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GAP INC. FISCAL 2018 FIRST QUARTER EARNINGS RESULTS ART PECK PRESIDENT & CHIEF EXECUTIVE OFFICER TERI LIST-STOLL EXECUTIVE VICE PRESIDENT & CHIEF FINANCIAL OFFICER
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DISCLOSURE STATEMENT FORWARD LOOKING STATEMENTS This conference call and webcast contain forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. All statements other than those that are purely historical are forward-looking statements. Forward-looking statements include statements identified as such in our May 24, 2018 press release. 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. Information regarding factors that could cause results to differ can be found in our May 24, 2018 earnings press release, our Annual Report on Form 10-K for the fiscal year ended February 3, 2018, and our subsequent filings with the U.S. Securities and Exchange Commission, all of which are available on gapinc.com. These forward-looking statements are based on information as of May 24, 2018. 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. SEC REGULATION G This presentation includes the non-GAAP measure free cash flow. The description and reconciliation of this measure from GAAP is included in our May 24, 2018 earnings press release, which is available on gapinc.com. 2
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Q1 2018 HIGHLIGHTS: GAP INC. COMP SALES 7% 1 Year Comps 2 Year Comps 7% 5% 5% 3% 3% 3% 2% 2% 1% 1% 1% 0% -1% -2% -3% -4% -5% -6% Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 6 consecutive quarters of positive comparable sales 3
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Q1 2018 HIGHLIGHTS: U.S. STORES TRAFFIC TRENDS Q2’17 Q3’17 Q4’17 Q1’18 + + + _ : Beat to industry traffic : Miss to industry traffic + : Positive traffic 4
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Q1 2018 HIGHLIGHTS: ONLINE SALES GROWTH Gap Inc. Online Sales Growth Rate 30% 15% 0% Q1 2016 Q1 2018 Continued strength in online sales Note: Online sales includes both sales through our online channels as well as ship-from-store sales. Table above includes impacts from 53rd week in Q4’17, calendar shift in Q1’18, and the adoption of ASC 606 in Q1’18. 5
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Q1 P&L SUMMARY IN MILLIONS Q1 2018 Without Q1 2018 Without Q1 2018 Q1 2017 Adoption of ASC 606 Adoption of ASC 606 vs. Q1 2017 NET SALES $3,783 $3,642 $3,440 +6% COMP 1% 1% 2% GROSS PROFIT $1,427 $1,336 $1,303 +3% % 37.7% 36.7% 37.9% (120bps) MERCHANDISE MARGIN B/(W) LY (140bps) (180bps) +220bps ROD % OF SALES B/(W) LY +120bps +60bps +50bps OPERATING EXPENSES $1,198 $1,106 $1,049 +5% % 31.7% 30.4% 30.5% +10bps OPERATING INCOME $229 $230 $254 (9%) % 6.1% 6.3% 7.4% (110bps) NET INCOME $164 165 $143 +15% DILUTED EPS $0.42 $0.42 $0.36 +17% 6
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ASC 606 ADOPTION IMPACT ON Q1 2018 IN MILLIONS 13 WEEKS ENDED MAY 5, 2018 BALANCES WITHOUT AS REPORTED ADJUSTMENTS ADOPTION of ASC 606 NET SALES $3,783 $(141) $3,642 COST OF GOODS SOLD AND OCCUPANCY EXPENSES 2,356 (50) 2,306 GROSS PROFIT 1,427 (91) 1,336 OPERATING EXPENSES 1,198 (92) 1,106 OPERATING INCOME 229 1 230 INTEREST, NET 10 - 10 INCOME BEFORE INCOME TAXES 219 1 220 INCOME TAXES 55 - 55 NET INCOME $164 $1 $165 7
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Q1 2018: ADDITIONAL METRICS $1.4 billion $138 million Q1 2018 ending Q1 2018 capital cash, cash expenditures equivalents, and short-term investments $194 million +4% Q1 2018 Year-over-year distributions to inventory shareholders growth at the through share end of Q1 2018 repurchases and dividends
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FISCAL 2018 OUTLOOK AS OF MAY 24, 2018 Full Fiscal Year 2018 Reported Diluted Earnings per Share $2.55 - $2.70 Comp Sales Flat to up slightly Net Company-Operated Store Openings About 25 Capital Expenditures About $800 million Effective Tax Rate About 26% Share Repurchases About $400 million 9
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