GPS - Earnings call transcript Q4 2018

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Operator

Good afternoon, ladies and gentlemen. My name is Melissa and I will be your conference operator today. At this time, I’d like to welcome everyone to the Gap Incorporated Fourth Quarter 2018 Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to introduce your host, Tina Romani, Senior Director of Investor Relations. ahead. go Please

Tina Romani

Welcome conference everyone. Inc.’s quarter fourth Good to earnings call. XXXX afternoon, Gap

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

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

Art today turn Joining Executive it call I’ll me Art. and on over that, Vice the and to are Peck; Teri With President and CFO, List-Stoll. CEO, President

Art Peck

named independent I'm traded quarterly thanks afternoon specifics results. separate today. announcement two joining Inc. us we start the and NewCo to I'll to Navy. then Hi everybody, get into discussing and made by cleverly for this companies, Old around going Gap the publicly into

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I Navy Turning Old equally excited to about. quite honestly which am

capitalize As company. will positioning Navy be maximize brand leadership, category approximately extend annual with able and revenue, scale, two to unique its in apparel revenue growth Old profitable customer as an the the deliver on independent and to $X growth broad number its awareness in the U.S. billion

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guidance. the others in macro that we environment many pointed there's a progress with. be of foundation. to made the Banana disciplined productivity good areas things look doing and out renewal the Republic we of our pleased said, the as That our better stronger know positive saw in continued played goals a the on As we deliver committed But We better we We and we with could role. to back and have do choices trends to business year, on are control. the industry,

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stack. health Before I our into value think in dig which start this the space. for the active conversation the and model. leading into or The introduced to its base. The remains brand, product by in to want multi-channel of to customers grew a really continued to record Navy, XXXX. wide and fleece, of jeans market I X% margin shopper Old performance business assortment the the the it's has have Old healthy brand of quickly of I Navy Underlying have success to brand Old to leader continues healthy entire rates double-digits range play a growth nicely file across of year to I a strong business XXX% Gap was confidence grew win grow. saying; just XXXX brand And and family. large a with the delivering portfolio. successfully important on a fashion the for merchandise in and strength very new two-year context and the puffers must-have Old as high-value X% that in Inc. the was Navy And comp high-value operate that at outerwear. room a staples, fourth this put quarter continues add also tees Navy become such categories, continued These Old multi-channel Navy and

a after December. Friday strong looking the the hind-sighting middle we and in sorry, began concepts Old the Black the the Navy, weekend, traffic trend. looking like at -- November in – of in quarter, other quarter, after Looking start experienced and through quickly deceleration And after

we While low this the been issues at recognized with some there work, during have macro traffic drive we could've season. our also more done to to typical engage in customers may

and to newness did investments to We winners repeated and into our performing leaving flex heavily also that that products acknowledge less better assortment or provide our skewed not more room were enough items. excitement

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overall Republic. confidence year relevance potential and that XXXX Banana, progress Banana to the of was strengthens in our a Turning for

of coupled positive achieving basis comp, in expansion XXX the with XXXX. a brand With points product margin

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customer side, reflecting and improved the and customers our over with On the up. the last rates getting year to more base VR even marketing as product is and acceptance grow stronger customer consistent brand-appropriate aesthetic. at Acquisition our connection a has continues now that ticks reactivation

their plan. drive working messaging, throughout our providing the through line key will to during year performance. on from the continue experience the continuing Francisco. in team out Athleta. of their to highly traffic expansion BR back On and productively assess front, is delivered was single the underscoring all while incorporate was lot expansion. with utilizing the expect, is holiday customer QX be during team's used to momentum to to during efficiently team The of on headquarters levels reducing promotions competitors, which more determined promotional brand the event-driven as the margin capitalize this on Zooming periods reducing they BR trend, margin degrees location on about operations this for intensity strategy focus and effectiveness their acquisition which learnings commercial drive varying team the to the to pulled further while the a and intensity of customers year is a and us and of now as in In such Overall the proud In time, continuation for strength from holidays commitment San ultimately building season. expansion. to promotional holiday promotional continue competitive detriment focus they to margin a seen the value particularly reengagement there's continuing the quarter as

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acceptance and key held of traffic, less trends. to remained product a year-to-date sales indicator Although positive

to see XXXX capabilities and leveraging in and differentiated for mission range growing our in brand's market share product offering continue runway We growth positioning opportunity our performance, by and of tremendous and innovation. fabric, purpose-driven unique beyond the

Gap, to underperforming into of not to to majority will us North of more healthier I our are but close detail. of concentrated address with But the we last to and taken a will looking fleet get decisive as on be Teri Moving smaller, we best thoughtful do quarter XX% action brand. intend our or closures specialty specialty The ahead, America stores. in approximately fleet. Gap radically represent restructure that have the stores committed leaving

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are and restructuring what to growth. for our drive acknowledge. we committed to have brand to But and unlock this fleet cut work shareholder the profitable And out we to win. we we We value do Gap us revitalizing need know

the set up one in company both next for XX many somewhat strengthen we companies. profitable outlined pursue intend drive and years. As NewCo results historic continue chart for this moment and in of Gap to begin tirelessly to amazing are of growth Old already Navy XXth success aggressively opportunities the to independent a brands. for year in the and to XXXX we've I as to call those our our there This is both course where the Inc. to

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do lot separation. We a to work before have of the

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Teri List-Stoll

the of brief leave Thanks Art everyone. a to Q&A which few. in and good interest for I'll be comments I expect afternoon In there quite my time time are

start on some information separation additional the me Let announcement. with

separation, the approval stock. Securities customary other be We prior complete, Exchange of final be effectiveness the to and Commission generally of Once for separation. tax by shares conditions. of and pro effective capitalized philosophies. that from be Navy both will the early will NewCo process. appropriately a counsel, including of shares income the a a After U.S. sufficient actual conditions, that will tax with rata will and the spin distribution federal Its through and distributed receive certain registration support XXXX intended and days Gap to of determined shareholders opinion to tax-free are plans expect We receipt and liquidity The expect a filing well Gap completed as statement off capital in Gap ratio as subject that U.S. Inc.'s planned with Directors, be be is execution currently to the Navy expected of the Old NewCo allocation certain to Board operating Inc. planning the the Inc. separation separation be to shareholders to Old is purposes. transaction investment in

So number definitively of point. questions I'm answer prepared at we that a sure, have are this not you'll to

committed Navy the implications. of are a through Gap process one This to to step its It transaction supply partners, our and employees, become the growth that complete digital that haven't diverging platform, chain stakeholders operating like for that lightly. balanced we effectively other and disclosure separation, Inc. an one we move we to increasingly versus our capability a important ensure and building strategy, As scaled is successful has in towards transparent our traditional of investors, understanding full capabilities in that important affects are certainly and transformational Old vendors, areas brands. taken our supports no clear necessary specialty while needs the longer and

us and on brands competitiveness the is the ensure deliver to journey of right our take to step the time both for our to Now next shareholder value.

the Inc. Next, Art specialty is Gap NewCo detail And an is important an me the The rationalization step profitability of let important Gap and brand, more component specialty portfolio. mentioned, channel. as Gap we the announced share fleet a improve of to bit just the this proposed both regarding today.

additional market XXXX that with Between which closed XXX XXX represents closures identify excluding or fleet. and stores, be specialty there the on the year XX nearly half contribution strategic a stores closure locations To of today, the China, were this closure, for and a started of were in XXXX. levels will for to specialty announced specialty additional that in wrong year growth not natural focus appropriate we beyond the and delivering those not of stores we were otherwise us. that the we expirations the fleet this global be fit we closures So the continues

that we remaining aggressively, brand generate remain can the need but appropriately is a accomplish to located fleet ensure closures, and the To the sized and positive are customer investment to these next balancing may is over economically. of rapid criteria provide and will are leases actively sufficient also objective appropriate toward that closures There move are experience. to returns Our about pursuing In do and closures place XX that years. up take XXX expire be naturally to timeframe, our approximately more not XXX as the two stores for meet same retention. we

And from significant with the of million. million annualized of we $XX be the $XXX end We stores stores important stores. $XXX $XXX the by savings closure expected we important expenditures. will cash sales our of million losses role with expect closed the about in In expect about to of to fiscal annualized experiences these an these healthier total, will base Through decisions we these a that the year that majority note we expect result It's estimate most customers about in XXXX. be loss of to to costs restructuring of have omni the million play demand. smaller an stores, pre-tax

XX% shopping focus to customers' specialty continue We experiences channel addition, locations, to on shifting the we serve as well-positioned our that evolve compete of effectively that we’ll model growth patterns. our Gap to offers will which believe brand an over formats and fleet. restructure In omni be with to we our in online business expect

quarter fourth full me and summarize our briefly results. year Let now

to at beginning we share within the of the challenges, pleased delivered year. While set have we’re some earnings XXXX present original fiscal per year the guidance

about As of XXrd quarter. are to fourth for EPS by full results a of which quarter the impacted both reminder $X.XX and week negatively and year for amounted year fourth the the the loss $X.XX

the the Additionally presentation the the of our impact is include standards which reported from changes RevRec our on presented XXXX website. adoption new of results

sales X%. comp the So, were billion to down the the for details, $X.X quarter with sales net

the X%. Navy when for RevRec comp were net the compared last last flat from year excluding over sales slightly were billion QX $XX.X Comp X positive against of the the year to standards. presentation changes Old were the year's sales up flat At new sales year. adoption For year full the last

we share. Navy's sales as were to grow comp up Old year X% continue the For

the Navy particularly quarter Old fundamentally As brand while stores. disappointing remains strong, fourth the in was Art mentioned,

our online the execution plans. quarter. product increases said at there and We've effectiveness remain Our misses year's certainly are some dresses. learnings diving also growth control is and incorporate very quickly trends leadership conversion into women's, next At flat The the were opportunities in plan. and [ph] understand that That see with to comp within sales of both around comp softness to product strong during missed channels against team both traffic the also Gap we the work. year. correct in better QX and hind-sighted in around double-digit wovens some newness to continue But in were we down factors X% last commercial of

As At the traffic competitive last X% holiday which in quarter. Republic team's comp focus more quarter, impacted versus season. on The during comp the an sales comp X% reflect promotional delivered were a a year. negatively margin in trends assortment positive expansion reducing helps down continued drive QX margin last QX but the expected against improvement Banana results balanced levels

in and to continue another with tier progress team last nearly look refine that strategy continuing performance. remarkable trends driven positive. to on forward the build Athleta the resulting in comp improvement year's We top performance upon be and quarter delivered have of good brand's a recent of XX% pleased to

better performance Athleta's there. to have room remained do While also strong, little we a

strong year another channel online over sales a year. our had over rate our with goal representing mid-teens $X.X in exceeding last billion growth Lastly

by reported driven a a presentation of QX was million the basis gross on changes margin, points XXX from $XXX about margin expansion basis XX.X%, RevRec or to adoption. was Moving gross

fourth rent margin driven the loss XXX XXX the quarter points margin Merch was deleverage Gap. impact margin Old basis merchandise the and by resulting basis of primarily driven that and occupancy week. from declined Excluding by deleverage basis XXrd XXX of points Navy decline points gross and of the

online some strength to related the our we deleverage did quarter, of shipping With business the expense. during experience

rent continue mentioned by our loss going week. was in forward. optimize occupancy have XXrd of primarily driven we to opportunities last I and the As cost quarter, shipping the Deleverage to

was or expansion by XXX changes year a about basis, driven margin XX.X%, full million basis the gross of $XXX from reported points on RevRec. the For was presentation

basis fourth occupancy basis points changes expense increase gross margin points and SG&A. in basis $X.X deleverage. XX total operating operating resulted basis a a in deleverage. On and of presentation that RevRec and a $XXX Excluding rent quarter million fiscal basis for XXX XXX impact, from were XXX decline accounted reported operating billion. by The margin XXXX points expenses declined expenses of merch driven points On of

Excluding of of and appropriate that difficult sales fourth a decrease a in A culture, driven SG& the we bonus priority bonus This impact by In in year. performance XXX with the driving was of our percentage basis largely a face as a necessary points. performance quarter challenging the payout holiday line for leveraged payments. quarter but made the leverage to and decision decrease our in

XXX expense million were For total and the full-year, operating operating of $XXX deleverage. in a operating presentation for expenses points $X accounted expenses basis billion. increase The in changes from RevRec resulted

percentage actioning disciplined exceeded our report about as against Excluding goal we million and delivering productivity initiatives. I'm a exceeding our productivity in leveraged that identifying SG&A very guidance points manner of by pleased executing XXX savings against impact, underscoring full results that year both basis a commitment and our sales to and of to our this internal productivity $XXX year. previous

XXXX, had as investments. As up points a deleveraging reminder, about prior to by ramped XXX we we been SG&A basis

technology With in efforts, increase productivity we while and our SG&A. were investment leveraging able digital the help capabilities, our to of also

And $X.XX $X.XX per assets. fiscal share the last year $X.XX effective and adjusted share were finalized turning to of share net of quarter share with fourth second earnings, impact of XXXX excluding tax quarter rate rate reform quarter, benefits of compared TCJA including $X.XX the XX.X%. share a resulting Full net in and reported earnings of the effective year adjusted XXXX. of and related the insurance per per were tax quarter the earnings XXXX fixed to we XXXX excluding earnings and fourth to earnings XXXX proceeds provisional amounts of reported XX.X% the per from During earnings lower the our $X.XX rate earnings with related compared $X.XX last share year related per of a enactment tax per fourth to of in gain impact reform the in tax our

cash fiscal $XXX compared $XXX million $X.X restricted proceeds as property cash quarter Our ended cash, million year related $XXX short-term with well insurance as the with We of last flow to XXXX billion investments. included equipment. million $XX cash equivalents and was and free of million which of

expenditures Regarding range performance. as capital million expenditures guidance store share in below XXXX we to basis a $XXX per previous $XXX fiscal capital now, to earnings challenging capital and operating in our to million And $X.XX moving were reduced reported of the be $X.XX. XXXX, of expect more on response counts, we to

with in $X.XX. associated separation The associated incorporate the expect any per guidance range costs we restructuring to Excluding share not we with the range preparing earnings cost be executing of and for $X.XX plans our does announced to today.

those plans We costs to and as the the visibility as are develop incurred. will provide

but I decision As to reduce the we difficult mentioned necessary payout. made bonus

shareholder reflect to culture fuel enabling As will us expect our and aligning that path incent to performance look we is while and our forward. to bonus XXXX, talent employee plan interest that better reinvestments in we attract motivated the

year. some We our challenging. lap next and first let half in payout through may this half. the you the our be me expense minimal mind, payout As deleverage With we for to cause that this reset year take the expect bonus more first expectations do to

to The year the cold particularly been unseasonably has tends which weather impacted the our has businesses Old be to all been Navy of start has sensitive. most historically widely it published February As cool.

categories. softness comps double-digit sweaters seasonal While cold denim, seasonal across such as in weather we are we also fleece, are seeing products seeing spring

product back around leadership women's expect the the as acceptance softness dresses which in mentioned previously and some Navy Old is half. diagnosing Secondly, of I we to the improve wovens team

half be Our will first the margin for challenged. more

the through mentioned continues work to addition restructuring. In revitalization Gap the reasons and just brand to brand fleet its

half a As a this an and the period per adjusted share Gap the half comp trends expect to in first compared earnings same result half currently percentage we decrease for we the for expect EPS currently to second improvement year. high-teens of relative margin We Based on expect year. last first to decrease. brand

fiscal related million headquarters capital Ohio million includes of and expansion our expect one to buildings build distribution about the expenditures XXXX center. we expenditures, Regarding our which of about capital $XXX out of cost of $XXX

of the exchange year anticipation net deferring transaction the our purchase headquarters on flow to Old in sale of into million to be $XXX we million. start a building. gain at another out entered $XXX the of approximately cash of expected to the The building Additionally, Navy is

including stores Old be continue related net close on about to to brand repositionings. stores, company-operated and focused will expect openings we closures XX company-operated and to Athleta. fleet restructuring the Gap Navy Openings of Regarding

changed. not have priorities cash Our

current We X% which are currently rate, dividend provides a maintaining yield. our

reduce repurchase spend given restructuring to year, related in of efforts intend the share this Ohio DC, expansion the our the to the However, our Navy and purchase we Old XXXX. and headquarters of levels

currently of fiscal a our We lease from foreign at tax lease up accounting to to relevant to sheet right thinking or XX%. few result in a sufficient a adoption a the to repurchase meaningful from XXXX, we current other statement, is up to shares will on and asset liability will impact and leases. FASB significant substantial for slightly. rate it Also expected comp $XX not balance approximately have XXXX, of new quarter. our cover be is metrics. million to currently effective exchange our our least recognize income expect be year full gross use the not but about Our standard. The we impact in exercises in a flat on adapting to fiscal We dilution EPS do expect option sales expect A per XXXX

prospectively in earnings. adjustment are applying with standard to retained a cumulative QX the We

out, again a role the So once in to retail reinventing an position play close this we just leadership to experience. brands our as time exciting is

the we for will year, positioned To improved that standalone new with two create to priorities: are and performance to have customers continue of strengthen upcoming the For to companies separation that our and public for win shareholders. the prepare with uniquely brands execution; two

So with that, questions. we will to open it up

Operator

with Konik Instructions] question Thank Randy come from Jefferies. Our [Operator you. first will

Randy Konik

a guys. Congratulations lot. strategic on Hi, Yes, the direction. thanks

interested now because And given to value how great Because well just entire a of of the how be versus time people that to between that on the stable I differences, because help these once normalized profit going Old et forward around business Navy call margins about Gap that, we cetera. to Gap the could differences update last of store Outlet being normalized weather segment what relates margin as that on type Just to ask how closures guys. about curious, I kind it versus such should margin marks. Any Obviously basis is thinking kind Old stable little it’s see how kind or Gap gave get divisional about think I off. stores of by some to very be model. here mid-teens of more to thinking closed. the side of second, look you to Gap be move Thanks as showed think to get almost a I just on thinking curious over be Specialty helpful markdowns, wanted rate company. impact there was that will properly the you to it's got Gap how split going a Teri, of Navy Gap Specialty a disclosure some type we as Online. we profit division. Navy as various, division, was around then Gap business? we are to should and color of quarter But the for bit I like be the Do sense margin great that people last operating your on thoughts time guess a margins division will by mid-teens Art Old that should

Teri List-Stoll

Thanks, Sure. Randy.

get over on of will you of great transparency you deal both time the a questions asked. So

separation have of as and having a that necessary have a a Old for Old difficult thing because towards deal is most impact will to trends for we can responsible recover and way units forward through we detail great markdowns us same fourth is to we audited such that Old that quarter we the for often big as see year financial talked do when a We prospects particularly terms the is business and move And of a XXXX, do inventory Navy continue terms today that the the margin is statements course move we hit Navy top will move that that. expansion NewCo. part about growth Navy of The traffic margin margins did mentioned the There's time. but the from line no to so from over of take Old to question in Art forward in take the levers of flows start in also that both that growth tremendous such bit of Navy clean.

the both we of long-term is But top we the having going of line respect we to the magnitude And growth the that much is Navy Old facts. what saw terms about bottom closures talked the that so in and trajectory in all as brand. Gap, the specialty we the look company. total forward believe forward. of to Very is not the opportunity contributions of impact With in their of

Gap the dramatically So for the and channels of the specialty changing of obviously mix the across brand. changing channel the business the complexion

fleet margin Gap forward get say prepare revitalization that not than we separation. move through with brand just and to there over for drive not as rate understand progress with paint but to see necessary specific overall and continue We going opportunity to progress the or to into tremendous for picture additional are the the for time with to brand specific will we margin specifics timeline we as that again the we continue the certainly restructuring and other the channels the

Randy Konik

Understood. Thank you.

Operator

next Telsey Group. Our with Dana from will come Advisory Telsey question

Dana Telsey

afternoon past think systems. the still manufacturing changes puts everyone. and chain, How but businesses? you envision supply they're do businesses separate Art we've takes as from in businesses? on talked forward big greater to Congratulations expense moving Thank you. separate about of you having Teri Good think the you what And and separating about extract value. about the do

Art Peck

as Dana. be or these the been that the average It's substantially when going size and big company one a this your I'll we've still benefit put companies. benefit, is point frankly obviously of apparel Art Thanks because the are you Teri part on a real chime and let in to scale finger And of than well. your work doing to larger on

feel that we we places so far can enough a And and the actually that to number scale forward. continue of curve move onto are hold down

be. have some We what potential the work dis-synergies on at looking done would

We some we are stack have our opportunities technology that there. to continuing and on work

why here but for Navy on probably with is the chain is path end really this We businesses that frankly brands. and will sure been a an want forward alignment to talk there And on I'm is path with with with the I this are to our other less believe the also that's more for -- -- other There we certainly what the move urgency I I doing more -- supply out from accelerating is the me work businesses. point and vendors between got and guess standpoint. the Old Old there back the overlap divergence end this Navy true with the committed the a I'm has and back would and path where there about so

Old brands overlap Navy but other, other The less. overlap each

is, we've made a And progress. In I in this fast continue way opportunity I my way not with and acutely And enough. the feels it same Teri event a help like productivity know the and us of to very company. long aware that mind that. are side progress that other I from not progress The can done accelerate believe enough focused the potentially catalytic and on am fact we the

So while specifics those. not now. right know really going I'm to give you I like

continue of can't we work her lot commitment We Teri's answer reiterate questions a in remarks, I'll to just which now. is right will those. And

value us potential. forming to have done this We very is are to quite work significant important get the we significant the believe this and in and unlock confident we does fact creation that point that it a step

to work and as with absolutely we as the do thing two new to takes these show right are are you continue to we be is the going can what As the But learn things, confident what transparent associated this like, and puts this. confident. look we are possibly companies and we do, to really

Dana Telsey

you. Thank

Operator

from Baird. Altschwager will question next Our come with Mark

Mark Altschwager

executed the at the this customer, spot Navy? architecture? versus picture, the do to mind will part if standalone do I be this of But know sweet have I answer be see assortment, Thanks. that a untapped point. what changes major you specialty for don't of the able big company target Gap's in brand Old the think Art, as you you better Good of Gap you'll retail? strategies makeup do I in you mean chapter see next pricing to guess afternoon. where

Art Peck

thing way the done step frankly apparel in is of remixing dominant the obviously the every first Well, with radically of exposure. to is channel specialty do. that to leading I segment we've been channel is end something need And things I in remix Gap the has the that closures see higher is This pretty informing And going exposure the of need the is store to important. the retailer the we mean on that's to do. some

rather don't economics opportunity same to a way are as the going of and close fleet. past, the business the we business think But the Republic. Banana to Athleta future. to that inside for a right healthier a pretty stores are some building are have that we've close some of Overall purposeful this take not attractive frankly we And intentional about, We in Banana brand. has been much going but stores

process Old Navy So have that different specialty between does OpEx They business it's about quite and the of increasingly and specifics a in need an then POS capital and is A so. versus part for for and were of like Navy's more not. allocating in of is, in-store footprint, brands. bad not. have optimized And well. of And frankly is both about options why than And the myself that that outlet fleets Athleta would the specialty the Republic. in the divergence here, got less be the of energy highly portfolio have Old this investment than me Athleta two opportunities or models. example fleet less in because They model international I Gap decisions, than the least businesses, brands solution the technology their what brand negotiating the different solution have compromises frankly for really Banana found service mobile lot and a the an use as simple of Old I is divergence needs the needs Navy

of lot if that a just so And to not there is going we I bad that points it really around with I It's it's think matter Old the there's at therefore two to accelerating this customers. isn't well. there And to will sustainability lot that incentives, to to think thing. an our the of aren't investments, That's am focus important going focus, rate. to And work I of as NewCo know me. can a to is say a a purchase big just No? a getting make what fast do. couple I'm Teri gift But big want then need these that alignment on and see and a is win, of solutions And way for the businesses that if well. Navy get matters lot you as more. focus we of least of faster anything kind alignment are believer the we best around an that with I purity and don't easier which know one customers but you it our

Teri List-Stoll

having that's web more ourselves what's more more particular the to or different the as choices. quite you're investments with suboptimal investments Navy Athleta Art of answers more, analytics mentioned Old that Old technology whether with other as tools coming specialty you're or often And brands. said versus data in forced Art versus needs then Navy I the think what's the point often for for other you the past of and if we brands. internally right tackled particularly In over often one found Old think so. about focus And you've year or versus Navy right for have debate

continue to this way spaces. be really and able the to with being feels right set suboptimal Navy Old its on retail the their continue focus absolutely and for to growth unencumbered versa by to opportunity compromises NewCo brands other like reinventing brand an exploit to in to vice So up leaders

Mark Altschwager

Thank you.

Operator

a from Yih Adrienne take Wolfe will we Research. with Next question

Adrienne Yih-Tennant

question the on a this afternoon. Good Teri closures. is store

how of distributed how lease of are of perspective from come So or are $XXX flagships are said expirations the them And if any? and I you lease globally think off million many natural options. XXX to then the they going

of $XXX that million the million for million? $XX any give So remaining will be you that just cash the color $XXX can Thank is very you. that If helpful. to on

Teri List-Stoll

sure. Sure,

are in largely the So located but stores are the XXX global they U.S.

are. included of And them in majority there the are where is that yes that number. So flags

selective believe how are But been believe a retaining number are in calls. we acquisition key in mentioned for necessary about thoughtful -- appear have flags how flag. customer And to very number want really what many should it very retaining certain negative should big earlier you're of -- we challenged in the very we are be how very a certain and Art a we been to of We selective we those how that really flags need. flags we been have in much and to certain flag the of And retaining drive flag. customer in contribution we engagement invest in geographies. have of We've willing of number be, our selective old-fashioned notion that we that in those a believe are this

million natural call stores. And beyond closures costs. XX largely things what's million-ish There us are So stores will up restructuring -- XX XX you're $XX are the it -- cited expirations stores right or not which the that XXX included. be XX I the that leaves making those

You have some severance and...

Art Peck

issues Inventory yes.

Teri List-Stoll

value Inventory tend and is number or terms and stores. tend write-off. related largely part of And that But be they is XX the they be… those so to the reason to lease books for to longer

Adrienne Yih-Tennant

Yes.

Teri List-Stoll

flags. --the

very way at is leases up deal expense. what have with to But with think projected So is future we much we economic and it. come losses those looked there associated with additional the

Adrienne Yih-Tennant

fiscal just terms weighted they for half then for of the or at contemplate this them years? the in of Gap, do those And each are of of year toward year this say they are buys inventory end QX they of

Teri List-Stoll

are. Yes enclosures

Sorry.

Adrienne Yih-Tennant

No, go ahead.

Teri List-Stoll

appropriately a for been to doing This We we specialty to are would is that minimize planning end come this unfortunately inventory bit we but aggressive. pretty the Yes, scale, -- Gap so of we toward it. XXXX with larger a write-off inventory are And and We've closure. planning the they are our stores and obviously the are while. close for know minimize weighted impact.

Art Peck

We're about inventory not going concerned unplanned -- to here. overhang I'm that's not

Adrienne Yih-Tennant

Great the great. with luck Perfect, new strategy.

Teri List-Stoll

you. Thank

Operator

[Operator JPMorgan. with come Boss Instructions] will your question from Next Matthew

Matthew Boss

thanks. Great,

So more what the see you by at And at may half then do taking is year? categories to timeframe the Art, fixable be you see time? of in brand, Gap you necessary the that -- the front similarly same-store versus concept? concept areas expect the just we restabilize see be should sales Old May Navy negative

Art Peck

Teri of that from. both each looking other came where Well were and wondering kind at I

Teri List-Stoll

lot in are guidance mean Matt. to of May Navy are Navy, the we some quite -- that be not comp we very But didn't you think tremendous to a going imply categories in Old well. Art Old could for the there There opposite. we is are quarters. say Old Navy give certainly, that overhang doing I

We for have is sure. factor the weather which a

to that relatively seen companies. half. somewhat are are minor lot and as in what You've of then product opportunities in characterize work we a we It’s through. And with going something the that I we would first work through dealing will

Art Peck

Yes way good. I I it Old don't sick Brand form or shape or is in view say any no form. -- just health again in way I'll Navy shape as do

the that. We refresh right every schedule are to is do period we retooling our which marketing on what

Teri List-Stoll

share. growing Still

Art Peck

would done impressive I to share, growing better still holiday. Yes, stack. two-year love have the in

quarter is than issue of fundamental that the any a where the stuff. team, business model, health quarter do being we done not the a brand, say capabilities every it's be have this handle going different in sure I that to on business are perfect. of that a with quite was I'm the of all for good the to think sick. not long have But product don't time is I said wasn't -- going offering, I the But even pretty we a I what little honestly. it's to we not perfect cold better. should even way-way and there

gone if I'm or our confident. quite wouldn't it felt on in repair I honestly, And had hands that job quite now. I any I shape this form. way have way like we feel So don't path right down

Matthew Boss

just Gap That's great. brand? And then with the

Art Peck

said fix. you Well

relative As know, we is a thing. fixed

are are We quite we I'm -- confident seeing. what with

category key seeing We are period-over-period. improvement

is progress and core Wallack turnaround You the of there's in a brand brought brand. I ago. Pam in the Pam now know we Denim worked months significant last together successful and Gap few the lot behind at number of of there. as attention on We've and the both the knits focused putting the reducing depth significant the improving made as of quality. styles business a and well CCs more on knits

me just baby development in am men's which bringing been then and to business et to range has where what We've so, haven't, season-over-season. more Gap of the top be we And solid novelty, the are core cigarette, more a getting with spring as the a pleased and And there's categories with modestly stand into with we in areas. And is been has for. absolutely some change And fall, a I It which strong exceedingly summer kids those super to bit shape for a men's, stand trend, place silhouette trend, very it leg that in has for then denim. are to in high-rise cetera. wash and us. the straight, we little I've in working. a into seen high-rise invested on continues

about two key we on are a top really of and been and it's those categories, So fleece denim and with moment. have knits fleece in women's that and

and own we make the it It where should investing And dominate Gap investment happen. behind are place be summer we be should that. into and to really are get spring, a in to We fall. bigger fleece as putting able it

turn again words. the And again. I'm confident improvement, forward a I'm I'm seeing. called I've So not comfortable and What and turn I've I'm is my what with quite eaten looking before. period-over-period calling

Matthew Boss

Thanks. color. Great

Operator

with Research. will Citi Paul we take from Next question a Lejuez

Paul Lejuez

linked crossover online? the about also range guys. between I'm what same equation for to give the All platform. to the sense? Navy other website. that you Navy the operate Old Is a the kind shopping be determine Thanks. us Hey, curious made help dissynergy that can on separation curious Old Art, the Thanks. and brands factors of longer brands plan the And you other you into ballpark, have online. brands no

Art Peck

Yes.

now company, very imagine really to the And it's and something able relevant So dissynergy number I'm here a you not right you can this give is tent. We number frankly, the people what's going group. to but the this, with going believe the is been because as inside the be we've group got we've very the small material a is working right inside net.

up a make As or that said before, going that. and a get a sure issue issue hung this, gating we on I cost or stage to to something were structure or like issue tax not

it one, confident do, So the number it's done. two, right to and that number thing are get we we can

a lot work do dissynergies. both the of have dissynergies to and really substance the on into We getting of then the offset the of

dissynergies to maximum productivity. I and aggressive comes objectives out go SG&A the I when accelerated very this, would have, it the getting and and forth minimizing say both Teri back we so but of on And

from So that standpoint.

to least. have anything saw digital one be how a with and some people that around. marketplaces. least company. third by here, On with Hill Navy right of filled City Gap and the the in I overlap party do obviously world not far ruling to the honestly number But most Old here this third I'm party website quite shake out up marketplaces Intermix overlap all we have now, the right attempting certainly is determined stand Athleta Banana and We the

out. figured going want and preserve much one value to possible, to economic to that Sonia NewCo executives we in to And want the is so I'm as going as sure as our

to a is that So but also, wouldn't to-be-determined I conclusions. jump

Paul Lejuez

distribution side? distribution Navy on between center How about the and Old other brands? How many shared centers the are

Art Peck

Again feel work. we are the to physical not the brands. like We actually doing has assets well pretty the units

pretty -- efficient scale facilities much and are of the really productivity. so highly inside All is walls. those operating at And a four level

being as see pretty brands. mapping it's don't centers the to to organs. the see think it distribution don't to really We clean be we going shared when comes So

Paul Lejuez

Good you. luck. Thank

Art Peck

Yes.

Operator

Sachs next question. Walvis from our has Alexandra Goldman

Alexandra Walvis

for you taking questions Hey much me. there my question Two so thank here. for

supposed was The came question Navy. businesses. out I considered on this why group other for as what structural went you first of this one second And one then through is process this approaches Old you And on top.

has the store mentioned that think in that do comments You the this long-term? that you you. underpenetrated prepared base. brand Where in to an store you think get base can Thank

Art Peck

Yes.

I'm first was On talking -- I again quietly. Teri the was? Sorry? I the -- just -- What sorry was very and were question

Alexandra Walvis

Yes.

first what businesses. you laid question is out just and... options wondering the this for plan The two other I'm

Art Peck

right. Yes, yes, right,

Alexandra Walvis

business. the For

Art Peck

Yes.

all our at and and it the combinations We So you the be here. the boil board wanted can ocean at we shareholders look we we looking to felt exhaustive definitely those. have owed in permutations and felt employees and we that to confidence to

Old We the way form creation we time way to we or that bundled a priorities Navy. we meet whether confident example in at more is And whole the believe hope But sort focused more model logic indicates of should at we focused this position both have said any look with much of significantly a have we manage these preview their is of same end di-synergies businesses of on where We faster did or with value operating right that the structure an I before business no the settled being can to and it or emotional day. how really Athleta can that create investment companies that and really benefit same thing. to value now this the more move specialty time this to obviously looked best a particular this so these combination as And without feel attachment largely in together also point different by to consistently. attempting and are on across the at the at and businesses. that. needs they like be value something these not due the to leaner quite then as And shape

Teri List-Stoll

Yes. I that. just will add to

NewCo do we you take the looked to can can emphasize basis much well at sell drive that of we the can definitely anyone standalone other to said -- wouldn't of default as you You of the together get with at we off And therefore productivity options obviously and just for brands think significant is balanced by what to spectrum And all point Navy when homework we end Old going that each believe. that like we stuff be imagine range and are this for by of to from all. the Art's deliver have not we that which of the think staying that you efforts just have focus to them. growth a way want and strategy the what part the the great on we just a continuing the

Art Peck

Not that at all.

Teri List-Stoll

choice a brands the believe way The and combination do each brands to can bringing create by in position how value that's we intentional really portfolio of the the of together... these and that unique created

Art Peck

of on Navy There's and put opportunity. these the talk the tell we not couple locations would really big for the to productivity non-traditional stores What a been is that the right locations like both to be minimize be or now. Francisco And the for ample there opportunity to businesses the believer And because as last am in-fill where story. in pull and Bay going together doing maximize have And San strategy. placing these to have the Navy of stores Old years the been I'm roadshow di-synergies markets going Old over in this in a Area. number out we I validate traditionally might essentially what

loyal. are et there markets. those markets when in And are trading Penny's retailers where and at served retailers great with We often or increasingly actually consumers digital Many stores cash look expression were you because have smaller brand. customers Old of You cetera as legacy know in especially that of a merchandise traditional deminimis. Sears at Kmart stores often often closes put through percentage traditionally when general are don't access markets the by in. significant the you realize does that we've or very we are announced Old markets and success customers look that rents that their for found times the realize and have living we smaller that was opportunity the you The missing oftentimes that those in today key markets than places The are of Navy some an lives. to markets are brand that consumers stores markets Navy those super remember is we in underserved those are a patterns those

winning mind And a a have States here doesn't combination. United so on the significant we brand think is We real two of the in and what's apparel to that's brand. number have the that percentage access really our population the

Alexandra Walvis

you. Thank

Operator

Hutchinson will America. Bank question next from come with of Lorraine Our

Lorraine Hutchinson

you. follow-up to Old Thank wanted Navy. just I on

fully because problem fashion XQ as you've well. like misses few feel in diagnosed the you were If think a I there

So is And margin fixed if you that back quickly track that specifically? you think Navy spring? that get Old for on how could at

Art Peck

tough QX at et we standard walked a a Navy held the a of product, inventory reason a to start business the the there would a as victory to be weather And now cetera out out Really when over were had defeat And perfection uptick QX. you misses. mess. going and a jaws was the business turn. looked some compare it when be believe it right that mess. and that with and the that's I to I'm hold, will are significant it that QX, the to back would We bit of go -- week could few I from the fashion see that in to definitively of ago call it And just If port There's if And see I QX you're to I fly I we the are business. going backups a Old fashion in wave a they we of of of again, trend. to we took it to not lot be quarters forward I pushing just going had right categories was get our if warm a the always into going from to there's snatched predict We but got they us say mean and door. look we're mess now at call a We from the we in team standard. of and little fashion XXXX specifically, this and bow misses. always started two don't a I turn then going business Yes those. assorted. if there's don't to reason that

is this box. not any -- wreck about and I'm super -- of solidly in solid that the a brand about don't beyond about super the have business product and by imagination. I the redo So stretch the we the health and of

Teri List-Stoll

where number a Old fixes certainly industry-leading number has sure said then make we’ve the get we than a mentioned quarter couple to certainly on us we in well-positioned second-half that drive going as again margin margin. there are the be more these we've there help are that product marketing -- track, back some portfolio start traffic refresh is And as hind-sighting be But Art as probably the the and we are and Navy is these to half. to factors actually to probably of done likely and of margin leading first able benefit first to categories one

do actually about So overall health. the think it we feel very But can good we better.

Lorraine Hutchinson

Thank you.

Operator

Our last come Chen Cowen will with question from Oliver and Company.

Oliver Chen

chain? curious that benefits the on customer a you're supply speed of organization different of both Just consumer employing the and kind with life. her his thoughts the because and are that had separation you through you to the data parts or will how were also data manifest scientists digital piece in what separation and also the the across that there in your regarding terms Hi side had of the and

your there. articulate why think So helped this the terms would -- love I I separation? I but thoughts of you. now And am in Thank you

Art Peck

again sort a I've in of this. not piece sure and benefit. interested of I'm data about I'm are we bit little because The Yes. getting talked this

Old of the of the everything don't a as very of differential That divergence honestly Navy, penalty life inform whether said, and down data look asset so We of hope personalization, we've the benefit the to get element it's Quite we organizations of we whether at having the both continues businesses our benefits Navy we than data I process. specialty as the we the in are the a the use are this for fact data you marketing, about talk of as business in lot a getting talked believe businesses, two have see again whether doing. an carefully is the we predictive about are it's buying the use all we path separating. the relevant of that lot it's strategy we data that analytics

other of property or there again to through I pursue out. anything something solutions believe we we marketplace that it going to be something we that form healthy to the overlap. that's of that don't It's manage. So, think a And shape kind ways that and are We opportunity both working than in and different file. The do significant will and this no a way do have file I we growing same we a was continued what need are of as was That's sort companies. been And have thing. customer it.

issue. an it's So

We are it. aware of

we that? was come the implications on and there? back about more on was talk it will then. as a question certainly focused we again Or second focused Was and first. the I are. know are There what We was

Oliver Chen

The second question was…

Art Peck

Why now.

the As go ahead. in sorry we've talked --

Oliver Chen

all. That's

Thank exactly. you. that's Just

Art Peck

with that became our and requirements that of at the on business to we and the productivity I've the there is convinced ways for where with basis ongoing that we been the now of are And of manage be when long move an to of the probability doubt company And investment that divergence responsibility. outcomes. do. strongly better straightforward the led now right the that's it times in right expecting. very company of needs several I this as the the was models Yes. and are ability and portfolio to you you're I urgency very the business company the and the point business as the mentioned that work and now. frankly now business each of where when that was reasonable and Why move as think, thing we not may is operating and done dissynergy to with I've quickly where we've beyond Why we've the believe looked Why other you that you believed parts answer come

have does of the was the that right purity opportunity now companies. most to front we we I But love to having, different me excited to of opportunity and excited of I'm I'm it the frankly both absolutely the And and super to because about to what for gift and choose thing lead all these do. in know growth painful of a model The at also incredible and affinity these to the about is and retail imperative energized Navy the needs what because brands specialty to the a thing why the I was it. So its happen. model Old reinvent continue business are two in in people. we between I and believes, accelerating rate believe an an business can surprise apparel lot way monetize

Oliver Chen

and Thank regards. you best

Tina Romani

a Have day. great

Operator

Thank Thank does conference you today. and for that conclude our again once you.

may disconnect. You now

The Gap, Inc. (GAP) 1 Mar 192018 Q4 Earnings call transcript