GPS - Earnings call transcript Q3 2018

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Operator

Good afternoon, ladies and gentlemen. My name is Corina, and I will be your conference operator today. At this time, I would like to welcome everyone to The Gap, Incorporated Third Quarter 2018 Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions].

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

Tina Romani

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

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

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

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

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

Art Peck

Good afternoon, call. for everyone, conference and thank QX you today for joining our us

results reflect brand. our with you focused release within Athleta. positive of the results continued and suspect said, quarter and press of expectations Banana are I like the third Old which seen Gap most obviously the That Republic, You’ve on our performance we fell Navy, generally

entirely and need of Gap to brand do not surprising, we’re clearly disappointed performance we While better. this quarter the was

brand structural feel trends, year’s to we the the the significant in performance, impact issues. about current more namely the business, the specialty and fundamental more operational We turn then but missteps issues I’ll fleet. first last with to talk continue also face the of I’ll

once including the as by call, The less made make flexibility SKU have impacting issues pullback without on we rightsize we identified to assortment the our dramatically but the QX affected As assortment architecture. last overall count decision reducing the units most we to we said aggressive cuts was operational assortment to XX%. necessary

QX impacted known mainly imbalances in and and the entering these breadth had these key We were tops This we cuts such, assortment made As but styles. assortment. some imbalances also it the depth known. affected behind intentionally

and that the items have inventory decisions on closer which is about best better architected generally are For that clear perspective, that the in I is a healthier to average hindsight, discounts severe about sharper we QX. position hindsight which we anticipated than conversion driving and we impact more at to of benefit tops about and QX. with half confident quite ratio bottom was that now an still ourselves has were X:X This am for the made the I want QX. QX impacts levels With I XX% that, to Depth and however, Programs key the better Tops and particularly ratios to but in the financial compared norm. CCs to providing are where from a decisions. narrower moved share, QX bottom have behind XX%. assortment CCs which much to down service our up assortment. is X.X is X.X, positioned. to is

product an early flows the in expect of encouraging. margin trends reads We from and improvement and comp both QX are QX our

Stabilizing Neil over a been months. Gap President a you named things last few his Let first the we brand late Gap, the In Fiske. about new at review priority. has business and me back take brand several June,

processes is developing and you his and As assessed the business, into would plans. the organization, expect, underlying he’s well the

This is Place key weeks, this, Children's Pam to I’m and American including, excited very several last Over the Wallack a landed specialty. with credentials, from leaders additional about we’ve lead impressive North progress the similar running was I’m is when the with she that in brand held the one was XXXX. Neil role directly pleased me working to I when that she previously making. for

reduction, increased the to for to that brand required Importantly, the the improved profitability are we’re contributor foundation actions taking be for a is margin, shareholder and the expense value.

apart of the To business. talk the minute and doesn’t pieces the and average stores and represents which with constitutes growing with space also that tell There business, think understand specialty function we largely recognize two tease total that clear, is said, about the one which that the three There specifically encumber revenue. online brand. want Gap in it The of about brand. is All biggest XXX XX% the XX% and specialty the of the the estate is tale story profitable the the The real of healthy currently globally Okay. Gap We store about of is elements the a is the can parts. legacy brand challenge which about of of a certain brand big of which decisions. channel we to on obligations a will outlet for businesses. I is underperforming. and revenue discrete as is remainder business a make A interrelated be business a currently

It the stores very XXX have modest worst contribution. stores that with evaluating Addressing dragging to keep. the committed the the range with brand of million the broad. This business the which the best provide importantly, ones amazing around and bottom value extremely of an half $XXX stores sufficient the it flags we’re the contribution. over represent a is the meaningful the cash the to that fleet urgency. very are portion addressing from contribution globally. is flagship basis, returns have firmly fleet world specialty fleet down piece opportunity we some a could of We earnings on this On of But of objective eye Gap that part Collectively, very negative brand. is includes is to that

fit ROD terms profitability, the whether time, brand. on experience, customer performance don’t stores and likely structure long-term importantly our trends, on there traffic that, vision These we the brand and the the the know store, the same are a and/or Gap Beyond brand. the of drag that for a stores of of in relevance other future hundreds drag specialty to near It long-term stores that a are health of we four-wall And attractive importantly, core important we journey. trajectory brand part that economics, specialty have customer this the number are cited that outlet healthy lead relevance. the customers have of are where future of focus positive significant standards, value. lives, operate that an on will to that have at deliver brand and that of and stores is their At

fit action us. overdue, I to those of plan many that commitment not that I cost fleet this do take get quickly. But is to likely to going be which future a cash aggressively. the I’m get stores, to done we of these to will strategic on You one exit sequencing. the but going this type move while exit appropriate vision will behind There to attempt this with the my one minimize and am have action thoughtfully,

briefly in has and sales at fiscal for time in comped I look four working our divisions and to you with first, lay growth also Gap continued We guidance important saw will sales despite of broad-based The the by women’s, year, the to the portfolio words, the it on come our but is our recognized the brand dresses want and forward. largely well. store out more the on QX trends. the for planned the trajectory pleased and working we my demonstrating and quarter. positive and the coming product its acceptance, connection woven brand product which for customers Old address I Building into product I true positioning, and the back a got consistent corrected to Navy It was great building again discipline. inside has Old at and it strong was outpace year. actions in of QX, continued which we positive and by In want you industry to warmer-than-anticipated It saw challenges, choices all XX% much operational of go back and touch comp Even print. head fabrication QX all results, as on expand, to in Navy’s the with majority with and clear acceleration weather margins and weather of the profitable and consistency momentum nearly to to quarter meaningful holiday. continue consistently with driven continued be and Navy this we some on the going we acceptance And team team Old online been tops, softness. box. with some detail traffic

growth me turn engine in the to remains It portfolio. a Athleta. Let

that The seriously that see demonstrating with the goals. business to did not is the it and business. new the track its During the exceed and in brand in in an continues Athleta come back-to-school the business. XX the disappoint business customer to third of mentioned of XX% and its solid acquisition file, Last going over customers specifically health customer on out growth XXXX was quarter underlying comped I positively comp quarter, girl’s space play to

of something possible of eyeballs. the gross been bit premium strategy. very to brand Hill the our performance to effort Gap. not at from customer easy I the ago Banana base. delivered and parts adoption to that of but would tools the the story of just now that strong mention expose little Gap story We I To in our similar saw a brand. fact brand well brought design, active October. while deliver improved in quite of the want is briefly the lead the platform health. a other product Gap, absolutely life about leveraged BR of to on BR very underlying not early in the Breitbard and active, deal inside Old our but the instilling portfolio. is we’re marketing. lifestyle that as days, continuing opportunity I in includes process scale early comp, product believe and brand two fourth to While our as changes paired been little product, Customer that has replicating from and business required back millions our of of growing positive we experience was we’re fabric into the at The XX, the of are a are on Banana men’s our the customer the to that That billion months Republic best Early are leadership the his simply in white Gap, revitalization and quarter advantage we positive. the Mark to excellence to Athleta’s balanced over great space of with to taking contribute coming out people, have series is brand back round market I a and Republic full space Banana visitors its were processes in the relevant the Hill and It innovation with time we launch talent. year operating so all of for Neil, our Navy’s profitability consecutive us be on, call spend is subject new talent. in platform technology to operational stabilize as e-commerce meaningful performance and and He the expand confidence size, team everything to key platform, bring won’t ability Republic feedback seeing brand give integrating changes brand $XX a to Inc. the less brought brand elaborate and built that Banana margin. assess opportunities the to because ready-to-wear There to City the engagement and of Inc. portfolio, and than processes to company. made product to growth across of Early City priorities has pillar We without across advantage he merchandizing company shortcut wins a the We from also wanted a the

us want Inc. for as priorities to critically moment two Teri Before financials, I important to describe through take the takes leader of a the me Gap,

is take company performance takes this within I are A good and accountability. example continuing seriously to year. Teri First, the build as I know well. a we aggressively very very seriously this our this culture of

we in expected but be to I You within original Teri to Clearly saw to come it committed or we together to, committed our year responsibly continued range. that form delivering to that you. to that we guidance on the commitments remain have made the results delivering wanted hasn’t quite the it and

effort in Gap, strong have earnings the of iconic Inc. we platform, the base from discipline. times, scale many this But with loyal as must and brands. are focused and brands believe firmly Second, on consistent We I customer our its value. our each driving and advantage earn shareholder are our our This expense previously coming healthy said and year, place. brand size our

the and margin profitable basis bring on through on at in Gap brand will necessary our a focused the to value are actions walk core improvement that, to its it let the profitability which forms take necessarily evaluate We shareholder quarter. unlocks me over long-term place not financials and Teri the to portfolio. the brand turn that to and for we growth With us to

Teri List-Stoll

everyone. afternoon, good and Art, Thanks,

including the QX underlying acceleration trends do As Gap we’ve remain Art demonstrated. by said, the encouraged discipline strong Navy’s we continued quarter although portfolio, and Republic, momentum, weakness of pressured throughout results and at our delivered expense in by Athleta Banana the in results another at rest Old the brand

specifically to performance. the quarter third Turning

Just adoption results from as of our the a include reminder, the certain items the revenue in of standards P&L. our which new classification recognition impact line reported the changed

of included To in adoption these margin and net and For presentation significant with expenses. of the quarter, in the million a found of presentation quarterly third increase sales, gross that million section gapinc.com. results details our from $XXX $XXX changes to Investors QX increase we’ve $XXX an changes without million and in presentation be earnings can that to in an resulted XXXX slide increase the be helpful, operating

brand rec quarter comp and the Old holiday sales sales. Net were our store in comp by Art trend the runway billion. was were last about discussed. against with of X% brand had we results, quarter, represents issues noting another $X.X one new plus brand against sales line assortment quarter over from for as have XX% Navy openings. through continued the the we initial rev starting sales negative new level, strong a excluding divisions. This with improvement adoption architecture of flat Despite last QX delivering throughout last Banana four sales growth. year year-to-date been So strong growth. weather across one. the a its through variability driven gaining at reads for Gap, share did the with by rev consecutive the of growth two for new sales run with presentation XXXX, see were comp At compared comp Gap all the strength positive the quarter moved its standard. an spread market quarter Republic year. and flow delivering our following positive from Again, track let that the demonstrating quarter expectations. record X% the another driven worth the fourth changes posted me down the in that changes year’s growth comp new XX quarter It’s This includes Comp excluding positive presentation rec, double-digit the largely At positive stores in three

pleased As brand the to gross the were driving margins focuses and of the in depth continued and mentioned, Art expansion increasing assortment. see across consistency, breadth promotion we reducing on productivity as

product online We’re design encouraged impressive with response compelling we to and growing also team by Momentum on delivering category continuing with customer into brands market delivered provide customer by positively. positive solid head contributing double-digit holiday. laser-focused the strength. experience. remains as innovative broad-based share another The Athleta all growth a in quarter continues

on platform. our year. We billion in over offers to on a experience remain We our focus online $X.X convenient continue that leading reach sales goal shopping industry this in providing capabilities to seamless confident

basis, reported of basis or was XXX to gross margins. points million were changes margin gross XXX about a XX.X%, the a presentation by adoption. expansion driven from Moving recognition On revenue

countervailing by Excluding merch leverage. are than by XX at that the challenges we a the expansion underlying trend, progress the Republic. margin let but elements as Navy product some me so basis decline which the by walk gross business, margin Gap This XXX margin points reflects offset third and quarter of There partially sequential and to more you of in declined The driven Old offset down components. expected the occupancy to brand the driven XXX impact, brand. basis points basis merch points XX through continued basis margin is about Gap shows rent points Banana

As expect Gap’s in in Art sequential mentioned, along throughout continue we to in deleverage bottoms improvements to remainder of color trend given margin increased largely our in The QX. with brand product ratio shipping assortment, tops expense. to the was merchandize due additional margin improvement the appropriate

with off we significant As new we DC last started our Fishkill quarter, mentioned automation.

new operationalized performance increased online the As pressures shipping splits meaning high more for online we quarter we Navy their widely the costs. given third This fully affected strong higher and from and UPT. the technology, business, in and experienced Old equipment our packages brand’s

Going moderate, forward, driven have sales and our optimize the leverage opportunities continue to growth. shipping primarily impact Rent to Fishkill by occupancy we would expect was will although to costs. the we

On quarter in operating rev Moving for The accounted XXX expenses of total a from and $XXX rec deleverage. to SG&A. basis, a were billion. $X.X expense million increase reported basis in presentation operating changes resulted third expenses points operating

as SG&A guidance. Excluding points leveraged our of third basis exceeding percentage that impact, previous a quarter XXX sales

controllable make discipline, expense progress initiative our to particularly around against the productivity with quarter. bonus leverage in nice to with also helping continue discretionary We expense favorability and drive

last goal exceed on year. action $XXX remain we for organization mentioned in the to the quarter, for and We a savings. identify set I million As track internally productivity to goal that

faster, simpler, more I’m initially pleased productivity the this building results adoption both time. supporting of our initiative, over efficient introducing since work discussed with a I’ve organization’s As while really near-term organization

our a to transition, effective liability recently year of federal for to provisional our our and in guidance about This lower these rate QX. tax With our tax our due guidance finalization was tax XX%. 'XX our to released fiscal for XX%. be tax, taxes, reduction we’ll estimates to visibility to finalize return. and in third IRS released adjustments reflects estimates We’ll year the we return quarter rate now rate expect as provisional under Moving effective calculations to TCJA is analyze positions TCJA, better full TCJA continue

you do provisional guidance, these that For our materially impact additional to remind QX tax or have to I corrections amounts, rate. annual and technical completeness, adjustments new legislation could for

from earnings including benefit benefit last about share compared third our was the about $X.XX, $X.XX our share of per the and quarter to year. was earnings, FX year-to-date. For expectations of $X.XX versus rate earnings lower for $X.XX tax $X.XX of per a quarter

strengthening of we the expect the guidance the from Given our now of $X.XX dollar, year FX original U.S. $X.XX benefit. a versus for benefit

investments. billion Regarding and equivalents of quarter $XX year, of is equipment. substantial delivery our with year. insurance million cash property with ended capital in our increase the free related included an the regard outlook last spending and impact of million $X.X for quarter the proceeds flow We was bonus to XXXX. year, know in cash cash cash, is remainder as of accrual fourth and was a Lower in the quarter the year-to-date flow to volume lower compared and the to by which the and earnings cash you flow, $XX million $XXX With short-term important of our driven performance year-over-year the

other the year our with with remain While we’ve deliver quarters in original been strong underlying fundamentals Gap line the portfolio to able expectations. first beyond the challenges strategic continued consistent priorities impact our our and the brands our to our of expectations, brand have performance largely of three leverage to at

lower $X.XX narrowing we a full earnings be to in guidance rate the to $X.XX. are Given range this, from the with of offset year share along FX, our by per tax benefit

of the XX-week our includes the negative annual loss As impact a guidance of range $X.XX. about reminder, the from

quarter the negatively the of be as the week. from is shift from Just impacted XXrd the benefitted and both fourth shift, the the the calendar quarter calendar first to expected in loss

quarter total in negative. be between the to expect the fourth sales and to continue We spread comp

quarter quarter. the in and given the fourth calendar of in Additionally, the and week fourth impact deleverage expect we the less one occupancy in shift, having rent

not headwinds from we week XXrd some to we as the quarter We that unique loss in in the incremental the to expense leverage fourth year meaningful continue the recur. do of quarter expect fourth expect spend despite of lap last

modest flat to sales expect full continue a We year to slightly up comp positive to be strength. with

still the of the a more Given thought little half would first helpful projections, the revenues. I for we expected sequential estimate specificity to brand year expect might way closer Based A year. composition probably on is trend. have Gap to on but down unfolded, be has it the the good QX show be current to progress

its strength last double-digit comp finally from QX to strength, building deliver to also Banana We And an progress and expect Athleta Navy trends sequential progress. amazing expected year we another on comp. to Republic with Old forecasted continue two-year to expect X% strong sequential continue. continue with is

I cover – to finish off let the back sheet. me go realized and inventory didn’t that balance I Before I cash. our

So to did the starting shareholders we commitment currently XXX And dividends returning repurchases additional paid dividend shares nearly of year-to-date, we quarter. yield and share during $XXX ended continue the million X%. We an have outstanding. million completing quarter to by cash XXX million a with cash, with of our

ended of new which of our balances represents total last front, X% quarter, the Navy, Old growth. to about carrying the support On to higher third we quarter quarter half to inventory, XXXX. with inventory Similar compared the up is inventory

the of heading to the in resulted store with the our of at pull for the half, the we Additionally, receipts well our remaining Together, inventory inventory the intentionally important QX. Gap to feel forward into the of lateness of the holiday in DCs balance. in us decision inventory in season. new increase of for experienced represent brands time dwell positions about holiday dwell and and brand made growth The the increase. increase of mitigate we This time we brand total some and to increase inventory ending the ahead composition first Gap intentional half increase comfortable an decision a

million. store were $XXX and capital capital expenditures count, Regarding year-to-date

our our be and guidance spending original XXX expected while primarily Year-to-date, capital XX stores we’ve about stores. the million closing Athleta, X,XXX largely with reduced We opened company-operated XXX to million. of versus Republic. ended XXX year Navy the quarter Banana stores, Old have and company-operated for We Gap

continue Navy Old additional versus accelerating while about new stores, but of expect our XX guidance closure to to the brand We expect some XX stores. Gap we XX of stores open net previous now about

With the out let me balance sheet finished, here. close

As Art and business work brand the mentioned, understand radical we the both we underway have and shareholder operationally to nature establishing which strategically on the identify significant but unlock We steps value by more to necessary the action Gap more grow. core profitably from a of problem. can healthy

have of to all possible results the all We to to our and shareholders. the decisions footing in on back initiatives the not some place but make evaluate deliver options process we’re and right in hard get the stable to brand

So it with open questions. we’ll that, for up

Operator

Instructions]. [Operator take limit from go And to ahead. you. with Matthew one Please yourself Please JPMorgan. Thank we’ll question. our question Boss first

Matthew Boss

about and in guess quarter? I how picture, for year pressure what’s expectation margins, And freight think fourth the embedded margins merchandise to On we beyond? as this larger wage think Great. best the to relative

Teri List-Stoll

first that product of come we actual tell at three in the the through does you kind more but look than I that on an about some of of Yes, the – year on the year progress. so trends as the closing trends know year. guide the it so I typically to quarters, we specificity, end we just don’t of that really shipping down we don’t margin talked these of given beyond to in Gap sequential can We expect to gross full were you do brand. the have margin what seen we’ve And expect expansion level

the the Minimum as ahead is wage full be of think to general the remainder of tend where wage, that’s this you actions. look. one we So year about year and guidelines minimum

DCs been which our the allow I have well XX% are us market of minimum-wage think why as the ahead does that. at those to automation an of already it’s today it drive well – it’s wage of investing reasons means of to We been in we’re paid we’ve pressures. one in employees is over some offset productivity typically

particularly asked, in the haven’t far, pressure. Is a transportation. you Same Matt? lot the seen of so of part with what that So, we XXXX, other

Art Peck

and to we’re freight freight an part go If freight the I significant that Fishkill the as and just on splits brought was highlighted, not up was Well, Matt, pressure from that seeing expense. we of the I overall factor What think that. Teri managing on inventory, we’re splits in we very pools bringing we because from standpoint, And of of of a and packaged the day. the fulfillment believe were direct splits see relatively thing at we to what it around consumer were we different up did momentary it. end how is much

that inventory we’re to We’re path, year next to bringing help very as up as And working able to of something are excellent done proximate which packaged we be an time. on up will much job us to down speed is managing economics. on also focused that focused We’ve that over particularly light on ability the orders take well.

So more permanent. than temporary we it’s anything think

Matthew Boss

Great. Best of luck.

Operator

go Baird. take Altschwager Mark Please from We’ll question ahead. with our next

Mark Altschwager

to in specifically improvement clarifying Is or on show referencing Great. the sequential in sequential plus relative the Good the afternoon. two-year stack? comment Thank you. Teri, X% reported that QX, to first expectation your Old QX. Navy comp improvement you just the was made

Teri List-Stoll

both, but focused Well, more the actually on comp. over improvement the sequential QX/QX

Mark Altschwager

like that guess Thank comp how fleet can bottom look those? back it circling the the what Got Gap mentioned, And I quickly stores, exit comments the half does XXX you top half the the trajectory on as you your think And of it. specialty, fleet the on of do in you plus you. then sits today?

Art Peck

Yes.

you still trajectory. But mixed giving the Let and I’m important a which proportional is the comp question think me first, thing about, answer it’s first numbers. to

to and down to way moving And haven’t figure really landlords to best We’re out to we’re reinvest with still brand think in this. about are that continue path. that partners are that this to we those our to standards. profitably The decisions also obviously we those exactly return doing stores to is made top go the appropriate our do stores where work four-wall going any them us allows will them to in a operate and half maintain believe today have

the We belief stores in customer have the does my deteriorate and of strong a it a experience it this of the have road is lot of time. are a we’ve bottom offered the that had have continued half that on on to And that health over effect deteriorating can brand. and the negative down the fleet kicked

some upper overall negative. half. were have lot we trends, circumstances. than trends them but that comp bottom half But the are those to be bad local comping are that are more the in they A the stores As positively could in of positive of

Mark Altschwager

helpful. Best holiday. That’s luck of over

Art Peck

me Let thing at because our crossed more and the problem. out too. we of add our way of grow Again, have kind fingers to hope times one

our and Teri are a margin of of day. Gap it As set happens we comping have shareholder here a way with structurally problem a look and that all and where that a of plan that profound have hands out brand a the addressable to and we we end as my miracle grow them. set value, the of sudden getting does are get a assumes creates building positively a of associated I expansion place things not we consequences at we the on of the to outcomes start

I and together getting we behind marketing to our plan we out which am in getting I structural hopeful course, of the customers of really around on to start business. cetera, et that make, positive getting as But it fleet the we that we that a this product improve our our believe owe done the and get put lot here a address lift again and as Of we and always us. line, is changes better get can shareholders the

Mark Altschwager

again. Thanks,

Operator

one to limit Please please reminder, ahead. Telsey Dana next question. a Telsey with We’ll from yourself Advisory go hear Group. As

Dana Telsey

afternoon, Good everyone.

margin you you Republic like was how the going and merchandise it the brand did expansion see you think it merchandise quarters that the What did the negative Old you forward? and As the and about this seems you. how compare Navy Banana to of about at other margin. thinking year that buckets are Thank Gap to had, impact the and

Teri List-Stoll

this seen versus brand said still the we the So I the year. we’ve progress on negative so itself as expected sequential that if Gap in understood prior it’s although Dana, have brand question, we the

good do. to then set do continued obviously that for up work about more QX going obviously into progress. we for XXXX where we’re But So feel and

As positive that market talked on comp very continues delivering just comps to about the I and been ahead same I product good both It Old that particular positive with consistent about sales importantly but the And delivering trend other healthy growth. has expansion. really – and expansion with think we in the share be a the focus of and margin Banana margin very strong growth brands, the on the Navy. with

Dana Telsey

doing And how size the to Old you. is Navy grow? to you continue category and if Navy opportunities plus see Thank expansion Old for other

Art Peck

you glad I’m asked. Yes,

it’s Dana, a limited a the plus roughly wanted it stores, very know, stores, bag and fleet. in early get inventory in across it to of days number we you and about committed out XX it As size huge right put we we rolled before because

this until by it right known right each and learning test now. that we’ve you mode and other is test, should put about one long time me things in as hammer the get hope then the And down. as I know you test, of so we’re

are than here are our customers the significant we far stores so really learning mode. that we experience and opportunity have There the in product so And have put however, the suggests in anything it. to responding that in we is nothing, still in a other

Operator

go moving we’ll Randy our ahead. from And Jefferies. on, next question Konik take with Please

Randy Konik

will the the the big statement Yes, to I lot. really ground Gap in which I Art, your really appreciate, thanks stake in think a that market appreciate address change that. a putting division

do Just idea if your sense to us give to completion getting or just on get to pace completion perspective you on your vision trying a some of pace, this on the done, of duration you back could maybe getting standpoint? on these – think way have this three-year And a from of is closures timeframe a of follow one-year, out two-year, type Gap the toward in then we looking up. a I division are what

Art Peck

still very than will our is we’re because going Randy, they’re we what but sooner a figuring you wrapping path. reiterated and bit give you – partners this And we work also, on information as and mind. important in I towards did out landlords to I’m up going as my you right frustrate can say this now. move little get involved later down to more doing the – we as we because year is are said Obviously, so I rather in how Yes, imagine the are Teri and

that this them the aggressively And moving year-over-year-over-year significant having a And with and at a much conversations by so it be that we’ll of we well. do than in saying issue the I have incremental the has all drag that taken. approach about day. end it business committed to am But as on that, believe been more I

stating that rundown, a that it we not and brand. believe I does a respectful a the it’s obvious our experience the that and strongly believe brand have in that to it’s we way unsaid the product does somewhat think I positive customers, is not impact store quite present is

partners a as anxious soon financial and possible. But out on behind But figure are to our on is have to it. to with we us consequences. done urgency have as so of this I’m this in So how We do lot mind. there it get landlord get my do pace one, work us to the tent

Randy Konik

Gap I’m as there outlet is you of how on it. product about attack focus specialty they can real brand; much margins unproductive how billion different us the Gap Is while those there? the marketing, perspective want about Gap pricing business. the Teri, then, of profit some e-com sounds business are of margins on and in on of $X.X just $X.X e-com exact with with just instructed it you And business partnering focus of $X think out cetera, maybe is is is revenue to about you giving the the to brand estate, on about anything this guys – on kind then the business but part really architecture, not Gap undertakes just businesses, kind the billion kind talking Neil, you when about laid perspective to us the kind give And of give brand architecture, like revenue maybe maybe strategy kind perspective outlet Thanks. business, from is that there you this. improve Just side? how on positioning, curious – curious troops of you him can us as Got close estate company how about billion any real et this to

Art Peck

at time. and Yes, three questions, you this way take but the one off let me shot by hook this that was we’ll the let a

Teri List-Stoll

mouse like that if book give how And by cookie, we know of me a many want gave a children’s split, of margins a you reminded you now also it a and you Randy, brand. channel you

Art Peck

Let it address me more honestly.

believe those in in make we in and that will accurately sure and obviously to many profit a we blanks and September Teri in We’re that value But composition you make We now. of I of the appropriately that and we that heard the the face-to-face want across and of believe geographies. talking really that more and ago an company to not channels of year ready bit true the and say both to transparency and do we continue this blanks you do a message brands some at to filling want here and in unveil right there’s to sure we’ve want to that. get are filled break appropriate did I is out reflect everyone potentially greater way. an that you I

moment, go that path. a don’t greater much But this going move to we’re I into of down So level want to detail. at

is between say Neil of said, excited the team him you Neil’s sure in and focused have of in the building. functional pretty the in And assortments. here. brand That mentioned would what on much building place. really the split is today and to product I really together in said, on equities the he terms is, we’re making impactable We his me, I On as am

I skills think She so to the P&L, managing to overall terrific for to Pam back. And was just and other. I’m know process will gotten each worked excellent her has. be me Neil product Neil have in the and complement an have that excited and

this are relationships brands. our with together for this more the estate real in imagine, you We’re landlords bigger one as and consequences all but has company can cross our since on total strategic

estate So that is Neil. for team are and I some a where our running central interference place Teri and real

Randy Konik

Great. Thanks, guys.

Teri List-Stoll

of We of what think put sort when really as $XXX then half last improvement. there’s the the we the the others, there, mentioned of we this if And you vis-à-vis specialty of we of can channel together say structure you of that gives million the between it with said you data pieces so and you about fall, then this provided underperforming in the can sense we right-sizing that – understand it’s script, and address means. overhead and contribution a margin that the as benefit can’t brand bottom performance, kind

easily quite a more smaller certainly path but the see can You profitable too, core.

Art Peck

out believe is clear again And we’re of our just sure us brand everybody a is this I heard here that predicated I’m in growth right not plan growing growth on building be way do about to because that’s not but there now. the not it’s problem.

in We It’s the an three time committed more to you questions. to and deliver get what are the in we’re bring improvement that’s that P&L building a making and structure changes on line profitability structural plan deliver. predicated that’s ask last

Operator

ahead. from go Marni next Please Shapiro We’ll question Tracker. Retail take with our

Marni Shapiro

really and about store is locations If still the any of hitting fashion could Hi, a it is and assortment of guys. brand, about and us women’s won’t variances three little and online active intimates? men itself is locations a I’m forget are Gap locations weakness Best kids figure to good more getting we’ve give case product, that mall customer of Because could trying out more sounds I in which and the talked and Gap from? the that street a coming Is reception at a and the bit the holiday in. I marketing, at luck online hitting the across it problem for curious and little the I questions. So we’ve idea your a guess that where within better less all talked think and brand about understanding? categories? the the there a give then just to lot it me – you’re you’re you estate, if but fashion is address just guys the real us the ask the international lot outlets guess weakness fashion, is you focused, leads within I like same? I’m coming little maybe would

Art Peck

Yes.

So out was it period point a bundled several you at put still don’t very clever. because you because really just I all would end of there of sentences, questions that these the

would and a we’re broad that four-wall performs better And wide delivers frankly So a the structure is of at is part of a the and consistent the consistently product profitably with of the the here little getting for P&L. allows business out tease And consistently has end that more day. been what and all in Outlet it across that has lot is because I locations. the store focus performs focused the bit. attention, and the structure of each on me do of to inside fact let all this that apart the categories

it, get the a the if some product were in – some ability is specialty we little When present store, specialty dizzy-print the in the other out of you you super would the in took of and well would assortment. there is didn’t blouses bottoms there of some we the more in first holiday to presented with store as to the ended up assortment in it a first in bit. not of tops in When sophisticated flat. have makes can that seen some women’s average excitement online the of in of tweak are able Online, the present and XX-day the some entirely upfront assortment the differences flow, things the where taking color terms flowed balance of they have place. seen to almost lot That crazy we some stripe you was out then XX the as the things I an down referenced, have business than bigger We so feet bottoms sense, We took advantage really ownership, more our through. not. poly, and that’s checking, issues things and don’t biggest around QX, to differences. that consistent and of with allows belong product actually solid. heavy. ideas we a then which cliché really the the assortment, a been been far you business fewer have And CCs a so it curate if has in baby you Kids it’s women’s overcome assortment balance women’s go, issues you to dig but have And a if are those meaningful but as styles, The the and and into and story consistency we’re about not don’t business. have cut kinds

strength have men’s same had has did the of men’s the business we to but the then We it cuts the weakness not kind business, is women’s same in make chugs intimates in active nor inventory The business business. a of along the business. and going be reflection

all healthy standpoint. exclusively whole which is need what business sits from the not then women’s women’s the an on So umbrella underneath energy is business but a focused we

Teri List-Stoll

because come an not because And women’s all part to going further, today. women’s easy it’s wrong million business, see they’re can lift the improved of through even the sub-businesses these in business $XXX even should that direction where

Art Peck

are but They behind they move solid.

If solid. through way. you and Boy’s that toddler kids look is at been baby, softer. go baby super a is and strong. little Girl’s the has business We just

business. health the restoring So yes, the women’s on is idea of the

Marni Shapiro

luck That’s great. guys. Best for of holiday,

Art Peck

thank Yes, you.

Operator

with We’ll Adrienne our ahead. from Yih Please next Wolfe take Research. go question

Adrienne Yih-Tennant

how afternoon. power? I you defining, and articulating then and wondering can did you millennial consumer fantastic who a Navy the that. the right Old is, after Good was if the with of job tap can you going into buying very about And sort the talk much. target of really Gap Thank

wonder of the could you I the just us demand you as to it So if result parameters if side? wondering the just for of if we’re which help is opposed XXXX. problem sort can the fixing of address crux Teri,

companies. We’re hearing from a lot other

can us AUR and directionally. help give as freight much. Thank pressure, you Just pressure, some wage just if there you very wondering guidelines;

Art Peck

price to about the point the a understanding play. is what’s space the think it’s and for category first our good can believe on Yes, point for we brand starting point that the market I point. by brands addressable I a think like where for

X,XXX your what North we America Gap specialty question close contracted I brand. would that the to in that Here’s stores Gap when believe answering occupied say has on do somewhat. that I space space had that

that in. have frankly some recognizing unprofitable market significant line Gap premium. gone Part some play to size that gone the may And of of top of the has from and can fleet walking is right-sizing of to value; away the some amount

category, said, believe look our all Now of I share to still operate all by to if ample positions low the at opportunity digit the continue them, we point, do mid-single that information businesses, that have play. by price and to in you

I outcome? it So it – actually think is addressing is. it don’t the is

that business component part in have to think, very At we locations to is but we stores in time generating four-wall again, there. become issue we’re what the and locations that that it’s to toxic a shop are that significant a current the unspoken number – are customers consistent some to said, and the as are stepping is age. stores big now. here I that’s the nice those stores show point that clear of of have I and are been a of Adrienne, fresh of I sort that the up and moves contributions, right very this have and also continued you, can of same on consumer table significant relevant And have healthy, addressing for the really allowed continue known age health at

health greater about dots we have And market proof size points in big overall the the unhealthy have stores the I and wrong and too we effect the component that is wrong are and effect down. fleet think were the as on act of the So run know location well. lesser what just the of can is the core we that

Adrienne Yih-Tennant

Mindshare --

Art Peck

Sorry.

Adrienne Yih-Tennant

the you there mindshare that risk Is lose a footprint? as shrink you

Art Peck

mindshare you on Gap think I brand. don’t lose

telling some you want story. I everybody and you This growth right now a is again, what saying think I’m this some story. sales. don’t contract overall of there we wouldn’t is I is a hear to capital a not improve to that return backfill risk recapture is that never not invested but profitability these stores, And on and I’m

Adrienne Yih-Tennant

Thank you.

Operator

ahead. next we’ll on, Brian And Bank with Please of from moving go Royal question our Canada. take Tunick

Brian Tunick

And the guess could about then Good but curious already for forward. longer Thanks. buckets million sort are obviously – Thanks excited Teri how the high-teen other curious lapping Navy, a year’s potentially And mid maybe SG&A talk and one quarter higher? much. Old there I opportunities afternoon. term, going operating to margins of product maybe on little points initiatives XXX started, leverage optimistic Are Navy’s about takes getting marketing Old beyond to the what QX last this other about of you’re puts you’re are year, the Great. Art or most X%. very there about? or

Teri List-Stoll

take So questions? what you those order want do to

Art Peck

it. for Go

Teri List-Stoll

honest. the just quarter next And as this we broader the and the of expense being of benefit on low-hanging reengineering haven’t it. we lot well leverage So gotten are do good what continue indicators. will to quarter year We what fruit is processes fashion it year to of leverage good really of that the discipline lot feel yet of XXX first quite points, as simplistically question and be also XXX story. the rolled a seeing Having was improve little efforts is our we more organization. benefit there’s million really ahead to isn’t take the this effective, and but ahead and basis the a about more our longer end goal SG&A how we’re that those But there projects make the get processes efficient for only looking about and so down real all a A are productivity. see implement not old runway to drive of positive

of savings look I’ve out. as there’s kind available plan two frankly, that’s So million laid us year said in $XXX total we I think forward. more probably that to against than before, to the we that work as And

there. benefit is So I continued a I for and us think journey see multiyear productivity we’ll think

Art Peck

to the And Old then margin, improvement? see question, do that Navy’s we was other expect on

Teri List-Stoll

it, variety things as its think do is about levers, much of AUR discipline. Old how Navy from is very margin on focused mix you which drive improvement a Yes, we to AUC to

to is proprietary we’ve that drive Old do which it’s for focus. a been see levers to We’ve Navy. at help expansion accommodate. product work we So clear continued a big investing tools some yield continuing piece in margin that Obviously, demonstrated and and of

of -- brand and see top is it don’t So any we mind for the major

Art Peck

we now, I I think run did thing have has is we sense we where only consistently. silhouette a that in odds with why The would Old those will deliver and of wrong miss I defining assortment right is some the that, deliver included which that running fact sometimes be occasional is wrong issues and or issues Navy that and here a into sort the get or the there’s say I that there Navy perfect to a a Old continued trend. print

a based is continue quarter-over-quarter. consistently Teri perfection. delivers we of as opportunities of upon solid So Navy number we to expansion as at day that thesis that, the in our the Old different margin drive do not do continuing ways. to operating end see discipline of based said, investment It’s in upon continue to some And

Brian Tunick

quarter most X%? here Art, what the you’re anything excited about fourth lapping against about at Navy Old

Art Peck

years what consistency. deliver the demonstrated have had a big that or big – last we three quarter deliver number like with this a it right getting but the number and the in Yes, I’m go can is you December is that X% big between a and that in we’ve couple over we’ve if of I November we the think months was number,

to rush and being the Obviously on plays I quarter. confident a assortment and the indications card at in to stack pretty to coming we’re Black end Christmas. as everybody the Weather strong. Friday always two-year Early but day. So stack think the Cyber are the for Monday weather then we’re product said, solid is able your of into factor deliver very we the

playing respect to for we’re optimistic of deliver. I tomorrow, then I inventory. loaded in. from And see the the we ready the trends I’m not with stores structural and fired don’t I’m don’t out see I what next assortment, as are The up see. So five that days. in stores to properly in see issues us

me So that. after ask

Teri List-Stoll

has Navy socks is It’s cozy year; this The only the thing right be. I cozy and would to place jammies. Old say done

The Gap, Inc. (GAP) 20 Nov 182018 Q3 Earnings call transcript