GPS - Earnings call transcript Q1 2018

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good afternoon, ladies and gentlemen. My name is Lisa, and I will be your conference operator today. At this time, I'd like to welcome everyone, to The Gap, Inc.

First Quarter 2018 Conference Call. At this time, all participants are in a listen-only mode [Operator Instructions].

limit to please [Operator per reminder, Instructions]. a your one questions participant As like host, introduce of would to I now your Investor Tina Relations. Director Romani, Please ahead Tina. go

Tina Romani

Good quarter Inc.'s afternoon, to conference earnings call. first everyone. Welcome XXXX Gap,

begin, available this statements. made we the contains conference on I'd you webcast remind Before that to information call and forward-looking like

based measures, Page on information from cause and recent most forward-looking information XX, of May as and of statements, our subsequent are could our of the please as filings we Form the supplementing XXXX, obligation the reconciliations results Teri’s to statements. description on assume Annual as actual earnings refer For revise as are our XX-K or which and These our that as non-GAAP publicly slides the on Report to on forward-looking gapinc.com. financial update well well X press available factors of all materially to noted as SEC, on remarks, no differ release, with today's statements forward-looking

on me and President Teri and CFO, and today the are Peck President Vice List-Stoll. Executive CEO, Art call Joining

Investors I at will be using the which you slides gapinc.com. As can view mentioned, going to supplement our by to we remarks, sections

team Relations always, the after like for the call questions. be As Investor With turn call will over available the further to I'd that, to Art.

Art Peck

pleased and Good comp. us Gap report to am sixth for Inc.’s afternoon, quarter I thanks positive everyone, today. consecutive of joining

growth commitments before as get as our work and do challenges we have we still want the face we our again to I to over will to into during I will, course, But balanced over always some strategy. Of I did that, quarter. reiterate and

in on the space. value active and growth focused We’re

real foot responsibly rationalize to continue store in We specialty our estate.

beginning billion channel. and online are we’ll and a $X the unlock for our customer across in enhancing investing our brand the across us assets growing. data enterprise, of We're our that and across to value is mobile and productivity business We channels,

positioned our brands. well as and on a company, our We’re intrinsic iconic and platform strengths our course, scale, our unique of

let’s weather. cold of has year. quarter weather. brands with we’ve We of when all of another they before March that quarter. that two-year and other we to Looking missteps turned the positively brand. in half, did categories of carryover a weather the said, it's pressure operational have strength dramatic and important due our the to first continue to turn the in We talked about in take quarter, first specifics Gap saw I to at we first in That through largely from the met quarter continued We expected the brand slight some due see the Old exceeded saw and see Gap discussed expectations in trends despite we Teri we this seen year. you the year improvement remain drag of you brand. confident know will in April, this in took moment, Navy our late last in fiscal a the broad-based had the into the The to stack confident performance or to XX. action. problem, Nearly second but accounts

Navy, to We seeing we on Old stores remodels customer to history. Old opened brand’s response nine Navy having year. and Navy that over For Old in comp categories positive over in with we’re the nearly are the biggest of in XX XX this fleet. track Denim done our quarter saw very stores we’ve growth goal the all reach And

to you to turn Banana, I Banana. would like and Turning to

that cleaner, the of clear edited view. encouraged business very better of are the point performance. Mark’s assortments have brand Under brand's by into development been momentum has We and the brand the leadership, a the of appropriate leaning

yarns significant quality to as lift Banana sourcing sweaters, as the fashion. innovation We’ve customer our bottoms of in response continued investing favorable increasing productivity quarter. through and strength and in the fabrics materially and has strategic without favorable categories, customer other to dresses seeing response well loyalty see during also in initiatives. to the in We’re AUC been product and

a with this. and and we’ll the the driving upside say the sized remains believe that team gem, in believe this portfolio, Banana strong and this and is momentum pleased hope at gem remains very We’re on I I this progress At that portfolio. growth. brand, in say focused has with our in quarter another we And underappreciated. which continue to consistency We I saw becoming our double-digit nicely Athleta,

I matters on performance, we to go our to accountability build Certification Corp responsibility. solid rigorous and underline become something talk is forward. we and B that addition across we’ll subsidiary proud this, social This makes believe that to identity as matter? step social brand has to benefit Athleta this This we’ve this Why critical certified. or retail B significant environmental mission apparel engagement. team, growth taken the a want of strong about meeting largest certified Athleta’s standards requires In transparency. of continue a Gap this continue I publicly because Inc. a very that brand does the brand the strong very component I'm of Corp U.S. and company forward. is because brand. and with traded proud

she financial Teri. to provide Now, highlights Terry specifics I’ll will key some over throughout turn the it business. around and

Teri List-Stoll

afternoon. good and Art Thanks

some heard positive largely weather. like predictable snowy comments, challenges, face did unseasonably pleased cold like present we were of were some brand from quarter you As less In the sixth quarter were and our issues and operating to the report Art’s this, of other comps. expected Gap consecutive

strategy, the about business, outlook for good allows our momentum the maintain very to and the the year. feel to balanced us which underlying of growth continue We

gross Gap margin issue drove the majority that to the For of quarter brand the the leverage.

gaps the for significant summer over long positive that processes you while Gap The customers spring As been over know, changes has have not people rather last heading and changes challenges of into inventory is issues, to acceptance the season. of confident but root over talked categories. On And the about run, these year, of lack as steps margin assortment to in impacted breath gross some on there of both miss QX, which product and brand significant call, the heavy improvements inventory Gap undergoing around been operational brand and expected. steps and timing operating prove time. we’re being cause we model the will past be quarter’s the received,

on the some to the of the In receipt had addition, optimize and the timing ability we margin. offer Throughout issues the flows problem. compounded flow that inventory time affected quarter,

in issues margin We’re addressing the the quarter. that affected

we the to We shape. expect pressure to back in degree same experienced QX, as we’ve much better the continue but not half moved to aggressively in QX, enter into already

strategic During through some the we clear to made inventory quarter, aggressively decisions sell-off.

We planned we proactively also half. cut back incurred CCs some originally the expense as for

in it does rate in cleaner up half. the QX While these negatively actions back stores set and better inventory for the impacted quarter, us positioning margin for

February, prior accountability re-instilling an appointment for been organization. Now he discipline to we’ve operations operational is momentum issues. experience, the announced with In we and leadership seeing these and to an operating across of ship excellent ride interim job leader with some gain doing second half and the we the team we’re most importantly, the Gap brand extensive ensure the

results an we And line be as me impactful it So of And quarter comes the expected the the but of from the income this income I’d the of classified reminder, P&L. to revenue offset and our our to adoption this adoption include recognition But was will as standards. card in under The presenting a now, isn’t first our and new are the note performance. from income most program. let items rules, to our reported impact the sales. SG&A COGs. certain like in historically, quarter recognition the significant impact credit related turn earnings, loyalty And to change to first to classification

increase as resulted operating million the sales, our well XXXX increase increase release of section in earnings change question. on quarter, a adoption. and call of million to without $XXX first of our will included with Both press the in gross million to expenses. be can For impacts a the investor any and as that to the after table course slide the available $XX with we’ve modeling details $XX found gapinc.com accounting an QX of To in help results quarterly an and be be in presentation from helpful, net margin,

in to the compared start the So Company’s QX X, to XXXX, sales. me with are X%. XXXX May XXXX. basis, up were week ended Due week year for fiscal period consistency, XXrd let XX sales our comp for comparable XXXX this On sales QX

of comp marking positive consecutive sales. As I quarter the said, sixth

in weather should to impacted the be we winter impact the assume been has in years and the XX quantified negatively but reported April the quarter. haven’t on what in after quarter, several Now, coldest years, weather snowy the

heads off unseasonable, weather you expect, the where performance. would Northeast, was particularly As to

from little Our the net over standard, were comp basis, On than the a growth created of by the XXrd $X.X was point half due rev new QX sales sales sales X% the and this When of in net calendar the week more about the the for excluding the represents adoption this spread of billion. rack XXXX. quarter growth shift to impact between XXXX. of impacts five

full in this larger February reminder, small a week more in a year’s quarter a priced As dropped and May. week first selling

despite Navy positive eight. strong Now Old very last throughout colder year’s comps at brand unseasonably weather quarter, level, three the plus against the delivered

its positive all AUR broad and share Navy as We solidifies another as top market quarter to based categories, are Old a of pleased apparel continues to grow see brand. across and position strength

for focus delivered were Old three every talked online positive we and consecutive Gap, Art against Despite down comp pillar pleased is to year consecutive last At sixth positive negative Banana in nearly comps were to the in the by driven navy as negative gap on Banana quarter achieved category. remained Republic. of quarter Athleta also categories. sales growth, trend for were a and against growth AUR for business, reasons Banana We we comp impact, X both that it Similar last And our Banana as continues second to our pleased This Navy, in deliver the old positive X Republic of mentioned, very the about. year. strong.

basis, margin. XX.X%, points On was margin XXX expansion recognition of gross Turning to adoption. driven $XX or was gross basis revenue million a by reported

The lower scenarios. quarter basis offset by XXX net XX by points the partially rent leverage. end margin margin of basis occupancy and was first our impact, XXX at gross Excluding points, margin decline points, planning merchandise of declined of merch basis driven

Some of of This promotional $XX more and about to aggressively XXrd driven Rent deleverage rev impact brand. reported operating XXX inventory. operating SG&A, Gap again quarter decisions at expenses, was expense by On shift majority driven year. increase XX accounted last and of expenses or resulted a points occupancy primarily remaining margin deleverage. was wet higher by to was for adoption total Gap the rec basis leverage the billion. on of were The the $X.X the we but accounted operating merch made strategic million first brand week at by in caused in deleverage. The activity clear weather due the for million $XX basis, the points basis

SG&A also how improve benefiting funding drive the points, productivity growth. devices rec, high Excluding increased the can about and A up from of focused levels total The in-stock process, We new processes efficiency. the and impact company up the rev technology basis mobile during in check-out of both adding remain our good and the where quarter. for first leveraged on deliver speed store from we’re improve the engaged example operational level conversion we efforts These adoption is our shift. growth quality can and investments. XX levers expenses entire quarter is efficiency that and that free calendar

calendar XXrd inventory payout with $XXX our the $X.XX, Free per shift within target not million, flow comfortably material $X.X higher share of quarter we continue to and short-term completed Moving expect XX.X%. to cash, our benefits and primarily year. in with We the last FX commitment shares share. ended the effect and quarter effective did rate quarter which earnings week paid quarter incorporates impact ended investments, lower cash due equivalents tax per QX, some $XXX $XX timing. We billion with was in-transit million. dividend included versus rate the last taxes, of share year. were the earnings, first effective was This the ended the earnings threshold. bonus was reflect compared to the quarter cash quarter repurchase Consistent X% about on of to a On and have a XX%. we by up year our inventory full mix earnings geographical of outstanding. of which cash million to The first rate $XXX of million cash first created XXXX. returning negative our with to with the We due lower shareholders,

we brand ended we feel overall, Company. would the heavier good where than quarter While liked, on inventory have at for Gap we we the are about

$XXX company space, operated Banana with our towards and our net company opened count, while capital value a weighted on operated Regarding are ended the store six we’ve and capital with X,XXX closures to-date basis, to stores million. expenditures be active store. openings were strategy, Gap continue In and and line focused will specialty. quarter On Republic the

While there were in results QX in outlook. the our were of year range embedded the initial quarter, challenges full within scenarios

affirming share to guidance range per $X.XX. are our full-year $X.XX We earnings of

start. range, more to end of clearly get given will high Although, our that ability the the to be QX challenging

trends the saw our the to to portfolio same expected across the noted, expect I we as pressure given impact we continue Gap, in not we’ve when quarter. to but we the said second in pressure we inflection saw regards With last feel first have challenges March, degree the good And chance with weather we to quarter, to half. we first a saw improve, had margin in to QX. we the and quarter, start the trends As dramatic

factors. guide and brand, experience about pressure not half the Gap degree gross margin do be what brand the in at do merch evitable, our quarter. brands of some the considering Inc portfolio Gap for expect is we margin variability the We While of first that quarter said macro level to we

brand. strategy, underlying growth the strong. path fundamentals operational our issues is right consistent We We as believe Gap particularly the as remain are still improve are balanced to that we through of our opportunities forward have for already portfolio which making our But strategic work priorities Company. indicated, with the decisions we with brands the the the against

I to turn Just before back over Art. housekeeping matters a couple of it

do annual range timing the quarter. of on impact the by $X.XX. impact the the week, caused shift to about includes the XXrd or not Regarding second our reminder, have as negative meaningful third from We the loss XXrd guidance the a the of week XXrd expect a

Just sales. net shift, sales quarter loss in by full our a negatively March, expected be SG&A calendar the benefited of XXXX benefited more we first then the due And shift than guidance quarter as third the is as on in impacted the to the of provided percentage guidance, and year fourth rev QX the from adoption week. and to rec for spread

week note that new XXXX, we to year spread of by exchange. sales, for flat flat the to increased foreign from And expect the translation as we productivity we offsets growth expect a a Specifically, be loss if net full store offset the be investments. to XXrd up SG&A, slightly about percent benefit sales and be as to of

recognition. comparison This the lot up any everyone clear at because of revenue looking there like-for-like to when and moving of are and year-over-year these Just reporting days. confusion, parts without on impact with holds guidance basis a

I over Art. back going that, to with to am So it turn

Art Peck

this Thanks really ends. you the This obviously underline few I points for important investment is to to on of me, those attend open it. is do super But the points basis, and to are believe an here Company. that call overall few where it I that thesis questions. up we’ll Teri, want this it ongoing appreciate and of critical A for a

strategy. growth balanced cannot underline our First, enough I

it. We heads are the components. down, outlined Teri executing against

week. And that we conviction point a We’re will this is and my we’ve real estate talking that the cost and the is the with opportunity. continue against I deliver consistent path Company. with We conviction Company and opportunity taking for underline to to area you right and was did is in quarter talked in my conviction path lot and about estate. entire ongoing want for absolute operational note that out some that this, time about productivity going the benefit in you an mentioned it look we XXrd want this, fact critical there talk leverage expense down spend to of I the guidance, drive to line push from structure. I our efficiency and about how at the we to about the moment. But intense a have Teri Real it about another

we they the time, and to We growth our to exposure and continue active continue optimize wherever fleet, Athleta, a including the productivity are, factory are continue and opportunity, the same profitability. At but Old to we stores portion and largely in store and at optimize space, outlet will achieve see the mall Republic some represented reducing In do the largely specialty places, that Gap. can will new by invest the to stores and are Banana fleet, growth value Navy footprint. low these of base where opening in we means locations, and quality expressions meaning and we quality,

current We’re also we even upside. see but productive, and greater where some locations renovating we that can healthy know are

online to starting and results store large across we all business. businesses portfolio. deep fast one year largest conviction world. It’s a growing apparel invest continue that in. into critical that industry the traffic noted trends the to we to it It see the is in and continue work, online mobile We’re component. continued also and a have and grow XXXX outpaced of to and of the have the QX I And one is

also We’re store in investing technology.

devices We’re up service can check adding that speed improve and our new levels, and the process. in-stock mobile out

we’re In store, confidence reiterate seamlessly strategy in that to to the the in outlined buy enable initiatives steadfast our the both I experience in investing of we up, Old a can channels. believe more pickup engage Company. shops lighting with how remained have I continue meaningful has Teri and opportunity and want Navy, We customer unchanged. these in online both which and and We’re improve in in across that last us unlock fulfillment our believe also the and closing, fall conversion, to it and to digital way. and this has We customers this beyond the levers

still supporting that and -- material little on and that business, driving reform customer growth our changes. connects that support point real And one We’re continuing the growth active non-performing want last relatively estate balance to our in important. value, receive and The it’s how to rationalizing that dialogue, productivity. and progress is of we that growth, to has and in digital accelerating focused and in underline experience, accelerating digital tax but from SG&A the is honestly there benefit I been investing

As end I the our open call, we’ll Company. up open Thank of year noted does the now this you. earnings capacity in questions. And up for significantly of

Operator

sir. you, Trussell, question Thank today our Deutsche We’ll take Paul first Bank. from

Paul Trussell

the If processes, alleviate as business quarter of we You the a a rank most you margin issues improving exactly and Can what the just to second number in for us into go pressure the it’s for and was second et cetera. impactful is business. bounce Gap to inventory will the position in improve outlined in the banner impacting XQ, allow banner what the half?

Teri List-Stoll

get painful much it and simply that’s the part were to just course all. the not the exists, able of QX. impact clean. of made where quarter, us stabilize inventory in to the time we try number decision inventory were so the to issues. sell that and able it the processes, we And off brought able in we components over get strategically some of because we were to Obviously, to the of through we Meaning were But lead reason address some we that the just get to able of to a were of

there have assorted and there really for up to got ended the enough an to good to issue. there. that an We we we brand flow to being were clean customers was probably realized product not the timing, As through and assortment over allow we stores was the than the is addition more brand there the just think just in see and our

inventory why will effects, of the some receipts. half. out QX, we part second that, some we cutting made then in as won’t and that all come So moderating to be start a and bride through aggressively see of to decision but But we worked way the is which tell job it forward the

ArtPeck

because bit little it’s And add let me and really that, to I a question. support it critical a think

rightsizing this much was just is inside units. of took not and it inventories, to of too out which maximize we inventory My you our make out. does wanted But wrong on felt it action, the the yield units onto movement Teri, So those universal, inventory, accelerate better. experience all we we to business jobbing to of now our if it is or were and build stores the inventory has have holding been, the

our to that absolutely and we continue up and into right do so as business for were It wasn’t it pain, performance to with QX those took then on was believe position And we actions. the we decisive but and better half. get to thing clean it into the back the

tools, us was get as resolved up largely that being and many into holiday. this number is to inventory not allows into also We’ve fully narrowed assortment stores; POs one, and particularly behind and the were business. assortments and always and depth is; we’ve we -- some important big important drivers, and as placed, key that that critical. on we’ve cut that of our were the our and style we and What point and our CC do issues late immaterially have allocation those. So in we those clear been view more secondly, back as got items There which of the fall those half. were identified technical back standing also in get resolved in And

be. again, those took make quickly to So we where to wanted action and the there's And we decisively changes. number material a of that did, knowing we things business

Paul Trussell

on that in shows overall are can you growth? speak if I to beginners just then contributing about and online, lastly drivers touch the quarter margin that slide wanted to Really quite line today? your quick you And follow-up, most growth. one the strong perhaps this the of the profile just that speak curious the business to which Can on just past acceleration presentation of

ArtPeck

in the constant starting it’s but continuing experience, to just makes see we it an add and online one information -- mean stores our the our I and to tick The of its about acceleration thing portfolio. not wide other our specific the to the of on is very a through to bring growing the businesses across it process. rate and none talk load growth online incentive few whether all of hope products, of it’s capture things, very reality to our improve speeds, active that checkout is pleased stars the turn relationships the all strength continuing now could our of growth our acceleration size. That's and enterprise rating, to on which that with up getting now had of that customers one bonus the set wide across our five in executive is in predicated improving navigation business, satisfying on not company. we’ve file, customer to one tweak do and wide site business the app or on year, is it's improvements, part about We’ve most in brand. find And their aspects the It with our we into a what that and me you that file what is second that. significant If the portfolio, continued basic thing aspect. of our as focus of I tune it’s that the enterprise traffic related a of which closing now incremental test then a to diversified variety on I trajectory on be and our things, traction customer service-level terms structure of process, we’re is on and

Operator

[Operator Dana Group. next Our from Telsey, question Instructions] comes Advisory Telsey

Dana Telsey

trajectory Gap? thing about on and the think As do you, in at Banana, on Gap in the the What brand product And Old you changes confidence and also, Navy? acceptance anymore seeing same improving bye. that what gives think you Thank you’re there. going there for color

ArtPeck

very very let it’s across mind. challenges. weather the much was on me a Dana, talk Thanks just my And question. And this good We that. mentioned

the cool amount our I Not snow the You stores a super deep on that being had play as time know across card, saw what cetera. one where to including online, product business. was a et us, been weather QX spend there it of see rain, product casually disproportionate some people, digging impact in has we looking number all like issue. weather our in the seasonable acceptance was Obviously, or at brands fully my if our of and some if actually of ourselves, were reviews to that

of across come about on trend issues, are product had when going go not assorted. know, I cetera, was a color a we stores that belief the know a there probably perfect, relationship I to in product the it away issue. we And significant did you tell but but There there, I all et style we actually that that that stores. Now good they will never here, also is sufficiently have have have portfolio product me a good our was we with whole we with strong a the that acceptance and product feel if

Now in felt CC and the and in the the was fact Gap looked and were we’ve net brand, the of result impact issue as did the the that expansion that of over-assorted. style stores noted, receipts

is we’re some the appropriate inventory styles the good weather the very particularly and company. what’s the and And business working, across come say it. and When seeing customer I to again, levels the of I we've denim. to body online product strength categories in left back respond obvious CCs business and the of we the been got is turned, some down breathe taken in we’re in stores think the saw And as can worth bottoms key shorts has seeing seasonally out. change that strong, the can

sophisticated, color is So removed our frills Gap platform wear down very in color has to a several bit pallets assortment, on versatile the the the print excess easy and some be, and and other no the back of assortments continue of detail the are to business it. In businesses. a of quiet significant The of which responding from being will Banana is has strong improved to fashion down where customers Banana, dresses with quieted should fabrications, to We've neutrals. problems. the as

we along, customer men's that seeing made when was we to the so the the going solid and response because chug business there. expected. is quite we the clear knew changes, And And has exactly respond, that and then feedback those to we're continued is

quite our men's notable With good fabric our level is driver to but ready a in the business really yarn responded I issues we're is the that cetera. to she's We've wear I innovation in issue Denim at largely stretch fabrications where said, and as cetera. that that's innovation, assortment; in well. the too and men again, in was et men's to was we've turned color it we probably have bringing sell but And geez, good; business into to through the But and do Athleta, apparel. way with we baby we've as very in fabrication, and performance; Old had not our there chug fiber I Navy, with is weather there the prints go of in many one looked dresses. shoulder the continued place holistically, swim pleased off to and not women's product a huge we've the the across wondering, XX.X seen introduce in and responding We expected and again, solid; and wanted et we've mid-April The am business; quarter; dresses. over issues; strong as we some little them important the the at where got this be. strong bit to some to tops and I in and was through we've assortment And as those business acceptance. probably kids swim then moved it's relative the continues largely a mean, to palette, along be; seen

Operator

from Chethan Barclays. will Our come question Mallela, next

Chethan Mallela

clear inventory rent of excluding clear it’s Gap sizeable can issues out a margin wanted you about I them? in the those us think margins past and the So gross impact. once give about a trended, get ask how you had But you quarter, gross sense the performance that how margins and and

Teri List-Stoll

economy think margin you sort all gross through forth. the changes for so as So quarter, you the about and once

that remember against actually gross improvement very You is margin of healthy in have a compare QX to on last year.

already a are against we So quality pretty compare.

that to so win. to have margins focus it some have moderating, a And the impact going probably typical as continue But then down, impacts have given those. you in to more we’ve say, moving to we the AUC to of various focusing categories I with the the take in and opportunity on on would loyalty believe Gap we can back that think on we out clear places no get the brand sense seeing, been AUR QX -- not dissect by we components. back wouldn't as where strength and I'm reason focus about moderating we half, see and And then our of how we to driving to opportunity get we expand the to growth those

Operator

Brian from up hear from the Tunick Royal Bank Next of we'll Canada.

Brian Tunick

a I I that your now, guess curious result. One, talking to about you're are and right emerging cycle record two talking fronts. other people about hear obviously, was Art, on denim thoughts, fashion maybe

organization if shift or cycle market fashion before. point, the curious we're a And cusp happening? opportunities thinks, or you're second on So a you've talked the about share seeing, seeing then or big the

opportunities you share. Do fast sounds located? same market So centers very malls, it the much. like you you’re where gaining strip longer in fashion Thank or no see

ArtPeck

on hearing honestly, you in hard versus want, if And we’re is and talk enough you and people. continued really distortion. well. fashion any cycle, expenditures across cycle find about can experience our is What growth seeing that particular whatever to key that So enough the look business my the categories you fashion as consistent I’m solid

business bought which But seeing he Denim it. right we to business silhouette smaller midrise it's and she bit plays and a in not leg of into fall, don't is obviously I now, expressing there's we of XXs Now, a cycle high-rise see heritage We a a there of little nice in brand and There's sophisticated utility that’s we’re mean, pants there absolutely across out a that get there. are and the fashion In summer Safari significant cycle into responding rise the we’re a it’s as democratic the brands. of some any bit out distortion. our a the however, really way, that as the and strong to build Banana, well. little out and trend. wide continuing to that silhouette, and there's strength trend that's hugely

categories being from we like of with see in behind ideas and are that well comes shopping value and in business, that in in across in our being well categories, those online convenient invested delivering offering is something actually believe, market priced things, the to, The and is pan categories, right converge. share combination and a mobile, feel So trend accessible relates our depth seeing, in and in stores experience now. the that key our a don't flash distortion customer then we easy the way and super understands on key I we’re a

what or I which much think on. informative that and very that, her spaced, way question brands we’re focused it all you not… a the to good part asked the my And but maybe execution says that day, engage in is a in to allows it to is going I possible, carry have consistent which solid -- me I is easiest incredibly because second answer, So is that's news, what our to

Brian Tunick

us as about lines No same well. along is was there it how fashion fast the giving

ArtPeck

that it’s need fashion, fast the to in about work our has still and out say fashion, getting mean, delivery I been certainly. part because apart I And tease of capabilities faster. you there we've hear I product whenever fast done

B product to most a in the bit I And my becoming backlash responding of think is it’s in it great more is majority do of great Athleta that significantly and this disposable a with in the Athleta. something we mentioned that. find reality. see the And been see The more we And certified of Corp driven certainly a majority, being I in itself part fashion. that manifesting We buzzword. it's brands, a is on customer purpose remarks, fabrications. sustainable

So for against think we benefits a I something our the is of our business the lasted. that backlash customer businesses bit a all that understood disposability quality and little that stood a have where items and waste always that across

Operator

Greenberger from has Morgan Stanley the Kimberly next question.

Kimberly Greenberger

My could. question is on I Teri, just the first with to something I outlets. clarify wanted But if

leverage the growth, I X% leverage there ROD if perhaps I quarter, sales would that points points thoughts in ROD in just with basis look said rate leverage leverage. have would I But be cited growth on think X% -- think there the third in back more I given basis XX revenue. of of it's I quarter, you you the with ROD only in at ROD think the XX

I make sure I that the could wondering, business of your the wasn't just and growth. to basically Banana Gap you and you talked into specialty talk And Republic, and on obviously, Thanks. why heard about want outlet cutting outlets, Art, business? some that for particular, the specialty am do I the in driving So quality just be declines then, in think better. growth, the that ROD could pursuing you right, if about And leverage

ArtPeck

and first stores. ROD it right what’s I don’t something a Teri it really good factory or the to question stores proportion back we answer It’s is to look about Why then question. on And I’ll outlets of the at. leverage to turn think that specialty the

obviously, be intentionally have helps understand that to from suburban now us patterns. locations. urban data un-convenient have geographic moved We more And and outlets cross-shopping locations

That is there attractive do economics have very probably we said, channel. some in So our impact. outlet

specialty we’re doing that estate. been through of that for impact is specialty impact we've very responsibly our a decade. And our Gap, education it ago, the many on by something fleet And our that Gap real the bigger over is if That in productive manage way customer locations what of now impacts is on job the and intelligently or -- has and said, and a the our long that now patterns, as terms comfortable or in So XX managing have business economics, years specialty all been we have to fact patterns or that this that are patterns, housing starts for et around XX cetera. patterns, has were is stores bypassed first even commitments shopping time. those XX with changed, malls been

specialty places carefully. the of very doing. estate. out that's we've so the by We’ll the customer work patterns of real And bypassed It’s where largely shopping that getting to always driven Gap been have manage ratio outlets

pretty Teri, with today. ratio over I think I we’re me let stands to and So turn you. that it comfortable am where

Teri List-Stoll

that question, we’ve a leverage single that been on comp Kimberly, we’ve ROD, we to been saying your so ROD mid digit consistent. need so pretty

that But lower to we’ve moved capital more You and growth threshold. to we’ve investments incremental deployed has set see some a towards for digit. ourselves the of as up been making store well mid growth, single

much pretty that’s so QX. through flow in you’re And what seeing

Operator

Matthew Next from Boss is JP Morgan.

Matthew Boss

performance? Gap judge there. that Gap in I And thinking the back-to-school as look half are positive the well guess, concept brand Art, Is we Teri, guess, embedding fair mix the to I you the it comps of your products, operational the if as year. core the at at by about at assortment are we were -- you back

to best from sales how think $X.XX. about store same of Just the progression

Teri List-Stoll

last to we've with in actually we we in brand about as the up the stepped comp been had advertizing. a with and year, started see investments some making, QX been So you positive we momentum that Gap think building including ended up from

engagement brand. seeing And customer a just overall improved so comps were and traffic the the on better with

And so there. still those are dynamics

Our given issue customer inventory so the expectation to seeing of the issues. is our remains the industry than the traffic deliver on Gap the that on better brand, we’re the inability and

second on up. continue cutting the to we brand been doing the in super lesser business, comp the back and things to to that the we the you building back the seeing and because the half. say reason in we're fundamentals, so we Gap if And been are we've the don't things important is no cost of while expect wouldn't to specific in would for QX down And the that at But get been momentum not brand we're sustaining one a in. health and believe that believe we're for inventory back in disciplined fundamentally take the out issues that look and you structure being the degree brand affecting we've in I have then quickly fundamentals there's I guide that we have the QX,

that positioned saw second that XXXX. to positive that get So QX as in we of can half in comp we be well the

ArtPeck

the them. And fact we as I -- we seen we're then year. Gap’s this before start the of to talked and of And Matt, the for And our is question, our issues. issues half, operational with assortment, terms have of guidance CC beginning out just when count and arms guidance back gotten on that we back-to-school, we specific around would our Gap’s style we've reiterated to issues underline inventory We that in formulated changes we made as like largely saw that breadth, feel back-to-school the your aligns should impact.

Teri List-Stoll

want I back. Matt, just to go

there. up. I And so apologize back think I brand of in as was said in Gap for QX miss they I we get statement positive positive QX, were flat the

Matthew Boss

picture, investments place guess, would like in front. today think to you forward, or anything drive terms balance right investments the think quick incremental year? have a SG&A the And the operational just that about relative that we on of the to we to picture the going should believe Just larger performance do in in follow make? expense how you you'd up of I dollar growth larger quarter first about

ArtPeck

about both we incremental to appetite investment growth. hand OpEx. I can talk CapEx for Let can expense it I the obviously our indicated Teri the on me back our -- and we've then and mean, our

an So Fishkill let me use example. as

facility terms in after significantly the that in of automation rebuild of up That the stages facility. final Fishkill game is our upped of fire. the We’re the the of standing

our the and and inventory, of a had -- and the we've while. It inventory that for to through efficiency fulfillment do and that's picking shipping the terms intend inventory, our something operations. then receding our In effectiveness improves stocking

putting continuing to going sales the which our bringing the continue is BOPIS, of across Old in Navy in roll we're We’ve invest one hands now, to fleet. is relevant to the in we're into store. technology Another which talked associates and it our

redesign on exciting really in exception iOS restock devices that deployed our of app, improvement days very in payroll. we've in especially a the And now early on-floor our we're reduction have and an so in-stock rooms. is based We to service seeing a the on-shelf -- significant in far tied that levels stock a app stores

benefit we an have investments? well we're get Do of the keeping our a all we stock. that efficiency terms So examples. the of what spend Xx spending probably hours as of the across we the organization. if I this priorities we in But of investment. the responsible spending stores we met at demand do we're have level in right that And in couple of re-plan were there’s those -- No, forward right year applying set all terms as we that go where that a feel responding and

Teri List-Stoll

sales on over we reverses percent So recent XXX trend expected historically have that as SG&A, we around been basis deleveraging be we we’ve And points. SG&A flat. the that where year about guidance to the somewhere the the a of for past provided

helped to XXrd so starting quarter root first we we’re QX that is control. the some dramatic of does the what seeing show under in take it last that is in of it of year. saw work In you’re still to by reversal and And is what the week but fairness, expense getting a been

in to believe enterprise. as While are deliver we said priority best highest I the initiatives investing the that to the return

Operator

Jefferies is up Next from Randy Konik.

Randy Konik

dead the to horse beat hate to Art, here.

processes before were go are when some changed? of the issues issues? what you the forward to just to get Just can back historical of the change? the -- put as this processes so issue either there, they move they more we back just bed we just those want here. to were going And identified specifics did from on so where just the overall a When So the on actual at why call Gap can what you process timeline standpoint,

ArtPeck

it. It’s a for giving I me really for good about the thank platform talking you question, and

reduced in well growth bumps accelerate quite the I’ve I’ve talking that us with a we’ve And across in our from large road. to shelf. itself entire manifesting weeks, not So cited for to XXs processes is that's largely fuel that you And where a week we’ve concept about as the been examples while, outcomes, in several but which Athleta’s the of product gone to our to company bottoms XX and time way, moving, business to continued company went of as is been without the from XX that complex small units. least and increasingly allowing the eight way, across form to any

and iteration of then to in of released is and our to to against that was to products So different the way company. more upfront and discipline issues capability back that’s more lot and inside of a and some, is implementing we release online by across process it, we’ve applied product sourcing to the went management assorting we there vendors it And more an placements capabilities. get the allocation some as standing Previously the And from our we doing that our can QX inventory -- the just and been late a in business been about basically final simple of processes requiring PO's. buying precision office technical new up that it POs so and of that we speeding were be informal, been the our back. process to have we module And the tool example. in our system was ran Adjacent issues, in one into issues on that getting essentially as Company. modules we’ve form. which and products resulted of on that of much final to saw forth Gap And both modernize the parts in all we’re those some specification that

actually technical ended meant been issues late, in us of from that's released upstream management they and we've biggest being continue that we yields better right the POs more resulted But change some it issue process them issue can and standpoint a and up wrestling to with were a help that those fact So and before technical really process a getting the that and many disciplined that through. accelerate.

some that evident And the things The the issues the in we over many those that of combination best resulted all our stores. added inventory in the with had, style issue the we of two second And intent as very styles CCs. was well of as and -- component of creep assortment in CC that relentless that was count.

in whacked forward, styles issue that we the company, the we While place. the It am late have process going capability, were POs inventory more on A behind in logical the CCs. and buy going I'm action conducted the that first resolved deploy not. our the you pop issues confident elsewhere And up absolutely have ask the is productively took to technical and the ideas. and in the allows that it’s answer why quickly, us I back quite see to to question we would is, big very this

have run is. this what We it We know with the ground.

as behind as have us We expect it. we into And this year. get we resolved see half said, I back the to

Randy Konik

the those we on, is So should worked in trend at the together, get or do still core line inventory type of product second do quarter, merchandise pull thought going by issues. the and to impacted acceptance it’s all Gap. just by The to not technical any be with heavy end what to margin expect back project you’re half I of such we that saying been problem is the PO those the done. on based in should

ArtPeck

pressures… natural On

Randy Konik

Yes, really Thank helpful. That’s all right. you.

ArtPeck

we now I see just noted, it go a behind that fact is that breath. just us. done we inventory our product kind get there fact done. the out, want should the sell I’m will of And can want behind those up quarter, as we underline got one, one-time at not want There you because on things. to correct. I And clear the to are to to want in this assortment, I finish want but and perfect this it go and pressure business always from took let Again, -- significant And to women's I’ll have I the is it and is I the it We and into very actions, to now. this you to important. those write it’s just clear, That's -- if particularly us. think stores this see me stores, swift and ideas in ahead. big okay a in not by the I to right Teri just say is clean. and sale, very we decisive action taking and We we’re it, it But as, said, going on product all correction and want temptation inventory. get to get we get where get you took a perfect looked also

Operator

Baird. Okay, our next Altschwager, will question come Mark from

Mark Altschwager

if hoping most was and moment, to and some the I Old there a talk and unit markets, about was opportunities could for address And specifically Navy near-term. and the With with strategy there. could competitor maybe some just department the share exits? out medium-size pretty and expansion see hoping otherwise underserved respect small where but you standpoint store you opportunity seen a you from closures identifiable upcoming I

So it? into curious may leaning be that thinking how and you’re about Thanks.

ArtPeck

perspective. aligned Yes, we on highly are our

appreciate you taking I you. thank up. this So really

drop is Navy a close income. And are concentric of that now well. about minds think we And existing a that revenue the I stores, not should that concentric circle I that revenue have because brands. simple and from which about And comes team in varying think in standpoint very Old circles. I of darn made goes So sure, our have if a model you my XXX%, in bull's-eye to income market to mind, the as dollar share, our rate in And in has it other degrees has, their in is of through AUR the my dollar -- quality.

to while to out significantly sure and we our of in that, and of stores. where the growth gain we we unit yield, AURs, Part goes -- appropriately mix, that Denim focused we drive yield and is not every are and categories in are we on on that every of AURs, improve are invest share. a bottoms focused market where example do that management, are part focus that, continue we yield that we through continue on some business. that spent of possible continue in Teri dollar that's Growth how obviously, making great that. to very management, We as on time higher is is our to And continue promotional

gross energy square quality we of So of how every foot very a of the existing cost. high is maximum with out get the margin That business a is starts estate, dollars do revenue. real which fixed

into our where Part a we units and to And now. where adding that we responsive driving additional we're units to what's what of stores. through those business, drive a hot order units or hot piece close we second and are trend, get silhouette, this categories advantage Navy's able doing is is that where we out of part to our The Old of a of have Denim good big feed is have traffic stores. season take in in just see we capabilities,

and that's always so piece new and in stores, kid's baby, key but categories bigger add bottoms; categories and us that's invest the continue also inside in opportunity. that unit which to business space; of assortment put A had a men's. looking Old set out helped that's has inside to we expand build we ago Old other growth places continue drive we behind actually cetera. Navy. And years revenue the was looking We Denim We we in businesses, of we're And we accretive box, the a in get say look depth wallet, see an opportunity a how in Navy, knits; continue at opportunities to business; higher Old share Denim that's and of at and a profitability. Navy and as to doing third the another and active do our are is will et our the the significantly and We're of that added women's. to always at to active to couple and our

so footage. we're our it's by And units Old first gain year this which Those are share, said XX fixed AUR old Navy stores, for and and leverage navy. that's we them. opportunity largely for our new quality the on And base with units an all at And of do business. additional We then there's as to track very is revenue. trickiness square there. see no associated cost And conventional That's a foremost, us. high big opportunity construct, additional

some of And them areas. metropolitan are infill in major

to in that, going the close very at As is area, Concord And store are closures very and closures the that and down there’s infill mall an is new opportunities, Old significant there we Navy traffic an that's XX. Veranda, in part in And population nice that's there existing do smaller area, we size opportunities. shopping targets Old then which Navy we areas so center interested different patterns, here consolidations the example, of brought are reading but a we're interested metropolitan around up, Navy Bay store. Old our today cropping where a are finding to of that an and see underserved

So we have we and at underrepresented is out and Navy off more space a we And unit the and Old to look very put there, there. to do but storable there's see upside price their build think significantly specific count, not we're units. the encouraged opportunity bullish continue by that very and

not on of it's the for and that the company again, has underestimate its but economics. then growth material to accelerate lowest is business. super it Old the importance online would and last driver So penetration important this just do in Navy And rate growth has the bullish say power and thing a the it it. excellent I continues

Operator

and is have also all gentlemen, ladies questions That the you that thank today. for participation. time conference. all And our We your do we for concludes

may now You disconnect.

The Gap, Inc. (GAP) 24 May 182018 Q1 Earnings call transcript