GPS - Earnings call transcript Q3 2020

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Operator

Good afternoon, ladies and gentlemen. My name is Karina and I will be your conference operator today. At this time, I would like to welcome everyone to The Gap, Incorporated Third Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to introduce your host, Steve Austenfeld, Head of Investor Relations. sir. ahead go Please

Steve Austenfeld

very third afternoon, quarter you to and Gap, Inc.’s XXXX much. thank everyone Good welcome Great, earnings call.

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

filings that of on our cause of not Accepted section with any from financial factors differ as the Accounting as actual to statements. as of These November Generally refer X forward-looking on measures remarks the based statements, assume gapinc.com. For Exchange all on well Form to are to as as today’s Principles description available materially the Securities forward-looking could report no the we information on of results obligation any We shown X, and and Page information please or today’s reconciliation quarterly supplement our Commission slides the release, well update consistent earnings XX-Q investors on statements filed website subsequent XXXX are of XX, on our forward-looking which gapinc.com. and revise with June publicly XXXX any and

I’ll Joining the Katrina. me today are that, and Chief over Chief call call Financial Officer, on O’Connell. With Officer, Sonia to Katrina Executive the Syngal; turn

Katrina O’Connell

for Thank Steve joining thank you, you and everyone today. us

get and we loved healthy, we address your started, COVID safe Before pandemic. hope recognizing are to ones and you the we continue

store stores holiday our shopping invested their in to into both we many eager customer. a our year recognize the million over head season, loved and Gap, our date experience, $XXX safety and health family for As ones. safe measures for Inc., purchase to we gifts make employees people are and At to we've

and our gifts capabilities, holiday. invested options, their in hope family as upcoming to season. safe the themselves they We online healthy everyone how purchase Additionally, customers well holiday and want pickup as for remains this when we during further shipping curbside and enabling

held we investor our Plan us quickly last XXXX back Power to call, strategy. meeting I'd connect to like today's month For the unveiling

on Following of quarter year review third XXXX. thoughts remainder the the our by that, fiscal I'll company's performance, followed

then share by Q&A. will Sonia followed her perspective

mentioned we of as want third summary, on billion So, investor to last provided part of the In I billion year, before portfolio, into last Navy of of results, the brands, noting $X meeting, come power quarter brands, all perspective I that power and being we specifically the portfolio, just month. end from. as our being power our acknowledge at our capabilities examples platform, Old supply our synergies hosted with our largest the $X over and our being extensive benefit chain the two of of the from digital each that growth our brand with brands jump

early model financial Specific ongoing we’ll Additionally, noted the model, assumptions XXXX. growth as value. versus significantly we disrupted share earnings I reflect our a of call to on part we'll XXXX, shared a economic with our shareholder XXXX would beginning year of fourth profitable year believe XXXX I drive in how thoughts we our and we that pandemic. it due call the expect that COVID economic be which XXXX rebound quarter in to been to has

digit next noted an of operating a consistent as in for the end on or flow yielding making low-to-mid deliver beginning sales set consistent anticipate a by achieve a as number achievement XXXX, we years. greater anticipate structural also to XXXX. we XX% margin of sales, XX% operating of year well We of accomplished we've company expansion, and changes and margin operating cash the we emerge growth the as XXXX, now that we're up into basis, from single will And

Athleta. Both expect highest which Power we include our XX% driving Gap European in margin of number the a Navy partnership], we had more a which and as brand digit of initiatives. a key strategic as to our end execute continue growth of XXXX business of our well and strategy, double on quarter, profitability. sales in we capital As the These to Plan brands, [easy growth The focus efficient third review with Gap Transitioning XXXX. licensing to of by our the agreement to improve IMG, be model Old through

XXXX. We an has $XXX yield savings also our annualized stores, end and will which EBITDA basis Banana meeting during continue by closing Republic on in will unprofitable Gap million stated the industrial of

beginning target digital to expenditures, we and XX% our sales omni off and the building of level including and the the investments on by XXXX, capabilities, distribution technology online third focused to being Additionally, in our online, normalized end capabilities, that capacity. returning a our were XXXX of have capital to in of quarter, XX% sales of further

So, consistent lines, stores, the having company's close Plan elements to store key rationalization XXXX of me turn of decision let the a our sales element initiatives, results. addressed company with unprofitable top total third some with of our Starting strategy. included strategy were key flat, to which impact of quarter our Power our net

the the the were comparable quarter, X% Importantly, up business. fundamental of sales health reflecting in

on customers which We’re was double strong is quarter. to product Navy digit off business X% comp in the to online and paying marketing strong by responded our that also increase Athleta, see as their both as pleased numbers sales driven offerings The and messages. positively increased delivered in sales third our driving relevant strategic focus comp XX% online Old

and by strategy XXXX which company's company's growth XX% of add which businesses. the end meaningfully cumulatively of of noted will sales during during review, meeting, rate both of sales We margin. and end the as our Athleta, growing them as investor XX% Old our noted the fastest be highest are and growing anticipate quarter Navy to are of company third As our margin

This and basis XXX as gross margin costs sales rent product higher of reflects Third the exceeded from basis to continue year. quarter. the margins, strong unprofitable points in savings of margin quarter points basis shipping by offset in resulting close very higher as deleverage reflecting of XXX merchandise was and promotions lower expansion growth Gap Banana online last Republic margin, partially from level XXX to XX.X%, points occupancy up we compared stores,

to operating Turning expenses.

During operating XXX basis XXX season. of brands This last marketing included dollar across advertised the year. the expenses extended with by our quarter investment basis billion during all higher to each shopping being points in points brands, over increased school back versus

discussed to meeting, As many increased our we for brands share investor retailers through company's gain an the the during provides challenging marketplace marketing. believe opportunity other market

for invest to these welcome health safe shopping environment amounted quarter continued of family. expenses the In safety measures and stores in customers as of items approximately company to which basis to points safe and the a Additionally, to in provide our part its in XXX protocols deleverage. their purchase

reflected SG&A to points also XXX store with Lastly, approximately associated costs from basis deleverage closures.

essentially approximately in points costs gross one were costs. and lower Old benefit previously XXX year costs These related these separation in standpoint, earnings an a company's occupancy Navy. margin cumulative time increases planned in were basis rent primarily by from of offset through quarter, the ago partially Although of the offset to

but QX, to safe through customers offsetting continue forward gross marketing the directionally compete brand important to pandemic, we we a expect to reflect holiday for as season. in environment and continue intend investing provide costs, our we again We'll in margin. to shopping manage Looking store to invest closure and more the during

of or company quarter So improved and of versus million delivers last from with meaningfully operating the sales. income quarter standpoint gross an improve year, margin third $XXX operating income sales last X% versus performance

earnings. The economic security third or was the Act the CARES aid lines with mix Looking million. XX.X%. effective of year-to-date share coronavirus tax $XX rate expense income the at And earnings the benefit impact statement, in reflecting diluted of was lastly, of rate other tax for relief of the the primarily enactment and The interest associated changes company's per was was XX.X%, estimated effective $X.XX. pre-tax quarter geographical and the

in to held season. Turning looking the sheet, up is ended in whereby next balance summer uncertain X%. third on be selling and a [indiscernible] being earlier inventory basis, demand will Recall at the inventory year’s released pack face year, a product implemented of the quarter mostly approach, the we reported hold during we that

in inventory a until reported our will hold XXXX. released numbers pack to As and market the result, remain in inventory

hold, disciplined to Excluding quarter inventory our pack approach and reflecting inventory. was of X%, down about end managing

position date. Specific to we've anticipate me generator, We we the shared turn disciplined Inc. to higher store is supported same Inc. high $XXX XXX X% of XXX online excluding sales date driven our invested capacity, is than cash million Despite in has let QX. flow cash million, year, hold million to billion great as $X expect years flow, year particularly fundamentally $XXX QX nearly a over closures investor our XXXX. to flow percentage earlier forecast cash forward And capital strong XX down approximately as spend to operating The wise ending flow. working to with to as our and based part expenditures, in last pandemic, the business. capital cash of inventory, roughly this of of least Looking management. pack generated Gap, roughly has million estimate technology investments and strong digital the we or Gap, at be support current year meeting, operating cash consecutive now in in by ROIC due in company's in in

quarter our X% with spend beginning continue X% our our of growth. anticipate level of equivalents As to more expenditure a and noted increasing during investor cash a company to traditional balance, to ended cash short-term XXXX, The billion. capital $X.X we supporting the investments meeting, in of including sales

XXXX invest for business. health So, of funded beyond and for we well the to long-term are the

of year. share I Sonia, before to some turn let Lastly, it quarter fiscal the me the thoughts on final over

fourth year level and outlook. to recognizing cases globe, high rising the the of environment, the or the fiscal current not U.S. the earnings specifics we're XXXX providing COVID-XX in Given uncertainty in around quarter particularly

However, during enjoy believe concert are or We looking traveling event. the buy for season simple holiday loved of family recognizing pleasures friends. see to ever to or usual the many able attending more ones, to and people gifts than sporting aren't a

during look QX: to thoughts by in and online We operating benefits to with health shipping on rate but the following higher on give net investments We capture as and company's earnings gross our store the investment the brand turn anticipate company Our QX, here the of our offset dynamics as from continuing cash towards sales employees. closures in in continued strong. last reflecting quarter. the last next and optimism coupled over we our business, should in as expenses; Sonia. equal brands opportunity customers we're XX% as making helpful being safety be our some largely the as or stores, reflecting you call, to year.; the well share, with perspective see sales, than investments expenses for the fourth between of cautious our of that, being being XXXX margin higher marketing equal on in to year measures slightly giving marketing, and capitalizing behalf I us quarter. and are in-store well will remain And on continued cost performance measures call health market importantly, safety flow to And in XX%

Sonia Syngal

with good talk Plan quarter of Power our XXXX. defined within Thank to everyone. you, strategy, newly forward you happy Katrina today our afternoon our about context and I'm the third go results

October, we in shape grow shared event As life. brands with that dollar led way investor purpose people's billion you our of at we

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are apparel We ranked e-commerce in Number X U.S. sales.

drive our and be ownable, estate today. unique such in want the to sharpened customers In stores we have increased have for that convenience growth uniquely These our power a is long-term. to us and digital, where market, on advantages shop will share in experience the real moment today give and dislocated spaces. deliver. time. a We strategy This so focus to investing physical our are we And gains

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an about represents while Moving declined near satisfied sales, Banana we XX% are from in result, QX. Gap, of Republic, and nowhere QX XX on this with to point sales this XX% is improvement Inc. which

inventor challenges has double this online reduced marketing of suiting. both workwear is September with Banana more the home delivered is QX, productivity sales a results delivering us key growth like prioritizing evidence X light at shift that continued XX% we the Xx they is face in by to path assortment, They're help more fastest brand casual of demand to product customer full focus again us a fleece extremely proud Republic the be meeting, in delivered hard on and will XXXX. lounge, our read working As incredible which tailored sleep, focused traffic approximately Athleta brand. year. XX%. sales in a growth, highest update driver categories and early Athleta, up noted last, business we're net in a by during reaching brand. from like that growth, the Athleta the is reaching the continues customers, billion This with formal With with growing and to investments sales digital its driven from in strong on mind, by Once in work supported comp our to preference In to in new And pilot history today. workwear sweaters inclusive of reach categories active, categories price re-launch major and healthy their growth a reg XXXX sizing January will of ahead gains. And a next driving Xx on relevant for

We want in over I talk from up to of acquired QX, the at million portfolio. Next, total and our power file now customer year. XX% X our about sits million, customers last XXX

also than average with us spent year. more X% last on Our customers

through XX% product every And across to is the create turn from of a in at sales continue innovation introduce last For loyalist. QX across all to the every net up the styles experiences our and and turn masks. which and company. the showing customer up want, from this category goal our to It to Customers score, relationships is of representing we’ve our need X% fueling now customer updated of year. brands is infusing promoter come channels enduring into personalization, voice across that and they

were our and as new the and from in, can loyalty digit have since of about they're value where XXXX credit strong have able rollout this members is things and September excited just enrollment. energized have to is X.X to XX% into more of we enabler with the program loyalists, on sales conversion enhanced tender fully deliver program. we is leverage program two to stores important enrolled our they us program. million build card most the loyalty or double part personalization with move all in We're I'm launch this This more online and to of One XX, months a to now coming unlock the meaning of multi than we the imperatives. double customer touch market an points alone than our our card We on

the I'd of like power platform. talk about Lastly, our to

all and customers As of our we strength online, us whether way platform, it's serve or stores, October, safely the operations they're our scale shared in our via shopping of three. enables in capabilities to the partnerships, including today, Omni combination

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our Banana drivers Republic. across largely estate stores closing select our restructuring real at XXXX value and is biggest pointed strategy, the of Power of Plan One Gap

and away needs. rooted is better customer more meet moving in locations on advantageous to from Our focusing malls traditional strategy

That Navy open both will are and As and believe in being substantial Athleta. to Katrina in profitable mentioned, the said, opportunities delivering stores do there is Old work continue so savings, future. we to the and on track

their In new in including XXXth stores store. opened fact, Athleta QX, eight

alone, Our making stores investments deliver on our important remain Omni whether one for a loyalists. shopping experiences, are customer our our convenience in styling. sales we've the curbside customers for BOPIS convenience orders to safety entire of new reducing we're virtual capabilities at that our brings. fleet for customer BOPIS Old congestion our part a of make leveraging We're the holiday will QX shopping, help In pain advantage streamline return, to cash operations hubs of on lean across will time points and and proving Navy across voting fleet. single destination net across to the launched the moments November very one pickup in to overall XX, operating that mobile, in the and curbside facing over and journey or and this is Athleta like and across curbside stores. improve stations or through increased This also costs create standout And volume These register. XX%, process store, improvements store pickups expedite way just

we turn on comment Before to like to QX. Q&A, I'd

As aren't at the In points the to to travel surprise season, consumer. things and remainder the the you or holiday doesn't resiliency if pandemic of Retail look NRF, sporting this us, sales have Federation, on according National events recovered that concerts. heading year, the money some people into like the ways encouraged spending we're of which largely from the retail

added heard, we than was, regardless our our products is support gifting COVID unprecedented At love heading operating the risk seeing our doubling to have enabling of in ever customers to time faster than to staffing it our like with your will initiatives the to the customers. shipping in family and these same time, up date, Promoter our we and have available, a the increasing incremental Showing capabilities cases, Score ensuring or we and that centers stimulus, safety and versus new store scaled and reduce with on to have face relationships business more for products year indicators, last worries with holidays, such consumers online against into Recognizing our stores our and fulfillment. pull poses shop nurture stores, online the challenges, forward we demand and more income ambiguous purchase of ever. environment seen shopping across XX% automation distribution buy as address uncertainty having the key uncertainty invested surge pressure possible we right to the in strength in higher friends appreciate trust we year, that online, online are partners. pandemic. a ability company's and of means channel To operation. to, We're to rising It's deeper be still without some ramped increase pandemic going as can unique to around Big research brands. to unemployment, during a the performance they And I'm We with deepened challenges. any people at demand. shift head and down them likely relationships more have you've proud the a as once generation picture, call our suggests especially carriers, now. in disposable committed in related in measures the sales existing customers as Net improve on So, opportunity centers experience parcel customer right

consistent of With the and safe holidays us, brands and we our trust preparedness our power confident built through upon execution our that the the will in deliver experiences, all meaningful Plan long-term cash product, generate strategy. flow and to customers in profitably growth, We customers and enable feel with shopping capabilities our to strong practices. Power to in the believe XXXX with and us invest we’ve sales grow we our

team. the we have leadership two news new Inc. senior I exciting to Before that want our I leaders Gap wrap share up, joining

as strategic future. leading the newly on created initiatives Saksena Asheesh well position team executing will Growth our Chief join our as agenda, a will against January for our Officer, that this focus as growth

served Cable, us Buy, Time at most President Strategic Communications, at Warner recently Asheesh to organizations also and strategy and as Accenture. where as joins lead from Health and of he Partner prior Buy Chief Best Cox He's Officer. Best growth that Growth

of of XX years assessment with of Stangl experience of strong Republic, Asheesh design, to Barn, well Merchant Barn Sandra pure-play Sandra launched numerous for board, Chief strong ensure brand of President CEO Barn business. results. President Pottery igniter. and value financial Banana as a Hardware. veterans on continues December. the opportunities she his affordable I known outstanding of agent President XX and the home Once And part of a and luxury. is of forward for pleased the most has role growth for Pottery than Teen, Kids change join creative brand creation leadership that and expansion, is Sandra of an where as growth vision, known a Pottery disruptive and she in to of and industry delivering into was join creativity. Asheesh held positions, driving to both consistent I'm step co-founded growth will the recently, have With company. years to a Restoration through more including team, look team Republic And as envisioned redefine visionary will Banana leaders leader Sandra with She experience, as MINE,

Plan our the Inc. As don't that, open me our future, why driven up confidence this in greater it XXXX. in dollar against gives we billion purpose to deliver Q&A? Gap our ability for Power steered we brands even With into

Operator

ahead with go Greenberger Instructions] ma’am. go Thank first Stanley. Kimberly question you. We'll ahead, [Operator our take and Please from Morgan

Kimberly Greenberger

XXXX, third those in XXXX of that to the of let's future? the Thanks a towards recovering Navy. key if XX% back suggest here I bounce results the wanted great. well some can expansion you that Old I two sort the quarter. quarters or are Navy delivered back margin Old so back just in in level you the wondering really knew Thank nice particular. potentially as challenging I'm and what about Navy laser expansion, drivers performance returning margin say for XXXX And third on Old was much. impressive specifically in if so had in much. of here Navy's after in business row, in you Navy ask I'm margin to to would delivered tonight. The off made Okay, margins. Very margins sort Old seem wondering Old back revenue progress to

Katrina O’Connell

the to sales and to Sonia, I'm happy you I [quarantine if sort performance, know wrap suggestion]. don't with up start with of want the

Sonia Syngal

increase quarter Old to to saw results, with and with that in sales Baby [indiscernible]. digital strong business, offerings, in and investment, of on traditional achieved Kids product the to brand be positive we terms speaks than high Navy our and come we equal super their the know that return had slightly we're brand expect strong pleased the outlook active really number more in that great with a referenced we or standout & a higher in we marketing it one segment. have to And response sustainability,

the their So, know, that management momentum, about quarter, and, think their you this to know, you is their that on. and margin product we're strong drove confident and with combination that yield business they'll focus that the I expansion something saw we in product they continue

Katrina O’Connell

inventories sort mean, heading I I inventory, into categories done has the a Kids a the the pandemic, is, that when between had the into lean of chasing back the Baby tremendous Yeah, managing really job those tremendous Kimberly, then active cut what promotions knits, team resonated fleas, They've we and we the that the have done on and & inventories inventories. would really add job etcetera. then

on did that but pleased all expanded, with quarter very way see are team to And you the team right, the you're based know, levels, So, gross the longer-term, executing that. we fronts. are in historical that is margins on we'll relates see

Kimberly Greenberger

you Thank

Operator

next Fargo. We’ll Ike question go Boruchow with Please ahead and take ahead. our Wells from go

Ike Boruchow

of if Katrina, in other I'm quick the third the on of questions. are investments your from we're guys the the the making one quarter, the level, saw lot Two you know, to you you then that quarter, versus everyone. kind fourth out dynamic higher sorry, are retailers know, in I talk talking you expectations that about seeing third occupancy we can forward And guess higher afternoon, is assignment, it's margin not there. accelerated I an this just, SG&A, up interesting you pick growth and you're did quarter? on good going on the a other, for one, this, merchandise Hey, a dynamic really missed

years? the couple curious what means to through just know, get about your I’m over and to next back get XX% to that So, ultimate, kind margins you're that forward thinking how you the to pulling investment really of

Katrina O’Connell

Yeah. Thanks, Mike.

I the was right, lower basis margin the a that promotion. that what is of said which on was offset the deleverage you're our of occupancy expansion. rent by up so points basis of partially [XXX So, margin shipping, offset higher of which largely was question, points], third level And was and result quarter XXX points basis XXX merchandise in margins,

margin. So, higher product

we're for to closures company, to gains dynamics. we invest SG&A, of what know point, to to in work evaluation I up around an everything committed going expenses, going of really time. margin because ago, and the or some to about operating a of the be Shawn fixed still of our was structure continue this the this to the other international re-engineer etcetera. brought important ago, cost And markets drive generation dislocated than very We you in is, that's in of glad month to that like time I'm unique going month us talked the a it's our store really the labor, as ahead demand a we for share time down expenses. see Investor market the some store, driving competition which said partnership that we're remain Day less So from to

of to lot really so the consumers future. us But significant to players investing gain in a operating this disruption, the demand all and in we the our COVID weaker for brands And in dividends generation. as margin an important the we're of going be with in quality seeing that's as environment, achieving important now will pay see amount and XXXX. this And XX% XXXX, beyond the time of or

that a is make. have strategic chosen it so, to And shift we

Sonia Syngal

is bottom just using to size we the and this as that, the playing the whether very Investor are to share know, to and a and or weaker it's players we you committed advantage time. said, healthy it is apparel, to win unique scale You share line. And to donors, have, and are we putting the in quite and consolidate billion both and add out, top in Day, XXX moment like brands on the power we it of with market our know, unique intentional. for – Thanks

with in growth the growth articulated plan in quarter-over-quarter. our we So, and Plan last profitable delivered sales that Power on month, XXXX

Ike Boruchow

Thank you.

Operator

and to And we'll ahead Boss move with our on JPMorgan. go next question from Matthew

Matthew Boss

margin in up Maybe you've marketing think buckets, way embedded COVID help just buckets? timeline, quarter there larger expense, we the thanks. operating about the quantify cost to same at for day? us forecast? think SG&A, know those we outlined fourth store maybe best and If your And inflection maybe and just costs, on think to when follow as analyst to picture about is as to expansion, what's the Great, closure the XQ a it is about

Katrina O’Connell

Yeah, In basis so each points I break of associated deleverage one. Hi, to out Matt. the my with speech, tried

So, was to falls cost points have stores I'm SG&A this then attributable said we to happy basis and increase, XXX dynamic that to operating the of attributable that, points and basis safe basis expense deleverage. where we points go we shopping. of closing, the that to basis but also incur marketing, into is close that to know, was were points through increased the higher have over that XXX strategically that you XXX And any operating then XXX SG&A in

to basically in margin a gross though savings that's through in That So, XXX helpful basis rent points you guys. offset hopefully is and of occupancy. deleverage one-time

one the that's there. dynamic unique So,

last some $XXX year guidance isolate had think what expect last expenses. look closures meaningful a our same is this you we almost store be to you the as thinking to costs mostly how When expense That's about expect me, about separation helpful will saw as we're operating we at because know about We year, in XX% our them we you XX% reported we be an costs. said, the last to to impact marketing and store impairments that, QX, you'll and the were attributable safety When sales. you in we excuse the around – be As company of trying million see for year. that store improvement to QX.

model. And hopefully, your you, for so helpful you that's look as at

guys to we and will last, we've happens, is got year. hopefully, see longer-term, know, see exactly sales think earnings year we'll And You how be fourth more quarter but details know we it'll let on that play our let's a coming provide we get when we helpful vaccine to growth next how what you the don't COVID profitable we've out call. tried what's know, pandemic that long

Sonia Syngal

continue store been what the real environment of that's said], to coming, on out and estate, whether the safety the the And is right, consolidate a the because two aggressively line play [Shawn three time long share, cleanup or in, you items know, to play to are, it's of and the and we're investment cost, [indiscernible] build marketing learn. to we'll of

of have the effectiveness We dollars with investment return lot around mechanisms. rigor a on those marketing

at some etcetera. about three And that of point two expect are so, be so that feel good we not but incur vaccine, to to out cost and of very the the know, long-term we’ll that, and link we you

Matthew Boss

helpful. That's Thanks.

Operator

Please and to move ahead. go go Altschwager with Baird. ahead We’ll Mark

Mark Altschwager

you you to quarter, quarter? And to fourth third for headwinds the Thanks shipping afternoon. have what saw talk experienced in pressures? of the my there, spring? planned what you could relative So, controllable maybe these to trends the drivers, taking offset the question. in trended respect could are and along shipments? fall about maybe the that to Good was And what the those some the hoping lines, in split relative in hoping you With then you've about Thanks. talk how

Katrina O’Connell

mostly based news just being QX. that back into shipping is a that QX, the that what online store on in mean, that from from reduce more you is, strategically that which Yeah, expected, was dynamic ship still as And good said, able the our to headwind Mark, and is meaningfully is was it was we of I inventory improved channel, buy dynamic.

And meaningful there. improvement so, did see we a

the increasing in it's a our similar to whether saw, we reflect margins the execution, with port we but possible chase does where would shipping pressure associated have having. we've be great. QX say, the some and merchandise we is capital shift And seeing, some to as we'll supply largely higher see lovers been but But and store think or would pandemic to the and bit start I out, going margins of I chain longer-term, in similar our investments. The [and merchandise see QX, product product we're that there's that deliver reduce benefit we is then how see product splits, but issues that, of said some a to We look rod] as advantaged. would closures. QX, algorithmic have the see sort longer-term let's through Now, can we that you of multitude outcomes, on you of guidance of air plays then little that lot maybe working and shipping offset with of freight say of lot offset a also a some before either ways be margins the to of airing for a

if you I And know, about talk don't Sonia, that. to so, want

Sonia Syngal

on the of intent, economics well deliver as we that will that that we're hopefully set all innovation controllable, many are the execution costs and to and you’d we gives shipments, in more months space, most our drivers shipping, the automated the have expecting as continue know intensive as to up premium. the we deploying reduce [PCs] is that are of versus think competition, very advantage an have quarters. that it's coming multi-packs the will ordered And I us versus whether us Yeah, terms as listen, for And in us maybe sector, many, technology and environments. a that new improvements, bit space, it's quite they'll the it's have but noticing, teams value in levers it whether heightened for on whether in say and logic you help focused in reducing we terms these – labor

Mark Altschwager

of and That's best great, luck. thanks

Operator

ahead. Please Hutchinson go go ahead we'll our next And America. caller, Bank and take Lorraine of from

Lorraine Hutchinson

to store of post gross to the think higher at of seemed some versus on XQ the gross rod up XXXX, follow Thanks. continue into year I half able wanted just and of first and the to year-over- margins I think we you basis? point, half year, it Good be first look look it will as next do in as XXXX though you'll on closure margin afternoon. a benefits

Katrina O’Connell

XXXX. say think I to that be the it'll discussed call benefit, the guide specifically more but month fair as XXXX, talk later we fourth us have significant for rod benefit a when we guide in Lorraine, investor in that actually quarter margin, or we the specifically discussion to a long-term, it's Well, as in early can the just about ago, on meeting well more margin we to but is when gross operating and as our dynamic good to XXXX,

Sonia Syngal

that, than on execution landed to a with we're fairness real and Just build with. and of pleased on estate strategy the you've the more deals progress the the we’re and making compromises

excited Now, and the vast and P&L. positively know, the really to see going you focus on that's to majority to of I’m out on complete. impact then that our that landlords, close know, what be it'll nice you I think

Lorraine Hutchinson

Thank you.

Operator

And Please we'll Paul ahead Lejuez ahead. our next from Citi. go and with question go take

Paul Lejuez

guys. thanks, Hey,

One Just question. clarification. one

to Question, clarification? the anything is time], that those you just line, I existing [closing mentioned, on one something question to that time offset seeing is think Thanks. what's going mentioned point margin just the share customers the deleverage customer customer relative ongoing the store that brand, customer is was the to basis I profile you about continue? sure in benefit XXX closing wouldn't that that new I ongoing and make spend? in Athleta First, of the base, be that by the want costs, the to rent on gross your of I that to nature, help store [indiscernible] would [indiscernible] on same are new understand you that guess just that And line, curious

Katrina O’Connell

to cost the being clear, store maybe but we’re and think the maybe those referencing, So, closure we're that we're not not, I attributable are buyout.

high of was and as So, million at out the it's there costs that about investor profile if would our some we going be when those try depending we indicate on did you of XXX lumpy buyout to we incur, get stores, when we of were meeting, remember, that negotiations land.

we some XXX do a costs that number we able buyout the one-time And then to through costs, of those comes basis out use to And rod. that rent – some select with as stores. attributable So, is those the buyout settle expense. we're benefit we use dollars pay that points cost the the of to to

a repeat, piece so paying Now, in And million going rent behind is monthly rents unique benefit have would depending get more more stores. that QX, But it's the away in lumpy, you're there have it XXX and is we ongoing going then that on chunk with doesn't buyouts negotiation. those other to we that's us. than dynamics, forward, that we maybe as be been associated correct, an and

little we're So, complicated, it's what a that's referencing. but

Sonia Syngal

the of Listen, generating to business lumpy able that a are are these you problems and lucky out, we cash hard behind know, bottom we're and such fuel to have we some fortunate us to can that get and very up that but organic taking one-time we think get done cash going measures take are organic, and foliar growth growth, and showing are our them that continue forward. to to about

Katrina O’Connell

you customer Paul, mind then it, I but repeating it? you think And do had question, not remembering I’m

Paul Lejuez

how is The customer, the spending that customer new brand, seen the different levels? base customers in existing from profile are Athleta

Katrina O’Connell

of Athleta the Do than Sonia, how are sort different customers new you one? the take existing to customer, the want that

Sonia Syngal

relevant great, Yeah. the category in customer because of COVID a has – become be and had being which new space, sales. Listen, more during relationship of Athleta the than act masks many with advantage what you XX% introduced know, for Also I to it's greater to a channel The customers will its been brand. say the fourth, relevant capabilities is online has and products that of way even bottom some another you the and to customers into introduced beauty then been get core so flocking they a sustainability, technical real get builder with loyalty math as that innovated they math greater business. infused, has has the and team such and math know, and know, into and to, really greater are you the, the

pleased, they and has recent quite ad you million been know, we've views. that you So, then, XX the know, did, had

high. time now moment that impression that is has the a of quite unique right that’s So, making, brand

Paul Lejuez

guys. you Thank

Operator

next Markets. Fitzsimons and ahead. with Please Kate ahead from take question go RBC We'll our go Capital

Kate Fitzsimons

know, would viewing follow marketing of guess very Athleta, my question. the investments one you questions. expect, brand, the you ex-packaway, the perhaps I for you to you know, superior I just am the customer you of think and us just, to remind X% that or in can down support think over that profitability, brand, the taking the in needle Athleta? you you top know, And margin how much supply know, ongoing offsets at takes on and know, helpful, then, costs acquisition be item, brand there. thanks does you you puts relative know, that just be merchant move some you guess, some line chain, just the of on time, awareness, you particular you. can are know, category capability, you know, you Old you I with chain to the I Navy that and supply some by to know, help inventories with at Paul’s brands, perhaps resonance front, it Thank at to next, the Hi, you about on curious up do Sonia noted other

Sonia Syngal

Athleta profitable shared asked, [Athleta], in is So, that in question our Day, you and of Investor fastest the terms our I first most just growing brand.

all So, that we're making in our marketing the in three-year of statement, contemplated investments are that view. and

awareness brand brand aggressive portfolio and share profitability also of health really way. greater good the So, expect pleased the of of as we're mechanisms, grows while the very with to company the financial it that growth the into whose we are of impact leaning a the that overall in

I we here second to do the and quickly the hard look around what be will your the what that to very, best agility and chain, environment is very that know moved that question just say very thing was with one would Now agility. supply and add we will it's because what have speed served is, like, Vantage predict we

Investor maybe now, supply know, So, shed so in in, I chain know, ways, we scale you working lead DCs as bring well that's given millions chase we've weeks, XXX Day, direct the you in can even quickly our faster our ability to hundreds advantage times, and the selling. the star [planes] know, over think share of of of really positive units that got are, shipping XXX, chase product has months in out very you we us we that are into a

in and generation of portfolio really us. supply growth our capitalizing opportunity driving this once across mechanisms enable chain to lots So, for the on sales in a

Kate Fitzsimons

Great, much. thanks so

Operator

go go and Riley Thank next you. B. with ahead Susan question We'll take ahead. from Please our FBR. Anderson

Alec Legg

our on good Hi Susan. afternoon. taking Thanks question. Alec Legg for for

by to brand were then and overall or in – and productivity you provide are So, able the just maybe that the and more a Gap Corporation you customers track increased fourth watch how collections so also the to quarter conversion has shopping quarter the on trended with store purpose rates throughout spring? then has in just store [indiscernible] and of

Sonia Syngal

through go can this. Katrina brand, with will start but think I I by

and our know, the and pleased that seen have heightened with – between that environment really spoke the the in elevated emphasis pleased the fueled leader about, conversion score stores, something but We’re placed. that is merchandising improvements customer net a focus more having the environment improvement store we the in point we the we that the with on you XX is unit, service focus experience safety, give on by promoter

think track or innovative, you looking we forward to your first say the I've pleased e-com question on some are you that's with so is experience we've and using know know, exciting next the and of and most prepared, [on doing. very I site and the seen seen work launch that announced. and launch whether is then with I the half ahead that product as creative Gap], and we're in-store the pleased our what And it's getting for creative year, what very So, will what’s

Katrina O’Connell

as As our XX% XX%. net flat online increase so sales store store sales far concerned, are were down sales and in with

time by what the we've several as I Navy, it's results and closures, to that those given sort was think in productivity stores in we that assortment. similar you more then, sort said, Banana, the see of have so quickly, the And that recovered they of having largely store look they're more decline to since line percentage mall to they've locations, are is and with know, fact business, tougher QX. been as average categories sales they their based that as performance, disproportionately on in fair high assume remaining dynamic the points articulated Old off strip their Gap as reposition online of past, product a and a especially that's seeing you and the Now, well that but then the driven more the of disadvantaged at the

as productivity And make shoppers. as, continue what they're you also with will heard, environment store be say since and sure people related I to to but they capacity, prepared then And know, capabilities, capabilities comfortable. safety a to would as for you we've as to well [indiscernible] customer shipping that service as we'll you've about unique shop, the that's want see this we know in measures QX, So, substantially I would QX. in feel far thinking tell store been investing in

Alec Legg

provided that's don't guarantee date or you delivery if essentially shipping. The on out to cutoff And up Thanks. still that mind, follow being on? by worked a it just has just something [carrier] Christmas a

Sonia Syngal

relationship with and our listen, deep No, partnership and we very they're with in carriers, are being agile us.

So, December you us, shopping. Black as Cyber and timeframe comes the very through of then know, know, XX over in now, Friday next, you demand for the guess, very, important these Tuesday days I

needed our So, capacity we're service We're with lockstep in adding order our to seeing customers. carriers. a as

Alec Legg

you. Thank

Operator

And we'll Alexandra go with our question from Goldman Walvis go final ahead ahead. Please and take Sachs.

Alexandra Walvis

confidence the about be timing that to are that's year, [same] some quarter holiday in for the bottlenecks, that which difficult little with should is quarter anything help you can fourth out together within And this delivery whether so you question. perhaps giving taking you a date. different constants for a season else pull anything you're just of very ask on capacity then [indiscernible] can the prior thinking factoring Thanks the helpful. the bit predict to from Good much my years? comment and level to I you follow-up guide, and sales afternoon. achieving How us wanted

Katrina O’Connell

try. think let me of kind So, I have I

learn category voice So And well is developments that we it that QX travel spending expect, or be kinds previous dynamics know, shared great ready. makes selling was quarter, decisions of think you in will our cannot are a and when and customer think when the forecast listen, that school you We We back consumer destination make we the will think know, shopping growth, as much situation events, exactly we and in predict the our consumer we customers place. good a to holiday sporting with they as can't ideal is for really be we apparel believe things. the up. Because their is to for you than spend had pandemic or later for been shared those in our of on you years. an last as us what

XXX whole December the, the be know, shop or XX. early ready we the different for to that shop. that Black is, of ones to customers, customer we'll million they're will Friday ready choose them. ones focus whenever With times Whether to you or And Our know, the on and it's I going shoppers shop. ready she's be all ready to service you think love all

Operator

additional And to today's back over call presenters like would the closing. any and I turn conclude for that to session. answer or does question today's

Katrina O’Connell

and their case you Thanksgiving everyone and down It's time festive enjoy with been pleasure. you of participate. great has to the I very a a and families know much. you in season lots Thank hope for you safe holiday gifts over want

So, time. you talk to next

Operator

that your today's We do Once conference. appreciate again, conclude does participation.

your You lines. may not disconnect phone

The Gap, Inc. (GAP) 25 Nov 202020 Q3 Earnings call transcript