Exhibit 99.1
Gap Inc. Reports Second Quarter Sales Up 1 Percent; Earnings Per Share of $0.06
SAN FRANCISCO—August 15, 2002—Gap Inc. (NYSE:GPS) today reported sales and earnings for the second quarter which ended August 3, 2002.
Net sales for the second quarter increased one percent to $3.3 billion compared to $3.2 billion for the second quarter last year. Comparable store sales decreased 7 percent versus a 9 percent decrease during the same period last year.
The company reported second quarter diluted earnings per share of $0.06 versus $0.10 the prior year. Net earnings for the second quarter decreased 37 percent to $57 million compared with $90 million last year.
“Although our business is currently pressured by continued negative traffic trends, we believe we’ve achieved much of what we set out to do strategically in the first half of the year, “ said Gap Inc. President and CEO Millard Drexler. “The foundation is in place for ongoing improvement at each of our brands. Our merchandise now reflects the quality and style our customers expect from us. Old Navy once again stands for fun, fashion and value for the whole family, Banana Republic is focused on casual luxury and Gap has simple, classic style for every generation.”
Store Sales Results By Division
The company’s second quarter comparable store sales by division were as follows:
| | • | | Gap Domestic had negative 13% versus a negative 8% last year. |
| | • | | Gap International had negative 12% versus a negative 6% last year. |
| | • | | Banana Republic had negative 5% versus a negative 4% last year. |
| | • | | Old Navy had negative 1% versus negative 14% last year. |
Total sales for the second quarter in each division were:
| | • | | Gap Domestic: $1.1 billion this year versus $1.2 billion last year |
| | • | | Gap International: $374 million this year versus $388 million last year |
| | • | | Banana Republic: $465 million this year versus $463 million last year |
| | • | | Old Navy: $1.3 billion this year versus $1.2 billion last year |
Commenting on current sales, CFO Heidi Kunz said, “So far this month, we have not seen an improvement in the traffic trends that we and other retailers began seeing in the second half of July. The retail environment also continues to be very promotional. As a result, our beginning of month sales are somewhat short of projections. But each brand is responding aggressively in the second half of the month with strategic promotional events and marketing to drive more business.”
Quarterly sales by division dating back to fiscal 2000, are now available on gapinc.com and will be updated as reported each quarter.
Real Estate Growth
The chart below shows Gap Inc.’s real estate growth by concept, location and square footage. Gap brand store count is based on concepts definition, which means that any Gap Adult, GapKids, babyGap or GapBody that meet a certain square footage threshold are counted as a store even when residing within a single physical location.
Store count by concept, location and square footage at second quarter end for 2002 and 2001 were as follows:
| | | August 3, 2002
| | August 4, 2001
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| | | Number of Stores by Concept
| | Number of Stores by Location
| | Sq. Ft. (millions)
| | Number of Stores by Concept
| | Number of Stores by Location
| | Sq. Ft. (millions)
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| Gap Domestic | | 2,323 | | 1,484 | | 13.3 | | 2,201 | | 1,488 | | 12.6 |
| Gap International | | 656 | | 373 | | 3.6 | | 594 | | 355 | | 3.3 |
| Banana Republic | | 440 | | 440 | | 3.7 | | 430 | | 430 | | 3.5 |
| Old Navy | | 842 | | 842 | | 16.8 | | 748 | | 748 | | 15.0 |
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Total | | 4,261 | | 3,139 | | 37.4 | | 3,973 | | 3,021 | | 34.4 |
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Webcast and Conference Call Information
Heidi Kunz, Executive Vice President and Chief Financial Officer, will host a summary of Gap Inc.’s second quarter results in a live conference call and real-time webcast at approximately 5:00 pm Eastern Time today. Ms. Kunz will be joined by Millard Drexler, CEO & President, John Lillie, Vice Chairman, Maureen Chiquet, newly appointed President of Banana Republic, Jenny Ming, President of Old Navy, Gary Muto, newly appointed President of Gap and Marka Hansen, Executive Vice President of Gap to discuss details on the business. To access the conference call, please dial (800) 374-0168. International callers may dial (706) 634-0994. The webcast is located on the Conference Calls & Webcast page in the Financials & Media section of gapinc.com. Replay of this event will be made available on gapinc.com and (800) GAP-NEWS for three weeks after this announcement.
Investor Relations: | | Media Relations: |
| Michelle Weaver | | Alan Marks |
| (650) 874-7780 | | (415) 427-6561 |
Forward-Looking Statements
The information made available on this press release, conference call and webcast contain certain forward-looking statements which reflect Gap Inc.’s current view of future events and financial performance. Wherever used, the words “expect,” “plan,” “anticipate,” “believe,” “may” and similar expressions identify forward-looking statements. Any such forward-looking statements are subject to risks and uncertainties and the company’s future results of operations could differ materially from historical results or current expectations. Some of these risks include, without limitation, ongoing competitive pressures in the apparel industry, risks associated with challenging domestic and international retail environments, changes in the level of consumer spending or preferences in apparel, trade restrictions and political or financial instability in countries where the company’s goods are manufactured and/or other factors that may be described in the company’s annual report on Form 10-K and/or other filings with the Securities and Exchange Commission. Future economic and industry trends that could potentially impact revenues and profitability are difficult to predict. The company assumes no obligation to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
Gap Inc. Copyright Information
All recordings made on 800-GAP-NEWS have been recorded on behalf of Gap Inc. and consist of copyrighted material. They may not be re-recorded, reproduced, retransmitted or rebroadcast without Gap Inc.’s express written permission. Your participation represents your consent to these terms and conditions, which are governed under California law.
GAP INC.
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | August 3, 2002
| | August 4, 2001
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$000 | | | | |
ASSETS | | | | | | |
| Current Assets | | | | | | |
| Cash and equivalents | | $ | 2,386,829 | | $ | 722,952 |
| Merchandise inventory | | | 1,853,726 | | | 2,149,223 |
| Prepaid expenses and other | | | 342,658 | | | 396,371 |
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| Total Current Assets | | | 4,583,213 | | | 3,268,546 |
| Property and equipment, net | | | 4,007,674 | | | 4,221,567 |
| Lease rights and other assets | | | 406,727 | | | 358,484 |
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| Total Assets | | $ | 8,997,614 | | $ | 7,848,597 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
| Current Liabilities | | | | | | |
| Notes payable | | $ | — | | $ | 691,670 |
| Current maturities of long-term debt | | | 500,000 | | | 250,000 |
| Accounts payable | | | 882,086 | | | 1,081,819 |
| Accrued expenses and other current liabilities | | | 877,730 | | | 763,625 |
| Income taxes payable | | | 137,471 | | | — |
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| Total Current Liabilities | | | 2,397,287 | | | 2,787,114 |
| Long-Term Liabilities | | | | | | |
| Long-term debt | | | 2,873,132 | | | 1,268,036 |
| Deferred lease credits and other liabilities | | | 563,570 | | | 544,618 |
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| Total Long-Term Liabilities | | | 3,436,702 | | | 1,812,654 |
| Shareholders’ Equity | | | 3,163,625 | | | 3,248,829 |
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| Total Liabilities and Shareholders’ Equity | | $ | 8,997,614 | | $ | 7,848,597 |
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GAP INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
| | | Thirteen Weeks Ended
| | | Twenty-six Weeks Ended
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($000 except share and per share amounts) | | August 3, 2002
| | | % to Sales
| | | August 4, 2001
| | | % to Sales
| | | August 3, 2002
| | | % to Sales
| | | August 4, 2001
| | | % to Sales
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| Net sales | | $ | 3,268,309 | | | 100.0 | % | | $ | 3,245,219 | | | 100.0 | % | | $ | 6,159,149 | | | 100.0 | % | | $ | 6,424,875 | | | 100.0 | % |
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| Costs and expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of goods sold and occupancy expenses | | | 2,177,774 | | | 66.6 | % | | | 2,204,137 | | | 67.9 | % | | | 4,189,536 | | | 68.0 | % | | | 4,258,619 | | | 66.3 | % |
| Operating expenses | | | 922,080 | | | 28.2 | % | | | 872,772 | | | 26.9 | % | | | 1,688,497 | | | 27.4 | % | | | 1,793,184 | | | 27.9 | % |
| Interest expense | | | 66,964 | | | 2.1 | % | | | 28,863 | | | 0.9 | % | | | 115,081 | | | 1.9 | % | | | 52,901 | | | 0.8 | % |
| Interest income | | | (9,843 | ) | | (0.3 | )% | | | (1,893 | ) | | (0.1 | )% | | | (17,216 | ) | | (0.3 | )% | | | (3,028 | ) | | (0.0 | )% |
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| Earnings before income taxes | | | 111,334 | | | 3.4 | % | | | 141,340 | | | 4.4 | % | | | 183,251 | | | 3.0 | % | | | 323,199 | | | 5.0 | % |
| Income taxes | | | 54,554 | | | 1.7 | % | | | 51,589 | | | 1.6 | % | | | 89,793 | | | 1.5 | % | | | 117,968 | | | 1.8 | % |
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| Net earnings | | $ | 56,780 | | | 1.7 | % | | $ | 89,751 | | | 2.8 | % | | $ | 93,458 | | | 1.5 | % | | $ | 205,231 | | | 3.2 | % |
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| Weighted average number of shares—basic | | | 869,518,765 | | | | | | | 859,671,047 | | | | | | | 868,102,226 | | | | | | | 857,002,238 | | | | |
| Weighted average number of shares—diluted | | | 876,609,916 | | | | | | | 883,662,826 | | | | | | | 875,306,720 | | | | | | | 879,933,693 | | | | |
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| Earnings per share—basic | | $ | 0.07 | | | | | | $ | 0.10 | | | | | | $ | 0.11 | | | | | | $ | 0.24 | | | | |
| Earnings per share—diluted | | $ | 0.06 | | | | | | $ | 0.10 | | | | | | $ | 0.11 | | | | | | $ | 0.23 | | | | |
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| Number of stores open at end of period | | | | | | | | | | | | | | | | | 4,261 | | | | | | | 3,973 | | | | |
| Total square footage at end of period | | | | | | | | | | | | | | | | | 37,377,352 | | | | | | | 34,381,444 | | | | |
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GAP INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | 26 Weeks Ended August 3, 2002
| | | 26 Weeks Ended August 4, 2001
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($000) | | | |
| Cash Flows from Operating Activities: | | | | | | | | |
| Net earnings | | $ | 93,458 | | | $ | 205,231 | |
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | |
| Depreciation and amortization | | | 389,082 | | | | 382,383 | |
| Tax benefit from exercise of stock options and vesting of restricted stock | | | 7,858 | | | | 48,469 | |
| Loss on disposal of property & equipment | | | 11,471 | | | | 6,003 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Merchandise inventory | | | (164,667 | ) | | | (252,042 | ) |
| Prepaid expenses and other | | | 6,963 | | | | (70,051 | ) |
| Accounts payable | | | (229,153 | ) | | | 18,211 | |
| Accrued expenses and other | | | 45,436 | | | | 102,952 | |
| Income taxes payable | | | 52,951 | | | | (17,824 | ) |
| Deferred lease credits and other long-term liabilities | | | (3,446 | ) | | | 25,337 | |
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| Net cash provided by operating activities | | | 209,953 | | | | 448,669 | |
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| Cash Flows from Investing Activities: | | | | | | | | |
| Purchase of property and equipment | | | (184,452 | ) | | | (594,392 | ) |
| Acquisition of lease rights and other assets | | | 1,638 | | | | (4,995 | ) |
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| Net cash used for investing activities | | | (182,814 | ) | | | (599,387 | ) |
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| Cash Flows from Financing Activities: | | | | | | | | |
| Net (decrease)/increase in notes payable | | | (41,942 | ) | | | (86,087 | ) |
| Proceeds from issuance of long-term debt | | | 1,345,500 | | | | 495,886 | |
| Issuance of common stock | | | 43,330 | | | | 99,278 | |
| Cash dividends paid | | | (38,533 | ) | | | (38,029 | ) |
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| Net cash provided by financing activities | | | 1,308,355 | | | | 471,048 | |
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| Effect of exchange rate fluctuations on cash | | | 15,586 | | | | (6,172 | ) |
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| Net increase in cash and equivalents | | | 1,351,080 | | | | 314,158 | |
| Cash and equivalents at beginning of year | | | 1,035,749 | | | | 408,794 | |
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| Cash and equivalents at end of quarter | | $ | 2,386,829 | | | $ | 722,952 | |
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