| | $ | 1 |
| |
| | | | | | | |
| Total derivatives in an asset position | $ | 31 |
| | $ | 58 |
| | $ | 62 |
| Total derivatives in an asset position | $ | 34 | | | $ | 11 | | | $ | 46 | |
| Total derivatives in a liability position | $ | 20 |
| | $ | 21 |
| | $ | 49 |
| Total derivatives in a liability position | $ | — | | | $ | 20 | | | $ | 2 | |
The majority of the unrealized gains and losses from designated cash flow hedges as of October 28, 20172023 will be recognized in income within the next 12 months at the then-current values, which may differ from the fair values as of October 28, 20172023 shown above.
Our foreign exchange forward contracts are subject to master netting arrangements with each of our counterparties and such arrangements are enforceable in the event of default or early termination of the contract. We do not elect to offset the fair values of our derivative financial instruments inon the Condensed Consolidated Balance Sheets, and as such, the fair values shown above represent gross amounts. The amounts subject to enforceable master netting arrangements are $8 million, $18 million, and $9 million as of October 28, 2017, January 28, 2017, and October 29, 2016, respectively. If we did elect to offset, the net amounts of our derivative financial instruments in an asset position would be $23 million, $40 million, and $53 million and the net amounts of the derivative financial instruments in a liability position would be $12 million, $3 million, and $40 million as of October 28, 2017, January 28, 2017 and October 29, 2016, respectively.were not material for all periods presented.
See Note 46 of Notes to Condensed Consolidated Financial Statements for disclosures on the fair value measurements of our derivative financial instruments.
The effective portion of gains and losses on foreign exchange forward contractspre-tax amounts recognized in cash flow hedging and net investment hedging relationships recorded in other comprehensive income and the Condensed Consolidated Statements of Income, on a pre-tax basis,related to derivative instruments are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Location and Amount of Gain
Recognized in Net Income |
| 13 Weeks Ended
October 28, 2023 | | 13 Weeks Ended
October 29, 2022 |
| ($ in millions) | Cost of goods sold and occupancy expenses | | Operating expenses | | Cost of goods sold and occupancy expenses | | Operating expenses |
| Total amount of expense line items presented in the Condensed Consolidated Statements of Operations in which the effects of derivatives are recorded | $ | 2,211 | | | $ | 1,306 | | | $ | 2,530 | | | $ | 1,323 | |
| | | | | | | |
| Gain recognized in net income | | | | | | | |
| Derivatives designated as cash flow hedges | (6) | | | — | | | (14) | | | — | |
| | | | | | | |
| Derivatives not designated as hedging instruments | — | | | (27) | | | — | | | (51) | |
| Total gain recognized in net income | $ | (6) | | | $ | (27) | | | $ | (14) | | | $ | (51) | |
|
| | | | | | | | | | | | | | | |
| 13 Weeks Ended |
| 39 Weeks Ended |
| ($ in millions) | October 28,
2017 |
| October 29,
2016 |
| October 28,
2017 |
| October 29,
2016 |
| Derivatives in cash flow hedging relationships: | | | | | | | |
| Gain (loss) recognized in other comprehensive income | $ | 25 |
| | $ | 43 |
| | $ | (26 | ) | | $ | (62 | ) |
| Gain (loss) reclassified into cost of goods sold and occupancy expenses | $ | (5 | ) | | $ | 2 |
| | $ | 2 |
| | $ | 15 |
|
| Loss reclassified into operating expenses | $ | — |
| | $ | (2 | ) | | $ | — |
| | $ | (10 | ) |
| | | | | | | | |
| Derivatives in net investment hedging relationships: | | | | | | | |
| Gain (loss) recognized in other comprehensive income | $ | 1 |
| | $ | 1 |
| | $ | (1 | ) | | $ | (1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Location and Amount of Gain
Recognized in Net Income |
| 39 Weeks Ended
October 28, 2023 | | 39 Weeks Ended
October 29, 2022 |
| ($ in millions) | Cost of goods sold and occupancy expense | | Operating expenses | | Cost of goods sold and occupancy expense | | Operating expenses |
| Total amount of expense line items presented in the Condensed Consolidated Statements of Operations in which the effects of derivatives are recorded | $ | 6,488 | | | $ | 3,757 | | | $ | 7,438 | | | $ | 3,974 | |
| | | | | | | |
| Gain recognized in net income | | | | | | | |
| Derivatives designated as cash flow hedges | (13) | | | — | | | (22) | | | — | |
| Derivatives not designated as hedging instruments | — | | | (25) | | | — | | | (80) | |
| Total gain recognized in net income | $ | (13) | | | $ | (25) | | | $ | (22) | | | $ | (80) | |
For the thirteen and thirty-nine weeks endedOctober 28, 2017 and October 29, 2016, there were no amounts of gains or losses reclassified from accumulated other comprehensive income into net income for derivative financial instruments in net investment hedging relationships, as we did not sell or liquidate (or substantially liquidate) any of our hedged subsidiaries during the periods.
Gains and losses on foreign exchange forward contracts not designated as hedging instruments recorded in the Condensed Consolidated Statements of Income, on a pre-tax basis, are as follows:
|
| | | | | | | | | | | | | | | |
| | 13 Weeks Ended | | 39 Weeks Ended |
| ($ in millions) | October 28,
2017 | | October 29,
2016 | | October 28,
2017 | | October 29,
2016 |
| Gain (loss) recognized in operating expenses | $ | 10 |
| | $ | 12 |
| | $ | (13 | ) | | $ | (5 | ) |
Note 6.8. Share Repurchases
Share repurchase activity is as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| | 13 Weeks Ended | | 39 Weeks Ended |
| ($ and shares in millions except average per share cost) | October 28,
2023 | | October 29,
2022 | | October 28,
2023 | | October 29,
2022 |
| Number of shares repurchased (1) | — | | | 1.2 | | | — | | | 10.6 | |
| Total cost | $ | — | | | $ | 12 | | | $ | — | | | $ | 123 | |
| Average per share cost including commissions | $ | — | | | $ | 10.20 | | | $ | — | | | $ | 11.59 | |
_________ (1)Excludes shares withheld to settle employee statutory tax withholding related to the vesting of stock units.
|
| | | | | | | | | | | | | | | |
| | 13 Weeks Ended | | 39 Weeks Ended |
| ($ and shares in millions except average per share cost) | October 28,
2017 | | October 29,
2016 | | October 28,
2017 | | October 29,
2016 |
| Number of shares repurchased (1) | 3.8 |
| | — |
| | 12.5 |
| | — |
|
| Total cost | $ | 100 |
| | $ | — |
| | $ | 300 |
| | $ | — |
|
| Average per share cost including commissions | $ | 26.64 |
| | $ | — |
| | $ | 24.21 |
| | $ | — |
|
__________
| |
(1) | Excludes shares withheld to settle employee statutory tax withholding related to the vesting of stock units. |
In February 2016, we announced that2019, the Company's Board of Directors (the "Board") approved a $1.0 billion share repurchase authorization of which $700(the "February 2019 repurchase program"). The February 2019 repurchase program had $476 million was remaining as of October 28, 2017.
All of the share repurchases were paid for as of October 28, 2017.2023. All common stock repurchased is immediately retired.
Note 7. Accumulated Other Comprehensive Income
Changes in accumulated other comprehensive income by component, net of tax, are as follows:
|
| | | | | | | | | | | |
| ($ in millions) | Foreign Currency Translation | | Cash Flow Hedges | | Total |
| Balance at January 28, 2017 | $ | 29 |
| | $ | 25 |
| | $ | 54 |
|
| 13 Weeks Ended April 29, 2017: | | | | | |
| Foreign currency translation | (4 | ) | | — |
| | (4 | ) |
| Change in fair value of derivative financial instruments | — |
| | — |
| | — |
|
| Amounts reclassified from accumulated other comprehensive income | — |
| | (4 | ) | | (4 | ) |
| Other comprehensive loss, net of tax | (4 | ) | | (4 | ) | | (8 | ) |
| Balance at April 29, 2017 | 25 |
| | 21 |
| | 46 |
|
| 13 Weeks Ended July 29, 2017: | | | | | |
| Foreign currency translation | 21 |
| | — |
| | 21 |
|
| Change in fair value of derivative financial instruments | — |
| | (43 | ) | | (43 | ) |
| Amounts reclassified from accumulated other comprehensive income | — |
| | (1 | ) | | (1 | ) |
| Other comprehensive income (loss), net of tax | 21 |
| | (44 | ) | | (23 | ) |
| Balance at July 29, 2017 | 46 |
| | (23 | ) | | 23 |
|
| 13 Weeks Ended October 28, 2017: | | | | | |
| Foreign currency translation | (5 | ) | | — |
| | (5 | ) |
| Change in fair value of derivative financial instruments | — |
| | 23 |
| | 23 |
|
| Amounts reclassified from accumulated other comprehensive income | — |
| | (1 | ) | | (1 | ) |
| Other comprehensive income (loss), net of tax | (5 | ) | | 22 |
| | 17 |
|
| Balance at October 28, 2017 | $ | 41 |
| | $ | (1 | ) | | $ | 40 |
|
| | | | | | |
| ($ in millions) | Foreign Currency Translation | | Cash Flow Hedges | | Total |
| Balance at January 30, 2016 | $ | 22 |
| | $ | 63 |
| | $ | 85 |
|
| 13 Weeks Ended April 30, 2016: | | | | | |
| Foreign currency translation | 31 |
| | — |
| | 31 |
|
| Change in fair value of derivative financial instruments | — |
| | (89 | ) | | (89 | ) |
| Amounts reclassified from accumulated other comprehensive income | — |
| | (7 | ) | | (7 | ) |
| Other comprehensive income (loss), net of tax | 31 |
| | (96 | ) | | (65 | ) |
| Balance at April 30, 2016 | 53 |
| | (33 | ) | | 20 |
|
| 13 Weeks Ended July 30, 2016: | | | | | |
| Foreign currency translation | (22 | ) | | — |
| | (22 | ) |
| Change in fair value of derivative financial instruments | — |
| | (7 | ) | | (7 | ) |
| Amounts reclassified from accumulated other comprehensive income | — |
| | 8 |
| | 8 |
|
| Other comprehensive income (loss), net of tax | (22 | ) | | 1 |
| | (21 | ) |
| Balance at July 30, 2016 | 31 |
| | (32 | ) | | (1 | ) |
| 13 Weeks Ended October 29, 2016: | | | | | |
| Foreign currency translation | (10 | ) | | — |
| | (10 | ) |
| Change in fair value of derivative financial instruments | — |
| | 39 |
| | 39 |
|
| Amounts reclassified from accumulated other comprehensive income | — |
| | — |
| | — |
|
| Other comprehensive income (loss), net of tax | (10 | ) | | 39 |
| | 29 |
|
| Balance at October 29, 2016 | $ | 21 |
| | $ | 7 |
| | $ | 28 |
|
See Note 5 of Notes to Condensed Consolidated Financial Statements for additional disclosures about reclassifications out of accumulated other comprehensive income and their corresponding effects on the respective line items in the Condensed Consolidated Statements of Income.
Note 8. Share-Based Compensation
Share-based compensation expense recognized in the Condensed Consolidated Statements of Income, primarily in operating expenses, is as follows:
|
| | | | | | | | | | | | | | | |
| | 13 Weeks Ended | | 39 Weeks Ended |
| ($ in millions) | October 28,
2017 | | October 29,
2016 | | October 28,
2017 | | October 29,
2016 |
| Stock units | $ | 14 |
| | $ | 14 |
| | $ | 47 |
| | $ | 43 |
|
| Stock options | 3 |
| | 4 |
| | 10 |
| | 9 |
|
| Employee stock purchase plan | 1 |
| | 1 |
| | 3 |
| | 3 |
|
| Share-based compensation expense | 18 |
| | 19 |
| | 60 |
| | 55 |
|
| Less: Income tax benefit | (7 | ) | | (8 | ) | | (23 | ) | | (25 | ) |
| Share-based compensation expense, net of tax | $ | 11 |
| | $ | 11 |
| | $ | 37 |
| | $ | 30 |
|
Note 9. Income Taxes
The Company conducts business globally, and as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States, Canada, France, the United Kingdom, China, Hong Kong, Japan, and India. We are no longer subject to U.S. federal income tax examinations for fiscal years before 2009, and with few exceptions, we are also no longer subject to U.S. state, local, or non-U.S. income tax examinations for fiscal years before 2008.
The Company is in continual discussions with taxing authorities regarding tax matters in the various U.S. and foreign jurisdictions in the normal course of business. As of October 28, 2017, it is reasonably possible that we will recognize a decrease in gross unrecognized tax benefits within the next 12 months of up to $6 million, primarily due to the closing of audits. If we do recognize such a decrease, the net impact on the Condensed Consolidated Statement of Income would not be material.
Note 10. Earnings Per Share
Weighted-average number of shares used for earnings per share is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | 13 Weeks Ended | | 39 Weeks Ended |
| (shares in millions) | October 28,
2023 | | October 29,
2022 | | October 28,
2023 | | October 29,
2022 |
| Weighted-average number of shares - basic | 371 | | | 365 | | | 369 | | | 367 | |
| Common stock equivalents | 4 | | | 1 | | | 4 | | | 3 | |
| Weighted-average number of shares - diluted | 375 | | | 366 | | | 373 | | | 370 | |
|
| | | | | | | | | | | |
| | 13 Weeks Ended | | 39 Weeks Ended |
| (shares in millions) | October 28,
2017 | | October 29,
2016 | | October 28,
2017 | | October 29,
2016 |
| Weighted-average number of shares - basic | 391 |
| | 399 |
| | 395 |
| | 398 |
|
| Common stock equivalents | 2 |
| | 1 |
| | 2 |
| | 2 |
|
| Weighted-average number of shares - diluted | 393 |
| | 400 |
| | 397 |
| | 400 |
|
The above computations of weighted-average number of shares – diluted exclude 9 million and 8 millionanti-dilutive shares related to stock options and other stock awards excluded from the computation of weighted-average number of shares – diluted were 5 million and 14 million for the thirteen weeks ended October 28, 2017 and October 29, 2016, respectively, and 9 million and 7 million shares related to stock options and other stock awards for the thirty-nine13 weeks ended October 28, 20172023 and October 29, 2016,2022, respectively, and 6 million and 14 million for the 39 weeks ended October 28, 2023 and October 29, 2022, respectively, as their inclusion would have an anti-dilutive effect on earnings per share.
Note 11.10. Commitments and Contingencies
We are a party to a variety of contractual agreements under which we may be obligated to indemnify the other party for certain matters. These contracts primarily relate to our commercial contracts, operating leases, trademarks, intellectual property, financial agreements, and various other agreements. Under these contracts, we may provide certain routine indemnifications relating to representations and warranties (e.g., ownership of assets, environmental or tax indemnifications), or personal injury matters. The terms of these indemnifications range in duration and may not be explicitly defined. Generally, the maximum obligation under such indemnifications is not explicitly stated, and as a result, the overall amount of these obligations cannot be reasonably estimated. Historically, we have not made significant payments for these indemnifications. We believe that if we were to incur a loss in any of these matters, the loss would not have a material effect on our Condensed Consolidated Financial Statements taken as a whole.
As a multinational company, we are subject to various proceedings, lawsuits, disputes, and claims (“Actions”("Actions") arising in the ordinary course of our business. Many of these Actions raise complex factual and legal issues and are subject to uncertainties. As of October 28, 2017,2023, Actions filed against us included commercial, intellectual property, customer, employment, securities, and data privacy claims, including class action lawsuits. The plaintiffs in some Actions seek unspecified damages or injunctive relief, or both. Actions are in various procedural stages and some are covered in part by insurance. As of October 28, 2017, 2023, January 28, 2017,2023, and October 29, 2016,2022, we recorded a liability for an estimated loss if the outcome of an Action is expected to result in a loss that is considered probable and reasonably estimable. The liability recorded as of October 28, 2017, January 28, 2017, and October 29, 2016was not material for any individual Action or in total.total for all periods presented. Subsequent to October 28, 20172023, and through the filing date of this Quarterly Report on Form 10-Q, no information has become available that indicates a change is required that would be material to our Condensed Consolidated Financial Statements taken as a whole.
We cannot predict with assurance the outcome of Actions brought against us. Accordingly, developments, settlements, or resolutions may occur and impact income in the quarter of such development, settlement, or resolution. However, we do not believe that the outcome of any current Action would have a material effect on our Condensed Consolidated Financial Statements taken as a whole.
Fire at the Fishkill Distribution Center
On August 29, 2016, a fire occurred in one of the buildings at a Company-owned distribution center campus in Fishkill, New York. The impacted building primarily held Gap and Banana Republic products for distribution to stores and fulfilled online orders for Gap and Old Navy in the Northeast region of the United States.
The Company maintains property and business interruption insurance coverage. Based on the provisions of the Company’s insurance policies, the Company recorded insurance recoveries based on the determination that recovery of certain fire-related costs is probable. During fiscal 2016, the Company incurred a total of $133 million in certain fire-related costs. In January of fiscal 2016, the Company agreed upon a partial settlement of $159 million related to the loss on inventory and recorded a gain of $73 million, representing the excess over the loss on inventory, which was recorded in operating expenses in the Consolidated Statement of Income. During fiscal 2016, the Company received $174 million of insurance proceeds. As a result, the insurance receivable balance was $32 million as of January 28, 2017 and was recorded in other current assets in the Consolidated Balance Sheet.
During the thirteen and thirty-nine weeks ended October 28, 2017, the Company incurred immaterial costs and $15 million, respectively, in certain fire-related costs for which the Company recorded insurance recoveries based on the determination that recovery of these fire-related costs is probable. In June 2017, the Company also agreed upon a partial settlement and recorded a gain of $64 million, primarily related to property and equipment, representing the excess over the loss on fire-related recoverable costs, which was recorded in operating expenses in the Condensed Consolidated Statement of Income.
The Company received $29 million and $131 million of insurance proceeds during the thirteen and thirty-nine weeks ended October 28, 2017, respectively. Included in the $29 million was $20 million in insurance proceeds related to business interruption, which were recorded as a reduction to cost of goods sold and occupancy expenses in the Condensed Consolidated Statement of Income. The remaining $9 million and $111 million of insurance proceeds received during the thirteen and thirty-nine weeks ended October 28, 2017, respectively, were recorded as a reduction to the insurance receivable balance. As a result, the insurance proceeds received in excess of expected recoveries was less than $1 million as of October 28, 2017.
We will continue to incur additional logistics costs related to the disruption to our North American supply chain network. As settlements are reached, any recoveries related to business interruption insurance will be recognized as a reduction to cost of goods sold and occupancy expenses in the Condensed Consolidated Statements of Income.
During the thirty-nine weeks ended October 28, 2017, we allocated $60 million of insurance proceeds to the loss on property and equipment based on the partial settlement of claims reported as insurance proceeds related to loss on property and equipment, a component of cash flows from investing activities, in the Condensed Consolidated Statement of Cash Flows.
Note 12.11. Segment Information
The Gap, Inc. is a global retailer that sells apparel, accessories, and personal care products under the Gap, Old Navy, Banana Republic, Athleta, Intermix, and Weddington Way brands. We identify our operating segments according to how our business activities are managed and evaluated. As of October 28, 2017,2023, our operating segments included Gap Global,included: Old Navy Global, Gap Global, Banana Republic Global, and Athleta Global. Each operating segment has a brand president who is responsible for various geographies and Intermix.channels. Each of our brands serves customer demand through stores and online channels, leveraging our omni-channel capabilities that allow customers to shop seamlessly across all of our brands. We have determined that each of our operating segments share similar economic and other qualitative characteristics, and therefore the results of our operating segments are aggregated into one reportable segment as of October 28, 2017.2023. We continually monitor and review our segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact our reportable segments.
Net salesSee Note 2 of Notes to Condensed Consolidated Financial Statements for disaggregation of revenue by channel and by brand and region areregion.
Note 12. Divestitures
On February 1, 2022, we completed the transition of our Gap Italy operations to a third party, OVS S.p.A. ("OVS"), to operate Gap Italy stores as
follows:a franchise partner. We completed the transition of our United Kingdom and Ireland online operations to a franchise partner through a joint venture with Next Plc on August 10, 2022. The impacts from these transactions upon divestiture were not material to our results of operations for the 39 weeks ended October 29, 2022. |
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | Gap Global | | Old Navy Global | | Banana Republic Global | | Other (2) | | Total | | Percentage of Net Sales |
| 13 Weeks Ended October 28, 2017 | | | | | | |
| U.S. (1) | | $ | 750 |
| | $ | 1,587 |
| | $ | 467 |
| | $ | 200 |
| | $ | 3,004 |
| | 79 | % |
| Canada | | 109 |
| | 143 |
| | 57 |
| | 1 |
| | 310 |
| | 8 |
|
| Europe | | 154 |
| | — |
| | 4 |
| | — |
| | 158 |
| | 4 |
|
| Asia | | 278 |
| | 13 |
| | 21 |
| | — |
| | 312 |
| | 8 |
|
| Other regions | | 31 |
| | 15 |
| | 8 |
| | — |
| | 54 |
| | 1 |
|
| Total | | $ | 1,322 |
| | $ | 1,758 |
| | $ | 557 |
| | $ | 201 |
| | $ | 3,838 |
| | 100 | % |
| | | | | | | | | | | | | |
| ($ in millions) | | Gap Global | | Old Navy Global | | Banana Republic Global | | Other (3) | | Total | | Percentage of Net Sales |
| 13 Weeks Ended October 29, 2016 | | | | | | |
| U.S. (1) | | $ | 756 |
| | $ | 1,507 |
| | $ | 479 |
| | $ | 172 |
| | $ | 2,914 |
| | 77 | % |
| Canada | | 102 |
| | 131 |
| | 55 |
| | 1 |
| | 289 |
| | 8 |
|
| Europe | | 150 |
| | — |
| | 14 |
| | — |
| | 164 |
| | 4 |
|
| Asia | | 296 |
| | 55 |
| | 25 |
| | — |
| | 376 |
| | 10 |
|
| Other regions | | 36 |
| | 12 |
| | 7 |
| | — |
| | 55 |
| | 1 |
|
| Total | | $ | 1,340 |
| | $ | 1,705 |
| | $ | 580 |
| | $ | 173 |
| | $ | 3,798 |
| | 100 | % |
| | | | | | | | | | | | | |
| ($ in millions) | | Gap Global | | Old Navy Global | | Banana Republic Global | | Other (2) | | Total | | Percentage of Net Sales |
| 39 Weeks Ended October 28, 2017 | | | | | | |
| U.S. (1) | | $ | 2,137 |
| | $ | 4,609 |
| | $ | 1,396 |
| | $ | 633 |
| | $ | 8,775 |
| | 79 | % |
| Canada | | 277 |
| | 387 |
| | 156 |
| | 2 |
| | 822 |
| | 8 |
|
| Europe | | 435 |
| | — |
| | 11 |
| | — |
| | 446 |
| | 4 |
|
| Asia | | 780 |
| | 34 |
| | 69 |
| | — |
| | 883 |
| | 8 |
|
| Other regions | | 83 |
| | 47 |
| | 21 |
| | — |
| | 151 |
| | 1 |
|
| Total | | $ | 3,712 |
| | $ | 5,077 |
| | $ | 1,653 |
| | $ | 635 |
| | $ | 11,077 |
| | 100 | % |
| | | | | | | | | | | | | |
| ($ in millions) | | Gap Global | | Old Navy Global | | Banana Republic Global | | Other (3) | | Total | | Percentage of Net Sales |
| 39 Weeks Ended October 29, 2016 | | | | | | |
| U.S. (1) | | $ | 2,203 |
| | $ | 4,335 |
| | $ | 1,456 |
| | $ | 550 |
| | $ | 8,544 |
| | 77 | % |
| Canada | | 264 |
| | 358 |
| | 159 |
| | 2 |
| | 783 |
| | 7 |
|
| Europe | | 453 |
| | — |
| | 45 |
| | — |
| | 498 |
| | 5 |
|
| Asia | | 856 |
| | 171 |
| | 80 |
| | — |
| | 1,107 |
| | 10 |
|
| Other regions | | 100 |
| | 32 |
| | 23 |
| | — |
| | 155 |
| | 1 |
|
| Total | | $ | 3,876 |
| | $ | 4,896 |
| | $ | 1,763 |
| | $ | 552 |
| | $ | 11,087 |
| | 100 | % |
__________
| |
(1) | U.S. includes the United States, Puerto Rico, and Guam. |
| |
(2) | Includes Athleta, Intermix, and Weddington Way. |
| |
(3) | Includes Athleta and Intermix. |
Net sales by region are allocated basedWe sold our distribution center in Rugby, England for $125 million on September 30, 2022. As a result of this transaction, the Company recognized a pre-tax gain on sale of $83 million within operating expenses on the locationCondensed Consolidated Statement of Operations during the 13 weeks ended October 29, 2022.
We also completed the transition of our Old Navy Mexico operations to a third party, Grupo Axo, to operate Old Navy Mexico stores as a franchise partner, on August 1, 2022. As a result of this transaction, the Company recognized a pre-tax loss of $35 million in the second quarter of fiscal 2022 when the assets were reclassified as held for sale. The pre-tax loss was recognized within operating expenses on the Condensed Consolidated Statement of Operations.
On November 7, 2022, we signed agreements to transition our Gap China and Gap Taiwan ("Gap Greater China") operations to a third party, Baozun Inc. ("Baozun"), to operate Gap Greater China stores and the in-market website as a franchise partner, subject to regulatory approvals and closing conditions. On January 31, 2023, the Gap China transaction closed with Baozun. The impact upon divestiture was not material to our results of operations for the 39 weeks ended October 28, 2023. The Gap Taiwan operations will continue to operate as usual until regulatory approvals and closing conditions are met.
Note 13. Supply Chain Finance Program
Our voluntary supply chain finance ("SCF") program provides certain suppliers with the opportunity to sell their receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. We are not a party to the agreements between our suppliers and the financial institutions and our payment terms are not impacted by whether a supplier participates in the SCF program.
We may agree to side letters with participating financial institutions related to the SCF program that require us to transfer a certain amount of cash to be used as collateral for our payment obligations in a specified period. These collateral amounts, if applicable, are classified as restricted cash on our Condensed Consolidated Balance Sheets. There were no collateral amounts under the SCF program as of October 28, 2023 and October 29, 2022. The collateral amount under the SCF program was $30 million as of January 28, 2023. Additionally, our lenders under the ABL Facility who also participate in the SCF program have their related financings secured pursuant to the terms of the store whereABL Facility.
The Company's outstanding obligations under the customer paid forSCF program were $344 million, $316 million, and received$206 million as of October 28, 2023, January 28, 2023, and October 29, 2022, respectively, and were included in accounts payable on the merchandise or the distribution center or store from which the products were shipped.
Condensed Consolidated Balance Sheets.
17
| |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations. |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
OUR BUSINESS
We are a global retailercollection of purpose-led, lifestyle brands offering apparel, accessories, and personal care products for men, women, and children under the Gap, Old Navy, Gap, Banana Republic, Athleta, Intermix, and Weddington WayAthleta brands. We have Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, Italy, China, Hong Kong, Taiwan, and Mexico.Taiwan. Our products are available to customers online through Company-owned websites and through third party arrangements. We also have franchise agreements with unaffiliated franchisees to operate Old Navy, Gap, Banana Republic, and Old Navy storesAthleta throughout Asia, Australia, Europe, Latin America, the Middle East, and Africa. Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names. Our products are also available to customers online through Company-owned websites and through the use of third parties that provide logistics and fulfillment services. In addition to operating in the specialty, outlet, online, and franchise channels, we also use our omni-channel capabilities to bridge the digital world and physical stores to further enhance our shopping experience for our customers. Our omni-channel services, including curbside pick-up, buy online pick-up in store, order-in-store, reserve-in-store, find-in-store, and ship-from-store, as well as enhanced mobilemobile-enabled experiences, are tailored uniquely across our portfoliocollection of brands. Most of the products sold under our brand names are designed by us and manufactured by independent sources. We also sell products that are designed and manufactured by branded third parties, primarily at our Intermix brand.
OVERVIEW
Results for the first three quarters of fiscal 2017 include a gain from insurance proceeds of $64 million related to the fire that occurred in one of the buildings at a Company-owned distribution center campus in Fishkill, New York on August 29, 2016 (“the Fishkill fire”), which was recorded in operating expenses in the Condensed Consolidated Statement of Income. During the third quarter of fiscal 2017, we also received $20 million in insurance proceeds related to business interruption, which were recorded as a reduction to cost of goods sold and occupancy expenses in the Condensed Consolidated Statement of Income. Fiscal 2016 results were impacted by the previously announced measures to better align talent and financial resources against our most important priorities to position the Company for improved business performance and long-term success. In connection with these measures, the Company incurred $29 million and $179 million in restructuring costs during the thirteen and thirty-nine weeks ended October 29, 2016, respectively, on a pre-tax basis.
Financial results for the third quarter of fiscal 20172023 are as follows:
•Net sales for the third quarter of fiscal 2017 increased 12023 decreased 7 percent compared with the third quarter of fiscal 2016.2022.
Comparable•Online sales for the third quarter of fiscal 2017 increased 32023 decreased 8 percent compared with a 3 percent decreasethe third quarter of fiscal 2022 and store and franchise sales for the third quarter of fiscal 2016, which included an estimated negative impact from2023 decreased 6 percent compared with the Fishkill firethird quarter of approximately 2 percentage points.fiscal 2022.
•Gross profit for the third quarter of fiscal 2017 and2023 was $1.56 billion compared with $1.51 billion for the third quarter of fiscal 2016 were $1.5 billion.2022. Gross margin for the third quarter of fiscal 20172023 was 39.741.3 percent compared with 39.337.4 percent for the third quarter of fiscal 2016.2022.
•Operating marginincome for the third quarter of fiscal 20172023 was 9.8$250 million compared with operating income of $186 million for the third quarter of fiscal 2022.
•The effective income tax rate for the third quarter of fiscal 2023 was 12.8 percent compared with 10.2negative 67.9 percent for the third quarter of fiscal 2016.2022.
•Net income for the third quarter of fiscal 20172023 was $229$218 million compared with $204net income of $282 million for the third quarter of fiscal 2016.
2022.•Diluted earnings per share was $0.58 for the third quarter of fiscal 20172023 compared with $0.51 for the third quarter of fiscal 2016. Diluteddiluted earnings per share of $0.77 for the third quarter of fiscal 2016 included about a $0.09 impact2022.
•Merchandise inventory as of restructuring costs incurred in the third quarter of fiscal 2016.
During2023 decreased 22 percent compared with the first three quartersthird quarter of fiscal 2017,2022.
Effective August 22, 2023, Richard Dickson became the Company's President and Chief Executive Officer.
On April 25, 2023, the Company's management committed to the Plan as part of the Company's previously announced efforts to simplify and optimize its operating model and structure. The Plan includes a reduction in workforce of approximately 1,800 employees, primarily in headquarters locations. The actions associated with the reduction of the Company's workforce under the Plan have been substantially completed. In connection with the Plan, the Company incurred $5 million and $93 million in pre-tax restructuring costs during the 13 and 39 weeks ended October 28, 2023, respectively. Restructuring costs for the 13 weeks ended October 28, 2023 primarily included consulting and other associated costs. Restructuring costs for the 39 weeks ended October 28, 2023 included employee-related costs of $64 million and consulting and other associated costs of $29 million.
The Company is also continuing to reduce the number of Gap and Banana Republic stores in North America by approximately 350 stores from the beginning of fiscal 2020 to the end of fiscal 2023. As of October 28, 2023, we distributed $572 millionhave closed, net of openings, 328 Gap and Banana Republic stores in North America since the beginning of fiscal 2020.
On November 7, 2022, we signed agreements to shareholders through share repurchasestransition our Gap Greater China operations to a third party, Baozun, to operate Gap Greater China stores and dividends.the in-market website as a franchise partner, subject to regulatory approvals and closing conditions. On January 31, 2023, the Gap China transaction closed with Baozun. The impact upon divestiture was not material to our results of operations for the 39 weeks ended October 28, 2023. The Gap Taiwan operations will continue to operate as usual until regulatory approvals and closing conditions are met.
We are focused on the following strategic priorities for fiscal 2017 remain as follows:in the near term:
offering•managing inventory to facilitate margin recovery and optimizing our cost structure with operational and financial rigor;
•reinvigorating our brands to drive relevance and an engaging omni-channel experience;
•creating trend-right product assortments while driving creative excellence and delivering consistent product with storytelling that is consistently brand-appropriateexcites our customers;
•rationalizing the Gap and on-trend with high customer acceptance, with a focus on expanding our advantage in loyalty categories;Banana Republic store fleet;
investing in digital and customer capabilities to support growth;
creating a unique and differentiated customer experience that builds loyalty, with focus on both the physical and digital expressions of our brands;
•attracting and retaining greatstrong talent in our businesses and functions; and
leveraging our scale•continuing to improve the effectivenessintegrate social and efficiency of our processes.environmental sustainability into business practices to support long-term growth.
In fiscal 2017, we are focused on investing strategically in the business while also maintaining operating expense discipline. One of our primary objectives is to continue transforming our product to market process, with the development of a more efficient operating model, allowing us to more fully leverage our scale. To enable this, we have several product, supply chain, and IT initiatives underway. Further, we expect to continue our investment in customer experience, both in stores and online, to drive higher customer engagement and loyalty, resulting in market share gains. Finally, we will continue to invest in strengthening brand awareness, customer acquisition, and digital capabilities.
In fiscal 2017, we expect that gross margins for our foreign subsidiaries, net of the impact from our merchandise hedge program, will continue to be negatively impacted by the depreciation of certain foreign currencies as our merchandise purchases are primarily in U.S. dollars.
RESULTS OF OPERATIONS
Net Sales
See Note 122 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 inof this Form 10-Q, for net sales by brand and region.
disaggregation.
Comparable Sales (“("Comp Sales”Sales")
The percentage change in Comp Sales by global brand and for The Gap, Inc., as compared with the preceding year, is as follows:
|
| | | | | | | | | | | |
| | 13 Weeks Ended | | 39 Weeks Ended |
| | October 28,
2017 | | October 29,
2016 | | October 28,
2017 | | October 29,
2016 |
| Gap Global | 1 | % | | (8 | )% | | (1 | )% | | (5 | )% |
| Old Navy Global | 4 | % | | 3 | % | | 5 | % | | (1 | )% |
| Banana Republic Global | (1 | )% | | (8 | )% | | (4 | )% | | (9 | )% |
| The Gap, Inc. | 3 | % | | (3 | )% | | 2 | % | | (3 | )% |
Comp Sales for the third quarter of fiscal 2016 include an estimated negative impact from the Fishkill fire of approximately 4 percentage points for Gap Global, approximately 1 percentage point for Old Navy Global, and approximately 2 percentage points for Banana Republic Global.
Comp Sales include the results of Company-operated stores and sales through our online channels in those countries where we have existing comparable store sales.channel. The calculation of The Gap, Inc. Comp Sales includes the results of Athleta and Intermix but excludes the results of our franchise business. Comp Sales also included the results of certain foreign operations until their respective transitions to third party franchise partners. See Note 12 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for related disclosures.
A store is included in the Comp Sales calculations when it has been open and operated by the Company for at least one year and the selling square footage has not changed by 15 percent or more within the past year. A store is included in the Comp Sales calculations on the first day it has comparable prior year sales. Stores in which the selling square footage has changed by 15 percent or more as a result of a remodel, expansion, or reduction are excluded from the Comp Sales calculations until the first day they have comparable prior year sales.
A store is considered non-comparable (“Non-comp”("Non-comp") when it has been open and operated by the Company for less than one year or has changed its selling square footage by 15 percent or more within the past year.
A store is considered “Closed”"Closed" if it is temporarily closed for three or more full consecutive days or it is permanently closed. When a temporarily closed store reopens, the store will be placed in the Comp/Non-comp status it was in prior to its closure. If a store was in Closed status for three or more days in the prior year, the store will be in Non-comp status for the same days the following year.
Current year foreign exchange rates are applied to both current year and prior year Comp Sales to achieve a consistent basis for comparison.
Store CountThe percentage change in Comp Sales by global brand and Square Footage Information
Net sales per average square foot arefor The Gap, Inc., as compared with the preceding year, is as follows:
|
| | | | | | | | | | | | | | |
| | 13 Weeks Ended | | 39 Weeks Ended |
| | October 28,
2017 | | October 29,
2016 | | October 28,
2017 | | October 29,
2016 |
| Net sales per average square foot (1) | $ | 82 |
| | $ | 81 |
| | 242 |
| | $ | 240 |
|
__________ | |
(1) | Excludes net sales associated with our online and franchise businesses. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 13 Weeks Ended | | 39 Weeks Ended |
| | October 28,
2023 | | October 29,
2022 | | October 28,
2023 | | October 29,
2022 |
| Old Navy Global | 1 | % | | (1) | % | | (2) | % | | (13) | % |
| Gap Global | (1) | % | | 4 | % | | — | % | | (4) | % |
| Banana Republic Global | (8) | % | | 10 | % | | (8) | % | | 14 | % |
| Athleta Global | (19) | % | | — | % | | (13) | % | | (5) | % |
| The Gap, Inc. | (2) | % | | 1 | % | | (3) | % | | (8) | % |
Store count, openings, closings, and square footage for our stores are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | January 28, 2023 | | 39 Weeks Ended October 28, 2023 | | October 28, 2023 |
| | Number of
Store Locations | | Number of
Stores Opened | | Number of
Stores Closed | | | Number of
Store Locations | | Square Footage
(in millions) |
| Old Navy North America | 1,238 | | | 24 | | | 11 | | | | 1,251 | | | 19.9 | |
| Gap North America | 493 | | | 1 | | | 14 | | | | 480 | | | 5.1 | |
| Gap Asia (1) | 232 | | | 1 | | | 7 | | | | 137 | | | 1.2 | |
| | | | | | | | | | |
| Banana Republic North America | 419 | | | 2 | | | 13 | | | | 408 | | | 3.4 | |
| Banana Republic Asia | 46 | | | 4 | | | 2 | | | | 48 | | | 0.2 | |
| Athleta North America | 257 | | | 24 | | | 7 | | | | 274 | | | 1.1 | |
| Company-operated stores total | 2,685 | | | 56 | | | 54 | | | | 2,598 | | | 30.9 | |
| Franchise (1) | 667 | | | 219 | | | 85 | | | | 935 | | | N/A |
| Total | 3,352 | | | 275 | | | 139 | | | | 3,533 | | | 30.9 | |
| Increase (decrease) over prior year | | | | | | | | 4.5 | % | | (4.6) | % |
| | | | | | | | | | |
| | January 29, 2022 | | 39 Weeks Ended October 29, 2022 | | October 29, 2022 |
| | Number of
Store Locations | | Number of
Stores Opened | | Number of
Stores Closed | | | Number of
Store Locations | | Square Footage
(in millions) |
| Old Navy North America (2) | 1,252 | | | 25 | | | 6 | | | | 1,247 | | | 20.0 | |
| Gap North America | 520 | | | 2 | | | 18 | | | | 504 | | | 5.4 | |
| Gap Asia | 329 | | | 4 | | | 74 | | | | 259 | | | 2.2 | |
| Gap Europe (3) | 11 | | | — | | | — | | | | — | | | — | |
| Banana Republic North America | 446 | | | 2 | | | 15 | | | | 433 | | | 3.6 | |
| Banana Republic Asia | 50 | | | 2 | | | 3 | | | | 49 | | | 0.2 | |
| | | | | | | | | | |
| Athleta North America | 227 | | | 29 | | | 5 | | | | 251 | | | 1.0 | |
| Company-operated stores total | 2,835 | | | 64 | | | 121 | | | | 2,743 | | | 32.4 | |
| Franchise (2) (3) | 564 | | | 77 | | | 39 | | | | 637 | | | N/A |
| Total | 3,399 | | | 141 | | | 160 | | | | 3,380 | | | 32.4 | |
| Decrease over prior year | | | | | | | | (2.3) | % | | (3.9) | % |
|
| | | | | | | | | | | | | | |
| | January 28, 2017 | | 39 Weeks Ended October 28, 2017 | | October 28, 2017 |
| | Number of Store Locations | | Number of Stores Opened | | Number of Stores Closed | | Number of Store Locations | | Square Footage (in millions) |
| Gap North America | 844 |
| | 6 |
| | 15 |
| | 835 |
| | 8.6 |
|
| Gap Asia | 311 |
| | 24 |
| | 26 |
| | 309 |
| | 3.0 |
|
| Gap Europe | 164 |
| | 2 |
| | 9 |
| | 157 |
| | 1.3 |
|
| Old Navy North America | 1,043 |
| | 20 |
| | 6 |
| | 1,057 |
| | 17.6 |
|
| Old Navy Asia | 13 |
| | — |
| | — |
| | 13 |
| | 0.2 |
|
| Banana Republic North America | 601 |
| | 4 |
| | 9 |
| | 596 |
| | 5.0 |
|
| Banana Republic Asia | 48 |
| | 1 |
| | 1 |
| | 48 |
| | 0.2 |
|
| Banana Republic Europe | 1 |
| | — |
| | 1 |
| | — |
| | — |
|
| Athleta North America | 132 |
| | 8 |
| | — |
| | 140 |
| | 0.6 |
|
| Intermix North America | 43 |
| | — |
| | 5 |
| | 38 |
| | 0.1 |
|
| Company-operated stores total | 3,200 |
| | 65 |
| | 72 |
| | 3,193 |
| | 36.6 |
|
| Franchise | 459 |
| | 31 |
| | 44 |
| | 446 |
| | N/A |
|
| Total | 3,659 |
| | 96 |
| | 116 |
| | 3,639 |
| | 36.6 |
|
| Decrease over prior year | | | | | | | (2.8 | )% | | (2.9 | )% |
| | | | | | | | | | |
| | January 30, 2016 | | 39 Weeks Ended October 29, 2016 | | October 29, 2016 |
| | Number of Store Locations | | Number of Stores Opened | | Number of Stores Closed | | Number of Store Locations | | Square Footage (in millions) |
| Gap North America | 866 |
| | 11 |
| | 19 |
| | 858 |
| | 9.0 |
|
| Gap Asia | 305 |
| | 18 |
| | 8 |
| | 315 |
| | 3.0 |
|
| Gap Europe | 175 |
| | 1 |
| | 10 |
| | 166 |
| | 1.4 |
|
| Old Navy North America | 1,030 |
| | 19 |
| | 10 |
| | 1,039 |
| | 17.4 |
|
| Old Navy Asia | 65 |
| | 5 |
| | 10 |
| | 60 |
| | 0.9 |
|
| Banana Republic North America | 612 |
| | 7 |
| | 7 |
| | 612 |
| | 5.1 |
|
| Banana Republic Asia | 51 |
| | — |
| | 2 |
| | 49 |
| | 0.2 |
|
| Banana Republic Europe | 10 |
| | — |
| | — |
| | 10 |
| | 0.1 |
|
| Athleta North America | 120 |
| | 10 |
| | — |
| | 130 |
| | 0.5 |
|
| Intermix North America | 41 |
| | 2 |
| | 1 |
| | 42 |
| | 0.1 |
|
| Company-operated stores total | 3,275 |
| | 73 |
| | 67 |
| | 3,281 |
| | 37.7 |
|
| Franchise | 446 |
| | 52 |
| | 37 |
| | 461 |
| | N/A |
|
| Total | 3,721 |
| | 125 |
| | 104 |
| | 3,742 |
| | 37.7 |
|
| Decrease over prior year | | | | | | | (1.4 | )% | | (2.3 | )% |
(1)The 89 Gap China stores that were transitioned to Baozun during the period are not included as store closures or openings for Company-operated and Banana Republic outletFranchise store activity. The ending balance for Gap Asia excludes Gap China stores and the ending balance for Franchise includes Gap China locations transitioned during the period.
(2)The 24 Old Navy Mexico stores that were transitioned to Grupo Axo during the period are not included as store closures or openings for Company-operated and Franchise store activity. The ending balance for Old Navy North America excludes Old Navy Mexico stores and the ending balance for Franchise includes Old Navy Mexico stores.
(3)The 11 Gap Italy stores that were transitioned to OVS during the period are not included as store closures or openings for Company-operated and Franchise store activity. The ending balance for Gap Europe excludes Gap Italy stores and the ending balance for Franchise includes Gap Italy stores.
Outlet and factory stores are reflected in each of the respective brands.
Net Sales
Our net sales fordecreased $272 million, or 7 percent, during the third quarter of fiscal 2017 increased $40 million, or 1 percent,2023 compared with the third quarter of fiscal 2016 primarily driven by an increase in net sales at Old Navy, partially offset by a decrease in net sales at Gap2022, and Banana Republic. The increase in Comp Sales of 3decreased $782 million, or 7 percent, for the third quarter of fiscal 2017 was offset by the impact of lost sales primarily from international store closures in fiscal 2016.
Our net sales forduring the first three quarters of fiscal 2017 decreased $10 million2023 compared with the first three quarters of fiscal 20162022. This was driven primarily driven by a decrease in net sales atComp Sales, the transition of our Gap China business to a partnership model, and Banana Republic, as well asother strategic store closures. Additionally, there was an unfavorable impact of foreign exchange for the first three quarters of $49 million, partially offset by an increase in net sales at Old Navy. The unfavorable impactfiscal 2023 of foreign exchange was primarily due to the weakening of the Japanese yen, British pound, and Chinese yuan against the U.S. dollar.$67 million. The foreign exchange impact is the translation impact if net sales for the first three quarters of fiscal 2016prior year period were translated at exchange rates applicable during the first three quarters of fiscal 2017. The increase in Comp Sales of 2 percent for the first three quarters of fiscal 2017 was offset by the impact of lost sales primarily from international store closures in fiscal 2016.current year period.
Cost of Goods Sold and Occupancy Expenses
| | | | | | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended | | 39 Weeks Ended |
| ($ in millions) | October 28,
2023 | | October 29,
2022 | | October 28,
2023 | | October 29,
2022 |
| Cost of goods sold and occupancy expenses | $ | 2,211 | | | $ | 2,530 | | | $ | 6,488 | | | $ | 7,438 | |
| Gross profit | $ | 1,556 | | | $ | 1,509 | | | $ | 4,103 | | | $ | 3,935 | |
| Cost of goods sold and occupancy expenses as a percentage of net sales | 58.7 | % | | 62.6 | % | | 61.3 | % | | 65.4 | % |
| Gross margin | 41.3 | % | | 37.4 | % | | 38.7 | % | | 34.6 | % |
|
| | | | | | | | | | | | | | | |
| 13 Weeks Ended | | 39 Weeks Ended |
| ($ in millions) | October 28,
2017 | | October 29,
2016 | | October 28,
2017 | | October 29,
2016 |
| Cost of goods sold and occupancy expenses | $ | 2,313 |
| | $ | 2,305 |
| | $ | 6,770 |
| | $ | 6,948 |
|
| Gross profit | $ | 1,525 |
| | $ | 1,493 |
| | $ | 4,307 |
| | $ | 4,139 |
|
| Cost of goods sold and occupancy expenses as a percentage of net sales | 60.3 | % | | 60.7 | % | | 61.1 | % | | 62.7 | % |
| Gross margin | 39.7 | % | | 39.3 | % | | 38.9 | % | | 37.3 | % |
Cost of goods sold and occupancy expenses decreased 0.4 percent3.9 percentage points as a percentage of net sales in the third quarter of fiscal 20172023 compared with the third quarter of fiscal 2016.2022.
•Cost of goods sold was flatdecreased 4.6 percentage points as a percentage of net sales in the third quarter of fiscal 20172023 compared with the third quarter of fiscal 2016,2022, primarily driven by lower commodity costs and air freight expenses, as well as improved average selling price per unit at Old Navy and Banana Republic, offset by higher average unit cost at all global brands.
promotional activity. Additionally, there was inventory impairment that occurred during the third quarter of fiscal 2022 as a result of the decision to discontinue the Yeezy Gap business.•Occupancy expenses decreased0.4 percentincreased 0.7 percentage points as a percentage of net sales in the third quarter of fiscal 20172023 compared with the third quarter of fiscal 2016,2022, primarily driven by an increasea decrease in onlinenet sales without a corresponding increasedecrease in fixed occupancy expenses and the closure of international stores in fiscal 2016, partially offset by real estate expenses for new stores at the Times Square, New York location for Gap and Old Navy.
expenses.Cost of goods sold and occupancy expenses decreased1.6 percent 4.1 percentage points as a percentage of net sales in the first three quarters of fiscal 2023 compared with the first three quarters of fiscal 2022.
•Cost of goods sold decreased 4.8 percentage points as a percentage of net sales in the first three quarters of fiscal 2023 compared with the first three quarters of fiscal 2022, primarily driven by a decrease in air freight expenses and improved promotional activity. Additionally, there was inventory impairment that occurred during the first three quarters of fiscal 2022 as a result of delayed seasonal product due to global supply chain disruption and extended size product discontinued at stores, and the decision to discontinue the Yeezy Gap business. This was partially offset by commodity price increases in the first half of fiscal 2023.
•Occupancy expenses increased 0.7 percentage points as a percentage of net sales in the first three quarters of fiscal 2023 compared with the first three quarters of fiscal 2022, primarily driven by a decrease in Comp Sales without a corresponding decrease in fixed occupancy expenses.
Operating Expenses
| | | | | | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended | | 39 Weeks Ended |
| ($ in millions) | October 28,
2023 | | October 29,
2022 | | October 28,
2023 | | October 29,
2022 |
| Operating expenses | $ | 1,306 | | | $ | 1,323 | | | $ | 3,757 | | | $ | 3,974 | |
| Operating expenses as a percentage of net sales | 34.7 | % | | 32.8 | % | | 35.5 | % | | 34.9 | % |
| Operating margin | 6.6 | % | | 4.6 | % | | 3.3 | % | | (0.3) | % |
Operating expenses decreased $17 million, but increased 1.9 percentage points as a percentage of net sales during the third quarter of fiscal 2023 compared with the third quarter of fiscal 2022, primarily due to a decrease in net sales as well as the following:
•a decrease in payroll expenses primarily due to operating model and structure changes partially offset by higher performance-based compensation; and
•a decrease in advertising expenses; partially offset by
•a gain of $83 million on sale of building during the third quarter of fiscal 2022.
Operating expenses decreased $217 million, but increased 0.6 percentage points as a percentage of net sales during the first three quarters of fiscal 20172023 compared with the first three quarters of fiscal 2016.
Cost of goods sold decreased1.2 percent as2022, primarily due to a percentage ofdecrease in net sales as well as the following:
•a decrease in advertising expenses;
•a decrease in technology-related investments;
•a gain on sale of building of $47 million that occurred during the first three quartersquarter of fiscal 2017 compared with the first three quarters of fiscal 2016,2023;
•a decrease in payroll expenses primarily driven by higher margins achieved as a result of improved average selling price per unit at all global brands,due to operating model and structure changes partially offset by higher average unit cost at all global brands.
performance-based compensation; andOccupancy expenses decreased0.4 percent as •a percentageloss on divestiture activity of net sales$35 million that occurred during the first three quarters of fiscal 2017 compared with the first three quarters of fiscal 2016, primarily driven by an increase in online sales without a corresponding increase in occupancy expenses and the closure of international stores in fiscal 2016, partially offset by real estate expenses incurred for new stores at the Times Square, New York location for Gap and Old Navy.
Operating Expenses
|
| | | | | | | | | | | | | | | |
| 13 Weeks Ended | | 39 Weeks Ended |
| ($ in millions) | October 28,
2017 | | October 29,
2016 | | October 28,
2017 | | October 29,
2016 |
| Operating expenses | $ | 1,147 |
| | $ | 1,104 |
| | $ | 3,224 |
| | $ | 3,249 |
|
| Operating expenses as a percentage of net sales | 29.9 | % | | 29.1 | % | | 29.1 | % | | 29.3 | % |
| Operating margin | 9.8 | % | | 10.2 | % | | 9.8 | % | | 8.0 | % |
Operating expenses increased $43 million, or 0.8 percent as a percentage of net sales, in the thirdsecond quarter of fiscal 2017 compared with the third quarter of fiscal 2016. The increase in operating expenses for the third quarter of fiscal 2017 compared with the third quarter of fiscal 2016 was primarily due2022 related to the following:
an increase in payroll-related expenses primarily driven by an increase in bonus expense; and
an increase in marketing and investments in digital and customer initiatives;transition of the Old Navy Mexico business; partially offset by
$36•restructuring expenses of $89 million of restructuring costs incurred in the third quarter of fiscal 2016; and
a decrease of $27 million of store asset impairment charges unrelated to restructuring activities.
Operating expenses decreased $25 million, or 0.2 percent as a percentage of net sales, during the first three quarters of fiscal 2017 compared with the first three quarters of fiscal 2016. The decrease in operating expenses for the first three quarters of fiscal 2017 compared with the first three quarters of fiscal 2016 was primarily due to the following:
$171 million of restructuring costs incurred during the first three quarters of fiscal 2016;2023 as a result of actions taken to simplify and optimize our operating model and structure; and
•a gain from insurance proceedson sale of $64building of $83 million related tothat occurred during the Fishkill fire recorded in the secondthird quarter of fiscal 2017; and2022.
a decrease of $18 million of store asset impairment charges unrelated to restructuring activities; partially offset by
an increase in payroll-related expenses primarily driven by an increase in bonus expense; and
an increase in marketing and investments in digital and customer initiatives.
Interest Expense
| | | 13 Weeks Ended | | 39 Weeks Ended | | 13 Weeks Ended | | 39 Weeks Ended |
| ($ in millions) | October 28,
2017 | | October 29,
2016 | | October 28,
2017 | | October 29,
2016 | ($ in millions) | October 28,
2023 | | October 29,
2022 | | October 28,
2023 | | October 29,
2022 |
| Interest expense | $ | 18 |
| | $ | 20 |
| | $ | 53 |
| | $ | 57 |
| Interest expense | $ | 28 | | | $ | 22 | | | $ | 66 | | | $ | 63 | |
Interest expense for the third quarter and the first three quarters of fiscal 2017 and fiscal 2016 primarily includes interest on overalloutstanding borrowings and obligations mainly related to our $1.25 billion 5.95 percentSenior Notes.
Interest Income
| | | | | | | | | | | | | | | | | | | | | | | |
| 13 Weeks Ended | | 39 Weeks Ended |
| ($ in millions) | October 28,
2023 | | October 29,
2022 | | October 28,
2023 | | October 29,
2022 |
| Interest income | $ | (28) | | | $ | (4) | | | $ | (58) | | | $ | (6) | |
Interest income increased $24 million during the third quarter of fiscal 2023 compared with the third quarter of fiscal 2022 and increased $52 million during the first three quarters of fiscal 2023 compared with the first three quarters of fiscal 2022 primarily due to higher cash balances and higher interest rates, as well as tax-related interest income.
Income Taxes
| | | 13 Weeks Ended | | 39 Weeks Ended | | 13 Weeks Ended | | 39 Weeks Ended |
| ($ in millions) | October 28,
2017 | | October 29,
2016 | | October 28,
2017 | | October 29,
2016 | ($ in millions) | October 28,
2023 | | October 29,
2022 | | October 28,
2023 | | October 29,
2022 |
| Income taxes | $ | 135 |
| | $ | 168 |
| | $ | 398 |
| | $ | 383 |
| Income taxes | $ | 32 | | | $ | (114) | | | $ | 21 | | | $ | (167) | |
| Effective tax rate | 37.1 | % | | 45.2 | % | | 38.2 | % | | 45.6 | % | Effective tax rate | 12.8 | % | | (67.9) | % | | 6.2 | % | | 174.0 | % |
The decreasechange in the effective tax rate for the third quarter and first three quarters of fiscal 20172023 compared with the third quarter and first three quarters of fiscal 2016 was2022 is primarily due to changes in the amount and jurisdictional mix of pre-tax earnings, the cumulative impact of a change in the Company's estimated annual effective tax rate recognized in the prior year, and a current year tax benefit from the impact of restructuring costs incurred for foreign subsidiaries during the third quarter of fiscal 2016 and resulting valuation allowances on certain foreign deferred tax assets. allowances.
The decreasechange in the effective tax rate for the first three quarters of fiscal 20172023 compared with the first three quarters of fiscal 2016 was partially offset by2022 is primarily due to changes in the amount and jurisdictional mix of pre-tax earnings, the cumulative impact of a change in the Company's estimated annual effective tax rate recognized in the prior year, and current year tax benefits from the impact of valuation allowances and a U.S. transfer pricing settlement related to our sourcing activities.
LIQUIDITY AND CAPITAL RESOURCES
In addition to our cash flows from operating activities, our primary sources of liquidity include cash and cash equivalents, our Senior Notes, and our ABL Facility. As of October 28, 2023, we had cash and cash equivalents of approximately $1.4 billion. We hold our cash and cash equivalents across a diversified set of reputable financial institutions and monitor the adoptioncredit standing of ASU No. 2016-09, Compensation - Stock Compensation: Improvementsthose financial institutions. In addition, we have issued $1.5 billion aggregate principal amount of our Senior Notes, and are also able to Employee Share-Based Payment Accounting in fiscal 2017.supplement near-term liquidity, if necessary, with our ABL Facility or other available market instruments. There were no borrowings under the ABL Facility as of October 28, 2023. See Note 25 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 inof this Form 10-Q, for additional disclosures on the adoption of the accounting standard.Senior Notes and ABL Facility.
LIQUIDITY AND CAPITAL RESOURCES
Our largest source of operating cash flows is cash collections from the sale of our merchandise. Our primary uses of cash include merchandise inventory purchases, lease and occupancy costs, personnel-related expenses, purchases of property and equipment, shipping costs, and payment of taxes. In addition, we may have dividend payments, debt repayments, and share repurchases. As of October 28, 2017, cash and cash equivalents were $1.4 billion, the majority of which was held in the United States and is generally accessible without any limitations.
We believe that current cash balances and cash flows from our operations will be sufficient to support our business operations, including growth initiatives and planned capital expenditures, for the next 12 months and beyond. We are also able to supplement near-term liquidity, if necessary,typically follows a seasonal pattern, with our $500 million revolving credit facility or other available market instruments.
Cash Flows from Operating Activities
Net cash provided by operating activitiessales peaking during the first three quarters of fiscal 2017 decreased $200 million compared with the first three quarters of fiscal 2016, primarily due to the following:
Net income
an increase of $187 million in net income.
Non-cash items
a decrease of $72 million related to store asset impairment charges during the first three quarters of fiscal 2017 compared with the first three quarters of fiscal 2016 primarily due to restructuring activities in fiscal 2016.
Changes in operating assets and liabilities
a decrease of $239 million related to accounts payable primarily due to the timing of lease payments and other non-merchandise payables;
a decrease of $123 million related to merchandise inventory primarily due to the volume and timing of receipts; and
a decrease of $56 million related to accrued expenses and other current liabilities in part due to the timing of severance payments as a result of fiscal 2016 restructuring activities; partially offset by
an increase of $108 million related to income taxes payable, net of prepaid and other tax-related items, primarily due to an increase in taxable income during the first three quarters of fiscal 2017 compared with the first three quarters of fiscal 2016 as well as the timing of tax payments.
Weend-of-year holiday period, we fund inventory expenditures during normal and peak periods through cash flows from operating activities and available cash. Our business follows a seasonal pattern, with sales peaking during the end-of-year holiday period. The seasonality of our operations, in addition to the impact of global economic conditions such as the uncertainty surrounding global inflationary pressures, acts of terrorism or war, global credit and banking markets, and new legislation, may lead to significant fluctuations in certain asset and liability accounts as well as cash inflows and outflows between fiscal year-end and subsequent interim periods.
Our voluntary SCF program provides certain suppliers with the opportunity to sell their receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. We are not a party to the agreements between our suppliers and the financial institutions and our payment terms are not impacted by whether a supplier participates in the SCF program. See Note 13 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on the Company's SCF program.
We believe our existing balances of cash and cash equivalents, along with our cash flows from operations, and instruments mentioned above, provide sufficient funds for our business operations as well as capital expenditures, dividends, and other liquidity requirements associated with our business operations over the next 12 months and beyond.
Cash Flows from Operating Activities
Net cash provided by operating activities was $832 million during the first three quarters of fiscal 2023 compared with $112 million of net cash used for operating activities during the first three quarters of fiscal 2022, primarily due to the following:
Net Income
•an increase in net income;
Changes in operating assets and liabilities
•an increase of $636 million related to accounts payable primarily due to the timing of payments for inventory during the first three quarters of fiscal 2023 compared with the first three quarters of fiscal 2022; and
•an increase of $112 million related to accrued expenses and other current liabilities primarily due to lower bonus payments during the first three quarters of fiscal 2023 compared with the first three quarters of fiscal 2022; partially offset by
•a decrease of $166 million related to income taxes payable, net of receivables and other tax-related items, primarily due to receipt of tax refunds during the first three quarters of fiscal 2022 related to fiscal 2020 net operating loss carryback claims.
Cash Flows from Investing Activities
Net cash used for investing activities increased $84 million during the first three quarters of fiscal 2017 increased $22 million2023 compared with the first three quarters of fiscal 2016,2022, primarily due to the following:
•$80 million more in property and equipment purchases including purchases related to the rebuilding of the Company’s Fishkill, New York distribution center campus; offset by
$6076 million in insurancenet proceeds allocated to loss onfrom the sale of a building during the first three quarters of fiscal 2023 compared with $458 million in net proceeds from the sale of buildings during the first three quarters of fiscal 2022; partially offset by
•$289 million less purchases of property and equipment during the first three quarters of fiscal 2017 related to the Fishkill fire2023 compared with no insurance proceeds allocated during the first three quarters of fiscal 2016.2022, largely due to rationalizing our technology investments.
Cash Flows from Financing Activities
Net cash used for financing activities was $516 million during the first three quarters of fiscal 2017 increased $3642023 compared with $60 million compared withof net cash provided by financing activities during the first three quarters of fiscal 2016,2022, primarily due to the following:
•$300350 million from the ABL Facility that was borrowed during the first three quarters of cash used forfiscal 2022 and repaid during the first three quarters of fiscal 2023; partially offset by
•$123 million in repurchases of common stock during the first three quarters of fiscal 20172022 compared with no repurchases of common stock during the first three quarters of fiscal 2016; and
$67 million related to the repayment of the Japan Term Loan in full in June 2017.
2023.
Free Cash Flow
Free cash flow is a non-GAAP financial measure. We believe free cash flow is an important metric because it represents a measure of how much cash a company has available for discretionary and non-discretionary items after the deduction of capital expenditures as weexpenditures. We require regular capital expenditures to buildincluding technology improvements as well as building and maintainmaintaining our stores and purchase new equipment to improve our business.distribution centers. We use this metric internally, as we believe our sustained ability to generate free cash flow is an important driver of value creation. However, this non-GAAP financial measure is not intended to supersede or replace our GAAP results. Free cash flow for the first three quarters of fiscal 2017 is further adjusted for insurance proceeds allocated to loss on property and equipment, as our cash used for purchases of property and equipment for the first three quarters of fiscal 2017 includes certain capital expenditures related to the rebuilding of the Company-owned distribution center which was impacted by the Fishkill fire.
The following table reconciles free cash flow, a non-GAAP financial measure, from a GAAP financial measure.
|
| | | | | | | |
| | 39 Weeks Ended |
| ($ in millions) | October 28,
2017 | | October 29,
2016 |
| Net cash provided by operating activities | $ | 600 |
| | $ | 800 |
|
| Less: Purchases of property and equipment | (463 | ) | | (383 | ) |
| Add: Insurance proceeds related to loss on property and equipment | 60 |
| | — |
|
| Free cash flow | $ | 197 |
| | $ | 417 |
|
Debt and Credit Facilities
Certain financial information about the Company’s debt and credit facilities is set forth under the heading “Debt and Credit Facilities” in Note 3 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
| | | | | | | | | | | |
| | 39 Weeks Ended |
| ($ in millions) | October 28,
2023 | | October 29,
2022 |
| Net cash provided by (used for) operating activities | $ | 832 | | | $ | (112) | |
| Less: Purchases of property and equipment | (288) | | | (577) | |
| | | |
| Free cash flow | $ | 544 | | | $ | (689) | |
Dividend Policy
In determining whether and at what level to declare a dividend, we consider a number of factors including sustainability, operating performance, liquidity, and market conditions.
We paid a dividend of $0.23$0.15 per share during each of the first three quartersthird quarter of fiscal 2017 and fiscal 2016. Including2023. In November 2023, the dividend paid during the first three quarters of fiscal 2017 of $0.69 per share, we intend to pay an annualBoard authorized a dividend of $0.92$0.15 per share for the fourth quarter of fiscal 2017, consistent with the annual dividend for fiscal 2016.2023.
Share Repurchases
Certain financial information about the Company’s share repurchases is set forth under the heading “Share Repurchases” in Note 68 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Summary Disclosures about Contractual Cash Obligations and Commercial Commitments
There have been no material changes to our contractual obligations and commercial commitments as disclosed in our Annual Report on Form 10-K as of January 28, 2017,2023, other than those which occur in the normal course of business. See Note 1110 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on commitments and contingencies.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.2023. See Note 1 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on accounting policies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk. | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Our market risk profile as of January 28, 20172023 is disclosed in our Annual Report on Form 10-K and has not significantly changed.changed other than as noted below. See Notes 3, 4,5, 6, and 57 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on our debt and credit facilities, investments, and derivative financial instruments.
On March 27, 2023, Moody's downgraded our corporate credit rating from Ba2 to Ba3 with a negative outlook and downgraded the rating of our Senior Notes from Ba3 to B1 with a negative outlook. These reductions and any future reduction in our credit ratings could result in an increase to our interest expense on future borrowings.
25
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Item 4. | Controls and Procedures. |
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act Rule 13a-15(e))of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting that occurred during the Company’s third quarter of fiscal 20172023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company reviews its internal control over financial reporting following major organizational restructuring. The impact of the Plan on the Company's internal control over financial reporting has been assessed and will continue to be monitored throughout the fiscal year. See Note 3 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on the Plan.
PART II – OTHER INFORMATION
| |
Item 1. | Legal Proceedings. |
Item 1. Legal Proceedings.
As a multinational company, we are subject to various proceedings, lawsuits, disputes, and claims ("Actions") arising in the ordinary course of our business. Many of these Actions raise complex factual and legal issues and are subject to uncertainties. Actions filed against us from time to time include commercial, intellectual property, customer, employment, securities, and data privacy claims, including class action lawsuits. The plaintiffs in some Actions seek unspecified damages or injunctive relief, or both. Actions are in various procedural stages, and some are covered in part by insurance.
We cannot predict with assurance the outcome of Actions brought against us. Accordingly, developments, settlements, or resolutions may occur and impact incomeoperations in the quarter of such development, settlement, or resolution. However, we do not believe that the outcome of any current Action would have a material effect on our financial results.
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.2023, other than as updated in Part II, Item 1A of our Quarterly Report on Form 10-Q for the fiscal quarter ended April 29, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
The following table presents information with respectIn February 2019, the Board approved a $1.0 billion share repurchase authorization, which has no expiration date. There were no shares repurchased, other than shares withheld to purchasessettle employee statutory tax withholding related to the vesting of common stock of the Company madeunits, during the thirteen13 weeks endedOctober 28, 2017 by2023. The February 2019 repurchase program had $476 million remaining as of October 28, 2023.
Item 5. Other Information
During the 13 weeks ended October 28, 2023, none of our directors or Section 16 officers adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as those terms are defined in Item 408(a) of Regulation S-K, except as follows:
On August 29, 2023, Julie Gruber, Chief Legal and Compliance Officer and Corporate Secretary, adopted a trading plan intended to satisfy the affirmative defense of Rule 10b5-1(c) to sell up to 417,892 shares of Gap Inc. common stock. Unless otherwise terminated pursuant to its terms, the plan will terminate on March 14, 2025 or any affiliated purchaser, as defined in Exchange Actwhen all shares under the plan are sold.
On August 28, 2023, Katrina O’Connell, Chief Financial Officer, adopted a trading plan intended to satisfy the affirmative defense of Rule 10b-18(a)(3):10b5-1(c) to sell up to 471,700 shares of Gap Inc. common stock. Unless otherwise terminated pursuant to its terms, the plan will terminate on August 28, 2024 or when all shares under the plan are sold.
|
| | | | | | | | | | | | | |
| | Total Number of Shares Purchased (1) | | Average Price Paid Per Share Including Commissions | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or approximate dollar amount) of Shares that May Yet be Purchased Under the Plans or Programs (2) |
| Month #1 (July 30 - August 26) | 539,800 |
| | $ | 23.15 |
| | 539,800 |
| | $ | 788 | million |
| Month #2 (August 27 - September 30) | 2,249,992 |
| | $ | 26.66 |
| | 2,249,992 |
| | $ | 728 | million |
| Month #3 (October 1 - October 28) | 963,538 |
| | $ | 28.57 |
| | 963,538 |
| | $ | 700 | million |
| Total | 3,753,330 |
| | $ | 26.64 |
| | 3,753,330 |
| | |
__________
| |
(1) | Excludes shares withheld to settle employee statutory tax withholding related to the vesting of stock units. |
| |
(2) | On February 25, 2016, we announced that the Board of Directors approved a $1 billion share repurchase authorization, which has no expiration date. |
|
| | |
10.1 | | Agreement with Shawn Curran dated September 29, 2017 and confirmed on October 5, 2017. (1) |
31.1 | | Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer of The Gap, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002). (1) |
31.2 | | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of The Gap, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002). (1) |
32.1 | | Certification of the Chief Executive Officer of The Gap, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (2) |
32.2 | | Certification of the Chief Financial Officer of The Gap, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (2) |
101 | | The following materials from The Gap, Inc.’s Quarterly Report on Form 10-Q for the quarter ended October 28, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements. (1) |
Item 6. Exhibits.__________
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
| Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | | Filed/
Furnished
Herewith |
| 3.1 | | Amended and Restated Certificate of Incorporation (P) | | 10-K | | 1-7562 | | 3.1 | | April 26, 1993 | | |
| | Certificate of Amendment of Amended and Restated Certificate of Incorporation | | 10-K | | 1-7562 | | 3.2 | | April 4, 2000 | | |
| | Amended and Restated Bylaws (effective August 15, 2022) | | 10-Q | | 1-7562 | | 3.3 | | August 26, 2022 | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Amendment, dated August 17, 2023, to Letter Agreement dated August 1, 2022 by and between Bob L. Martin and the Registrant | | | | | | | | | | X |
| | Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer of The Gap, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002) | | | | | | | | | | X |
| | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of The Gap, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002) | | | | | | | | | | X |
| | Certification of the Chief Executive Officer of The Gap, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | | | | | X |
| | Certification of the Chief Financial Officer of The Gap, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | | | | | X |
| 101 | | The following materials from The Gap, Inc.’s Quarterly Report on Form 10-Q for the quarter ended October 28, 2023, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Stockholders' Equity; (v) the Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements | | | | | | | | | | X |
| 104 | | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) | | | | | | | | | | X |
_____________________________
(P) This Exhibit was originally filed in paper format. Accordingly, a hyperlink has not been provided.
†Indicates management contract or compensatory plan or arrangement.
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 thereunto duly authorized.
| | | | | | | | | | | |
| | THE GAP, INC. |
| | | |
| Date: | November 21, 2023 | THE GAP, INC.By | /s/ Richard Dickson |
| | | Richard Dickson |
Date: | November 22, 2017 | By | /s/ Arthur Peck |
| | | Arthur Peck |
| | | President and Chief Executive Officer |
| | | (Principal Executive Officer) |
Date: | November 22, 2017 | By | /s/ Teri List-Stoll |
| Date: | November 21, 2023 | By | Teri List-Stoll/s/ Katrina O'Connell |
| | | Katrina O'Connell |
| | | Executive Vice President and Chief Financial Officer |
Exhibit Index
|
| | |
| | |
| | Agreement with Shawn Curran dated September 29, 2017(Principal Financial and confirmed on October 5, 2017. (1) |
| | Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer of The Gap, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002). (1) |
| | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of The Gap, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002). (1) |
| | Certification of the Chief Executive Officer of The Gap, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (2) |
| | Certification of the Chief Financial Officer of The Gap, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (2) |
101 | | The following materials from The Gap, Inc.’s Quarterly Report on Form 10-Q for the quarter ended October 28, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements. (1)
Accounting Officer) |
_____________________________