- Earnings call transcript Q3 2022

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Operator

Good afternoon, ladies and gentlemen. My name is Brent, and I will be your conference operator today. I would like to welcome everyone to the Gap, Inc.

Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. now Investor introduce Relations. would McLaughlin, host, I of Head Instructions] like your to Cammeron [Operator Cammeron, may you proceed.

Cammeron McLaughlin

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

made remind Before contains call materially our that risks that we actual like to statements this to subject could begin, the and I’d forward-looking information different. that available are conference results on webcast be you cause to

to cautionary description that on differ today’s two as refer described filings of factors annual please on with website, on Investors Generally March remarks, statements. could the reconciliation are subsequent in publicly Principles, page the the shown slides materially well our any the information supplement actual the with to cause financial any our the the release, For latest November which based results any today, statements, are information of Securities earnings and on we on filed XXth, Exchange the which Securities in our from risk Commission forward-looking on statements as forward-looking of on gapinc.com. consistent measures section contained and of and our XXXX Exchange included not information of with Accounting Form Accepted statements and XX-K revise forward-looking no Commission, factors or These company’s the XXXX, obligation as update and assume to XXth, all report available gapinc.com,

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

Bobby Martin

are We economies of I our platform in the work deliver. this gotten portfolio and scale, team's to where iconic drive team in them. increased have CEO, love, customers we as good brands Interim we've things you, that that four confidence and to and and of at After correct our a conviction deeper and months ability leverage Cammeron, Thank have even wrong I know afternoon, belief everyone. to an President and

inventory team told continue any I hold we taken flow, on company quarter, optimize cash rebalancing respect we the win more and and business. We've long-term and to to our and are profitability I you and should our deliver in focus entire or sharpened We've can across drive execution management improvements our and on to trend. that. reducing telling rigor to our to action are what responding near last As with us to bringing the operations and environment customers while accountable to

sequential the execution sustainable our are and our is drove efforts consistency crucial know our during of to we quarter-after-quarter, year-after-year quarter, delivering that expect. and improvement shareholders value expectations While on the people that the set growth profitable

an quarter, update cost. our starting progress actions taken me on Let with on during provide the

shared, advertising annualized and in estimated $XXX resulting annualized $XX agency resulting approximately XXXX. in the Initially, investments, remainder in million technology, and renegotiation costs resulting this of pause resulting last elimination existing of the roughly corporate estimated our million are alone, roles a we hiring savings. in annualized on in costs spend have our of in in in million savings; $XXX I contracts, quarter annualized year, the contractor estimated action XXX and reduction and taken offices aggressively As in savings and actions in state operating managing and million $XX These beginning for of rationalized the in include; the open savings. a fiscal

these and are higher savings are offset to in costs XXXX. in work help increasing compensation and our yet We fiscal already expected early here incentive labor

transform structure to still to be However, cost that the improve future. efficiency, work our overall and are fit there so we done is for

actions assortment and share efforts. let more me inventory Next, on our rebalancing

QX, continue of better resonate with year. fiscal compared sweaters, brands consistent an the sell-through quarter as brands in underperforming away XXXX rewarded positioned QX. These us assortment to in And on and actions allow discounting half We our heavily and preferences, categories reliable woven have improved category beginning markdowns enter the to the improved will at-home strength rely saw portfolio, our for in our our receipts across each dresses, from tops that the styles pants in were across board, cozy balance chase to the reduced the to portfolio and this continue of in in We're demand. with benefit consumer lifestyle. and us the that. the an active and seeing the across shift responsive first to will consumers from into customers position, base reinstated product capabilities inventory to We

lifestyle of isn't consumer change showing are Athleta that active the in growth accessories current in and is today's women's strength disproportionate the the categories immune demonstrating growth in like While environment. moderation to preference, market, dresses in brand despite

balance Navy signs this Old Now, let a Navy pants, sweaters to Tax year, That its channels. saw speak Old from All strong and propensity softness the inventory, of across X% the as we buy. by was spending. lowest credit relevance Old income continues Navy. have sales it to said, part which assortment, to in tops. delivered of shopping in each Child starting driven and, take its back-to-school experience course, with was US being heightened our in outerwear, customers brand however, baby, its a frequency year's early spending me in we including over active demand, brand consumers. last as right-size softness lapped in post-COVID by moment offset, kids continues believe and and improvement of still of to its categories woven in sizing the business the efforts brands, growth women's and showing net And strength and last

is range consumers, well believe consumers As we of a to positioned we more still continue Navy as Old attract the in particularly marketplace, value-conscious. wide become

who flat like growth. core, performance Similar of Gap Gap brands all kids and sales activewear overall. comparable signs in Navy, leather fabrics Old experienced and trend-right shift its softness to a like store were dresses, business. year categories in pants tops, brand last delivering in to women's Iconic and Next, and Gap Gap drove across sales significant occasion-based sweaters baby is faux woven in and brand. net strength delivered with seeing trend its

Over Gap the the brand franchise business France, week, expertise Amplify XX transitioned as in early of businesses operate operate of signed last Baozun our market to approval cost-effective a closing through Inc. to our strategy to pending partners its from to Partner conditions a transition will partners. brand regulatory model to more sites end and local year. its stores franchise strategy. last agreement, part under And next allows benefit agreement This asset-light, and successfully Gap Gap to and China we has businesses UK our months, Greater the who Italy

brand Republic, X% net last year quality a Shifting and one-year last point a lifestyle on relevant luxury look that of in year. journey, people's highly compared to September premier reimagining with special brand promotional soon. catering sales every to This differentiates as Moving enhances Banana wherever hope saw and differentiated products, more consumer. are. element at we focus Banana experiences, they accessible the the it has Republic that take brand customer branding, lives of this growth price their marked positioning you'll We brought spent anniversary from premium a relaunch. others workwear a everybody, of a Banana the to Republic from

During finer its cashmere. and quarter, fabrics, including for silk Republic the Banana and experienced demand suiting strong

to and of to it continues customer began use from post-pandemic consumer that be itself Banana trend will a workwear, its proposition years balance to brand to important preferences the come. unique differentiate as occasion As Republic current lifestyle for

to X% Athleta year. Finally, compared sales last net delivered of on growth Athleta,

few While the women's to the activewear share. Athleta the holding market be past continued soft against has years, in trajectory is growth

the As the new well I and with customers' print preferences. to and product The Athleta Athleta quick fall both holiday last with growth bottoms pattern largest their women's and to and meet key long-term made apparel brand's as lifestyle strategy. saw mentioned in customer performance the is the pivots in better product well market resonating quarter, categories the has tops, to as and

Before no me began have doubt, clear that how details be on of cost let streamline shareholders scale love, deliver on share end customers and brands we state value the the financials, the to Katrina and world-class business. we structure, our employees to the products also to our synergy more I off strengths drive it have I and with very pass I customers on our and experience is and creative through expect. there of capitalize our platform. to our work right-size that and deserve inventory, done I'm But to our

who demands fit capable focused the and model. business Board they its our a and for remains sustainable the on a that, with its can I'll hold permanent Executive a for our over in rigor, develop value to in our greatly who evolve over market company and that creative should scaling us time architecture to call and leader assets how past direction remains vision We're one operating it create and Officer. to leader increase strong portfolio with hands-on enabling brand parallel, turn deficiencies, is can great a Lastly, leadership. while moving omni-platform And This Chief as the its strong Katrina. search a of ensure active

Katrina O'Connell

Thank you, Bobby and thanks, this us everyone, for afternoon. joining

Let me quarter results. our third start with

early sales of year Comparable Sales take total by October. well Gap the Navy benefit XXXX. as in X% were have hold sales closed driven in the XX% net sequential as and a X% X% trend Navy from due of increased relative were Year-to-date, as sales. negative holiday Store sales negative of starting of X% Old the the last customers on to improvement pre-pandemic the with $X.XX promotional to net of on the Republic Old last and to by in from at efforts resonating event North in and end approximately franchise an first XX prior or of and our year. goal XX a stores improvement up and of increased an assortment year, year additional X% quarter, levels we close last now versus are half primarily in closing billion North Gap closing and comp our this stores us the fiscal basis, America XX% third constant anticipate of rebalancing Third XXX to year currency top stores our a bringing America quarter significant of quarter XXXX. in above the in to comp Banana at part X% timing

open in XX% to XX%. remain sales XX net and X% sales pre-pandemic Old track and now remainder represented XXXX, stores Compared a As last we expect to open increased sales year. net in increased of online quarter. year levels XXXX, we fiscal a this total to to stores the Navy versus of Athleta XX on Online look the

representing the X%, the increased and Old XX% negative cozy been versus year sequential Turning as by XX% that $X.X preferences from relative Starting product were billion comparable Navy, the last sales pre-pandemic comp were Navy customers have to shifted for, a Old from down that X% year. in quarter third of last more of casual in mix in to brand. a balanced XXXX. improvements and category with includes driven more sales have assortment quarter, this sales occasion by levels improvement up now work to our looking

XX% a However, Asia get out with as sales on of in million, shift the from sequential negative flat, X% sales to from and earlier driven result benefit a up we Old occasion-based to were as elevated X%, grew the positioning Comparable consumer of flat COVID-related and impact comp to capitalize of outsized of comp the last that sequentially the year. a the year, fourth North in in were promotional compared global brand levels. sales quarter. continued or negative comp sales with do October, category its holiday quarter last improved of brand billion balanced to pull-forward X% an from sales categories, sales compared comparable as up result X% and America than year more the driven year. did brand XX%, Banana into $X.XX mix typical restrictions versus XXXX to assortment, million, slight comparable well growth third first first preference negative and lapping including and flat from last as relaunch to a quarter, X% global a increase grew fast last to $XXX believe of last pre-pandemic sales comparable a its quarter Athleta negative in by improved event. XX% Navy Republic Gap improvement sales quarter. $XXX and the last with more as the efforts of

sales as benefited look quarter, in franchise as stated we macro third the net earlier, holiday continue to we timing Old as the Also, As at Navy. and environment, of event as the competitive in quarter October a to as take sales approach, the uncertain environment. consumer the prudent well fourth part promotional given by well sales

an point will Yeezy be Gap not headwind up Gap as year in will base approximate that against brands addition, sales this anniversaried be In year. we X last the

As be down the environment, uncertain and result factors that could mid-single fourth year-over-year. these we total a quarter sales in company continued of anticipate the digits

margin XXX related $XX margin. On charge. of versus XX.X%, margin impairment deleverage deleveraging continue points markdowns basis our to Now, Gross adjusted XXX better versus levels basis an to of basis was in year as order quarter Gap the a gross to points inclusive was to last XXX in million year, of inventory. basis, last gross position XX.X%, experience deleveraging we Yeezy higher points third

result points a assortment as aggressive as due to contributed impairment of focus inflationary deleverage on merch due spend basis XXXX. we fiscal related to air points this exit expense cost-related the commodity million Gap, we positioning to more and approximately normalized as basis last Equally during and of discounting clearing quarter of communicated previously offsetting levels excess XXX was better approximately higher as the of margin headwinds. Excluding freight well deleveraged inventory basis Airfreight as imbalances XXX leverage the XXX and points Yeezy lapped year. $XX the incremental

Turning to ROD.

from We nominal with which fleet basis. lower ROD efforts were on benefit relatively costs, line our in to last continue through year a restructuring

Gap Excluding approximately XX points. of as impairment sales a ROD Yeezy basis leveraged percentage a charge,

fourth airfreight, gross is $XXX last basis last will expected versus quarter, points to add margin we which lap year's to incremental As look year. of XXX the million margin gross approximately to in we

as We continue will last sales basis point percentage ROD an and a inflationary versus to XXX anticipate cost flat of and year. be headwinds approximate that commodity about likely

continue As right-size we environment, in quarter, we increasingly last variability significant discount taking to inventory actions in we expect communicated while an to rate. promotional are

gross discounting. of deleverage stemming the second reminder, margin were higher approximately by and quarters in As a from impacted third basis points XXX

Turning to million and $XX net basis partnership our billion XXX that SG&A. UK DC of complete. from of year points sale prior our XX.X% model leveraging Reported or sales, European an transition SG&A from is the now was benefit $X.X includes the

billion. the related amount severance to recorded we X% reductions quarter. third SG&A, DC immaterial last addition, $X.X excluding In Adjusted overhead to an of UK benefit, in decreased the the versus taken year

of year's as XXX lower primarily from of basis and the lower a last compared percentage higher bonus SG&A sales, volumes, sales adjusted leveraged marketing expense accrual, As rate, points to prior adjusted a result year.

cost we've on discussed, returns invested $XXX to Bobby areas and We've on annualized approximately a and in of on quarter operating of focusing and the relates look already relative acted it result renegotiation severance take of approximately XXX may and stemming to open costs as timing the to of headwinds from have material commensurate corporate marketing, in the we fourth As recent addition will technology last existing These savings begun have as quarter, actions to impact actions not to costs to improve reduction quarter and and in of reduction year. technology. the without a advertising seasonal where as our offsets, overhead, in SG&A years to the labor the structure related right-size rationalization acutely digital higher million profitability, roles investments. in contracts we agency

from and by compensation we increased wage X.X% in income X% or a higher of $XXX the year. the income Adjusted However, XXXX. to significant $XXX percentage million. anticipate rate, X.X% relative freight leverage costs, than Reported operating air year's fiscal XX as SG&A operating inflation to the last reflecting these higher to the incentive was a sales. operating activity inflationary and margin promotional elevated provide will lower of offset and to the million offset actions headwinds leverage adjusted last prior decreased Adjusted points XX% year basis

Moving last our $XX long-term refinancing $XX last recognized expense, of and year a net debt We to savings million interest interest the taxes. million in to due fall. versus

benefit due an effective in XX%. income in variability. on the is cumulative resulted of the a quarter, impact Gap in Yeezy related XXX tax million of the the expense the $X.XX a at related UK a tax rate year-to-date million, benefit ended of to and This net million During tax to excludes EPS reverse annual in was $X.XX. pre-tax we Adjusted tax benefit and in at to quarter. negative fourth EPS income approximate least $XXX of EPS, a impact related benefit the sale impairment of the benefit the offsetting recorded result $X.XX Reported million. on to tax $XXX which tax $X.XX year income quarter, Adjusted Share charge rate earnings includes tax quarterly result estimated This $XXX to of benefit DC basis. negative count the was as fiscal a $X.XX. change which expected tax an was

to inventory. with starting flow, Turning balance sheet and cash

to We fiscal end our are on and below the of inventories by making to move year initial last levels year. progress the right-size plan

growth we and elevated as to is the inventory ending pre-pandemic chain XXXX, pack was last related products. hold, to lapped the to basics up supply in-transit, combined the of seasonal markdowns inventory quarter. the in sequential quarter. benefit percentage Our XX% XX% receipts in ending last to growth growth related XX% the drove up Total holiday in was in Compared moderated two-thirds of remainder XX point sequential more challenges, close quarter The versus a of year, levels attributable year's the increase third growth and a remaining the percentage with levels improvement aggressive XX%. quarter second of includes and improvement X a points inventory slow-turning from year-over-year during third to inventory

of increased in versus despite we levels elevated entering fall half carryover While the product, with are we markdown activity and inventory fourth the the quarter an overall expected, improvement quarter. first in third as some the trend

Although, a earlier to better take XXXX and to positioned. we order reduce to this plan anticipate continue receipts, action did inventory increased the levels inventory continue competitive to fiscal promotional holiday clear enter year industry-wide to action aggressive given environment, take we to in

buys to levels align look we trends As provide spring, lean to demand continue expect fiscal this levers moderate and further which will next responsive begin inventory year. to we flexibility better XXXX, to our to with into

assortments. we into are inventory, year's continue we'll of our hold some and last addition, and hold and future releasing holiday to integrate In pack pack inventory

the and to margin capital you usage As is our through the are buy year, $XXX million. inflow result cash and as and and composition by pack and and our capital were term, while optimize moderation our term receipts the an improving the in near of inventory benefit able on sell activities the hold of levels was in know, Net buys. in from we progress pack and short million working quarter, $XX coupled in of receipt driven we operating equivalents use a as next leaner cuts cash working hold Quarter-end cash inventory. lower with a

we more the cash seeing quarter, stated that normalized are see As half out. the in to of flow we play and we year beginning back last anticipated

on focus our fortifying sheet to balance continue We position. and cash

a of As half shareholder reduced the slated for some year. committed remain and of year discussed quarterly stores total number delivering dividend to last to CapEx approximately for deferred continue core the of component back and of spending Old quarter, the cut attractive as an or we've $XXX We million returns. expect capital Navy

our a approved paid Board fiscal $X.XX and $X.XX the We in shares we fourth November on repurchased the a per of million dividend early dividend quarter quarter, the of for Xth, XXXX. quarter. During X.X share,

goal do XXXX our anticipate additional year. offsetting we and As discussed completed quarter, dilution repurchasing this last fiscal not in shares of have

repurchase to program available continue $XXX under our have million share We authorization. current

on XXXX we've and closing, has focus see freight all understand Before fiscal as rates. in industry there been increased across in commodity-related the begun to favorability that tailwinds we

which a at below rates. other result As more These a ocean long-term experienced favorable headwind locked a rates XXXX reminder, rates. remain current negotiated freight throughout fiscal ocean compared as were we in to of many have contracts, modest our container as retailers

tailwind retailers a to represent come XXXX. as not ocean it we a look significant may as fiscal our container this margin as for to other result, rates As down, will

as path begin half to through benefit will navigate have addition, In costs, consumer XXXX, from not are made line we With In and back actions the over and are towards questions. uncertain the we commodity value it continue of purchases closing, we an confident growth profitable fiscal open and next Operator? of and to cotton long-term. enter the therefore shareholders we're until delivering to our the position to while for we first competitive back that, we'll year. promotionally environment, Inc. in steps relates taking Gap advantaged its to pricing already we half taking believe the environment and right the sustainable, on

Operator

Instructions] [Operator Thank Lorraine you. from comes Bank Our first with question America. Hutchinson of

Your line is open.

Lorraine Hutchinson

for Katrina, afternoon. I question the a just piece promotional Thank gross you. margin thanks of about the puts takes. had Good and that.

the XXX mentioned two past in You the quarters.

inventories where in your in be better? receipts guiderail line are Just your given give you there? with expect where some could if us you. are, the to pressure would you promotional Thank Maybe the environment, that macro or

Katrina O'Connell

question. Lorraine, the Sure, and thanks for Yes.

I think prepared into left get inventories margin for year. by are the ourselves the that's inflationary open model, of clean real XXX. you benefit as of sort pressure for of basis you things, guys next fourth to to points, enter the known quarter to airfreight We're which in XXX partially we of the the part giving that we promoting quarter fall keep holiday of offset both the

amount be. of And as to so, possibilities a discount could there's range that what wide

you wide there's if possibility, million, a number, given QX think such not think, but at at QX rational $XXX a we're million range possible to to guiding and it's outcomes. I of see $XXX that's that

like, that will committed carry our look inventory guys So you up so that excess year. that to be don't we'll the next knowing to inventories cleaned we we getting let at continue look you into think what will a take

Lorraine Hutchinson

capabilities? of first inventory will related as some into the you responsive And will you. of then Thank the be your look next what of advantage to proportion take that, of half -- year,

Katrina O'Connell

future said I what's say think we've haven't different about But responsive, if we'll formats. many that certainly as said, a more know important and to on can we'll is it We take call. consider

us or it's loaded whether in basics open inventory really to capability getting an venture whether leaving on demand, it's us replenishment advantage their we're allows based range a our chase take forward of inventory, So [ph] to it which capabilities managed down or having on to just to is back. history give fees, that or inventory up looking ability range to overall total

saw With into lost which jurisdictions the then to India manufacturing of that lean Vietnam other category down disruption us capabilities, far many closing with we as forward and have the starting and closing closing to well really during too total COVID, those inventory. we inventory caused as

different And brand, closer will as But get more it so, so we're much we give talk happy having haven't those it's in, appropriate. if levers flexibility. to certainly, us said more we and back by about

Lorraine Hutchinson

Thank you.

Operator

Your of line is Drbul next the with Bob from Guggenheim. question

is line open. Your

Bob Drbul

Hi. on of are as Bobby, as given Haio, the curious early improvements? I Can just CEO? the some to naming -- you thinking I Navy. a under you afternoon. in you I'm Good Navy Old permanent guess, then, do of CEO, of where just Thanks. think the have operational maybe over? And staying delay question on reads And if on first the talk Old are any is he's taking

Katrina O'Connell

you ahead. I’ll start go Bobby? Maybe Go ahead, -- want do to

Bobby Martin

to one. wait can't that on ahead. No. last on Go I to answer my put

Katrina O'Connell

ahead with start and go Old I'll Navy.

the is that so an top get Then on the finally and to online stores, inventory, of are appropriate to Navy let all pivot been up we in level that has real selling. that, on which down out that, about, some inventory back inventory has that sequentially executional of to that still of Old what finally I starting have but And pleased the top improving customer, I'll on more know, inventory of cleaned also pulling inventories view markdown back inventory stores. the been started you And playing towards of for customer, of which available serve fully I have rationalized really towards talk what out line with that talking sequentially to getting to work, more having we're Bobby, think in able being really BODEQUALITY you a demand. see at really then is, improvement. to categories show that that. to

Bobby Martin

at Look, days, in the store Haio, particularly been he's taken decisive Yes. steps, just only think a he's I inventory. looking over although little XXX around

full. our has but brought We And you a that focus being merchandised it's forward of lot been get If inventory that very they're very, don't now, his we very, in stores, well. lose right strong and get we've the It in that merchandising, good the with sight never good not inventory well. to product. of got so confused excess merchandise should of is even we customer resonating

to So she that in as particularly she we've brands until from know know the a now, there when leaves. customer comes -- comes the tightened customer really but time leadership, we in. his under really up across that other Navy, it's in, right the Old she's in is She knows

and opening some to our where got strengths are that's some bit more. we've up they're there, but back-to-office well. transition in high. seeing she's a we price that even even big our is range really engagement lower remarks current fashion and responding in We commented assortment, on some like the that given able the customer, customers point on the the capitalize just serve And basic little just income it wide to, So, trends. the moving the opening with Old But again, really categories that clearly, in other we're really Navy, being meaning during showing denim a even of on with customer. side, of of

that the and the basket really UPT greater inventory guess, strengths And question your and see we're you that right-sized, there's that her come. flattered, get to will getting lot team can again, pleased only right but And executing as happen checkout, to should more up, now, wrong operational we're Haio's to got heard I the seeing, say you've we then the with right, the that and cleaned up. around now and those you So, mean, work. we've is we're focus knowing second transactions we and stepping two right of strong get up what through conversion I'd I getting we're really operationally, and really seeing things. additional pleased hear. we're improvements, I with messages what got committed hit the opportunity ask, it have to that's driving really the address things the work to soon really the pretty as a knowing where would a I'm maximum

relative message is architecture a do way remarks, me when has place we're the results, will on we company. at get also it's we're they they job that to brands, assessing they it active they're direction expect iconic. of responding in stepping really also is it very, and down now what great to But to determined diligent other ourselves, of to terms as and just right-sizing. to And we in really move portfolio and But of things on leader we make returning I deficiencies, Board's make being past Board creative getting of to take and -- where do I in brand the in right. right on is not in anything, able really, sure what But and there to strengths, up timeout. for. than expect double the bring you in operationally because on customers improving, the the clear that. more And My But very whether can to closing very so some to the of right, the are these in is responding, we being said gone us around strong, believe CEO So, that to capitalizing want have confidence a know execution, We're the being described my very time and our kind casually. this are, quickly get that what that inside, the me I we very that strengths, right you costs, them we exactly strategy. our in seeing to ourselves asked strong hang go. the not and strength And Board's trust us find getting are and the

we finish the of will we when there, exactly this will future company. And the but so I'm not land CEO sure for

Bob Drbul

Thank much. you very

Operator

Stanley. of line next question the from Your with Alex Straton comes Morgan

line Your open. is

Alex Straton

Great. things for quarter. did good rate throughout down have a the We quarter. they retailers, develop October trends drill just as my that to hearing the by traffic a or month? if I you you weakness some Thanks and exit wanted congrats things Thanks. Did kind been similar how saw just on question November saw -- and so sales taking of at did. much select wondering on

Katrina O'Connell

Yes. Thanks, Alex.

we a early its outlook fourth know bit But line and end in in of we we said, others' revenue. slow on did strong outlook that potentially a in that the volume with a commentary, of happening remain fully and trend weather think bit the a the to slow and days out October today start prudent November. of that why disruption some contemplated for bit little was described there. and we that see little But I quarter is in some that other

what a similar see little did see that bit we'll plays So of certainly, trend. But out. we

Alex Straton

Great. action I shopping to a on kind be holiday last for could be our that, waiting surveys like could describe we had seems thoughts period? are shop your saying customers that, That's then, year, also your later. of deals. as head to into on are I helpful. call just selling what holiday. know customers Maybe And maybe earlier. outlook also could Maybe It the

Katrina O'Connell

mean, well. I've as those I Yes. various points of heard view

And the so, we're customer ready prepared to when is just to shop. compete

early that of to until ensuring to we know shop too later, it. not ahead out willing And we're side, have to we ahead clear if going time and flip the too promoting want not waiting so, that they're far merchandise. we're we late don't buy, she's the on when be And a get enough, out to at to we're of

where So a we're prudent movement approach remaining vigilant happening is is in on our competitively, shopping. what's our as taking inventory understanding customer to as our where well view and

carefully So, lot I we've of guess, day-to-day. I'll that, have watching We're it those -- to just seen say heard we've dynamics. a

Alex Straton

much. Thanks so

Operator

is line next question of from Citi. the Lejuez Your with Paul

Your line is open.

Paul Lejuez

guys. Hi, Thanks, there. Hey.

XXXX. Navy? this openings. mentioned bit drag next And for back been Any half year, of then Curious, year store half seeing that Old about on Thanks. you've you're what commodity store growth You pulled to higher the also, seeing first quantification costs a XXXX? the specifically relative of as and obviously, of how in in thinking you've second a Athleta

Katrina O'Connell

Sure.

on a understood more wanted color year. we to you provide cotton lot we guys make get the Paul, to is, So XXXX movement we as that closer What the sure we'll see do happening.

Of move average to course, the it full takes unit a cost of raw while garment. materials the for a through

benefit come through timing we COGS. the get of on start to on the to And when flow to cotton so, our see more

the out cost. and so in material COGS figuring importantly, raw we'll be half much half, focused average bought our think be flowing I through QX certainly, movement first on get we've of But materially that back can unit won't we QX. through how any

that dynamic. your of it. just So wanted sort We then more to on second And -- give thoughts come on early sorry, to question?

Paul Lejuez

next Early year? on openings thoughts for

Katrina O'Connell

Yes.

good So, about XX pace we of going about that we're open Athleta, growth. and stores to feel

expect you a think pace that. could that's reasonable growth, I so of likely and

more on, Navy, Old For was performance, sure this was make the partially did a year prudent That based we opening have some we we're moderated more stores. as pace of store staying We those forward. slip we'll XX to Old pullback. move fully we given but next really come likely, But on were that Navy the wanting openings. stores openings have to a store pipeline land on as again, into that year,

Paul Lejuez

Good Thank luck. it. Got you.

Katrina O'Connell

you. Thank

Operator

with Your of next Altschwager Baird. line the question from comes Mark

line is open. Your

Mark Altschwager

question. my Thanks Good taking for afternoon.

on savings that you a look year as achieve clearance on But revenue holiday. a margin might kind think right-size SG&A and a back can to promotions of the these some kind additional there and lot just baseline we pieces the and of of is of forward you're that Thank path moving level look prepare backdrop margin, of you seeing, like? as your regardless the of business clearance, EBIT standing you. sort you annualize of year, of temporary what So, this margin, for to lot EBIT factors next of inventory some sort

Katrina O'Connell

are where Mark, now, issued of any that. sort many there pieces, so come guidance more haven't we so forward-looking moving to mean, anything on on I are Yes, and I think beyond that we

said overall, of lot store good the is have about benefit bit of of closure the international couple are really environment, inflation which activity markets about a been last is the you've think very fewer operating of And maybe overhead leverage. as partners, the headwinds quarters, through. the business of of to ROD form deeply but working to lower what there's we feel little us with still I into marketing and think staring labor team future, that about that's the really That losses and said, what operating the in over the technology. still work inflationary we income. help we us has that at we've and feel doing which good will committed that revenue costs We costs in other that so in in heard Gap our we a given headwinds about many are transitioning a we're we on added

long-term focused together. So, pieces goal profitable back certainly, to we're an and But into margin you of better of growth. as company lots with the sales of that give XXXX a on operating the outlook more getting moving put we we'll

Mark Altschwager

luck. Best you. of Thank

Katrina O'Connell

you. Thank

Operator

is Sachs. Roach from of line question Goldman Your Brooke with the next

Your line open. is

Brooke Roach

is that of profit with in and I bit this do had thank the more Athleta, business? that the for stock think here compare of is case, that the expect the out? what segment your trend margin profit And year? view for ending both sequential long-term you for on that segment the three-year Good this three-year on operating afternoon sustainable does a If is the quarter a narrow brand you how the And to from margins question. nice on little Can on the improvement taking you a which reflect stack. much and so comp improvement? wanted drivers sequential a you

Katrina O'Connell

see the positive I to the Brooke, a X%. growth down which we X% to market is return and the were NDD yesterday came meaningful comp, industry improvement. quarter mean, with Athleta the growth out flat negative Yes. pleased women's was for active

does And slowing in are market of active significant as they is bit so that growth years taking quarter the a Athleta's growth. show few after market share a even that

winning lifestyle starting as as as we balance to performance remarks, lot they've a well to that do little of the of able bit as, they've the in, a Bobby been see product we're been on some So said feel of active his to able lifestyle and sort products well a of performance brand. compete in as in rebound like prepared really lifestyle

aspiration certainly, question. don't We I segment, on driving As at I certainly, Athleta. continue the our growth sales to but stack margin far as to see, three-year but is the forward, going guess, we'll appreciate operating the be profitable report

comment And so, on that with probably not we'll this point. at that,

Brooke Roach

One Thank you. Okay. more I may. question, if

share event that? mid-single-digit forecasted quantification bit the contemplate you can you for impact little that Thank you about and the decline that As the franchise help you. you able a us within sales might holiday with any pull-forward XQ, impact be to

Katrina O'Connell

Yes, sure.

We haven't quantified that, Brooke.

sales It's it impact. Yeezy the less such October just them. timing from Old then of for modest then, of a -- impact. And just And probably so say all the about really think a had Gap it's the It's we that, promotion that did that, say next to are we sort dynamics point than impact And was the said, into so, franchise prudent fair Gap as ability and I the to sell holiday, slight Navy. that heading environment to the enter remain as to is in a modest we to that product through those the top Inc., we're into so year. on consumer allow do things need trying we as the we more together. ourselves

that driver. helpful, single hopefully, but outlook. up don't It's are together drivers really one everything think So, those it's any I to that's adding all

Brooke Roach

much. I’ll pass very on. it you Thank

Operator

with the of from is Cowen. question next Your Oliver Chen line

line is open. Your

Oliver Chen

Hi, Katrina and you. Bobby. Thank

the the and for to bit assortment little then Old just be work opportunity, and speed comps and time? And as done as strategically, product carryover is mentioned current Navy, that margins? consistent too. things the on to need You the through sure balancing an fabric at and Thanks. product, platforming agility I'm fall a a drive this that to one, more few what's what's you're out your still zoom -- of Regarding nature you we hypothesis need

Katrina O'Connell

then and content the you know maybe, I speak to Navy the don't want to take I'll piece. Oliver. Sure, if Bobby, Yes. Old

really the think summer and that second fall, On buys do carrying a is with brand. side, we clear had down, about But really holiday but It's we no was given and more pockets ability sort we nothing that, inventory the various that on to about fundamentally, inventory of like the continuing, -- third We into in our that's will higher focus particular. the over. that actually relative the we being now dynamics. different into carried that drain demand things. clearing to from quarter, through we it's than in It's the product customer content quarter the need then holiday. feel margin in There's were carried by stop as fall fall being inventory -- overall

head have through now, and margins And less cycle focused why the though, first in that holidays, fourth on next part to that stop we're quarter so we believe lot that as clearing is we quarter. pressured we look have will do So be year. of a again, of we into

don't I on So, comment Old Navy? you know, do want Bobby, to

Bobby Martin

and Well, you we deal let than be. broader challenging I I it us, expect clearly some finger cases, that get assortment of you to on things And would a needs again, an your missing and maybe really think we're in depth. those put is mean, great

just really putting there getting lens back right inventory. the correction course and is the on to fundamentals the So,

at now collaboration. right we place that the with an be for responsive newness that leverage taking much again the are a Old things Same on. with and been and helping things call Navy to that really is now much, brand, greater got done a focus know of and mills Haio cycle expectations, much, that capabilities will happy that the mindset more Gap life of the opportunity so that we've through keep to partners have the around able right there's where us the greater we're sell-through there has So, referred to he one product team looking continuing freshness

Pixie men's happens there's we So, the again, again, the lot good really fabric example now lower out. across But and And I creative, customers really customer. and, I'll in different are patterns, consumer even a capitalize on. Back-to-office now. our very, shows all these the again, we able that turn give that's in looking going to and that end. what think more is again, very, telling going right opening is when really a of fabrications it. the that pant insight us message popular. that consumer wide deliver able aisle, and to for right right on we've player, have got being on from about that the a I the a skinny right. a fashion sharp even the In brand on at denim offered a price to serve, do she's staying leg, chino on to to hopes own. certainly sensibility the and and But to it That's basics. brand brand range things is leg the from that a wide denim being I now, you particular, think, Stevie look But that's get try point very commented and

again, the then localizing well more breadth chase and it. we rationalization balance. the sell-through. keeping down And It's just and not more toward The are inventory carry around the in we payments us more much effective that, know we more being and and point at for and open a responsive that having looking deep we increasing -- So enough into last as better are getting inventory big that. steps of those where effectively really assortment on can

big, So, opportunity underlying so forward. and to a strong big the brand about feel it's why opportunity going we Navy Old something, for the big, that's think, I

Oliver Chen

holidays. Happy you. Thank

Operator

is next Fargo. Wells Boruchow Your Ike question from with line the of

Your open. is line

Jesse Sobelson

over And there. sales of then kind on term curious $XX it's with product longer on we so you all questions. -- ownership guys your I held Hi future? Jesse product. with everyone. confirm Yeezy that the million the the in business. is curious more for that written was I fully at the estate This should of wanted looking Thanks taking on the was down. just that, to of Ike. Sobelson of And any expect the the this for of and was just real kind I our just your first, write-down views

Katrina O'Connell

Thanks, Jesse.

take impairment did that as the down that on we appropriate. business $XX yes, winding So, appropriate million and are inventory reflected we is Yeezy the as

think based -- real question? you're about As corporate-owned we about estate, your I'm on assuming, talking

Jesse Sobelson

Yes.

Katrina O'Connell

the we have fully way assets utilized, and assets. them. So, real about are I the will we corporate-owned is, think we monetize underutilized To the are the look always proud degree about to good assets we of being the feel estate

today. we not to sure to they're else, look they prudently evaluate I'm do utilizing previewing we our this the adding So than point, to other feel assets where But we're need to that we are and how add. at with make say, value good try anything

Jesse Sobelson

you. Thank Wonderful.

Operator

next JPMorgan. line is the question Matthew from of with Boss Your

line Your is open.

Matthew Boss

Thanks. Great.

savings, a Katrina, Old reinvestment? across this think optimal And three, at changes improvement Maybe one, maybe way you do inventory time year, I made could assortment things. through Old couple annualized versus balance you for the the you rank next $XXX see quarter? of to So, flowing at line categories that for Navy? that you about see at on of expense guess, opportunities reasonable you then percent just a bottom Gap there help drove what sequential Two, line a to which is think Navy, million

Katrina O'Connell

Is that the there? Gap, you're what's the order, about you specific specific are what for talking working assortments, like -- So, asking? in

Matthew Boss

Exactly.

Katrina O'Connell

Yes.

Bobby funny, essentials. modern team but that really for We're current think the it's I of about really, the way were talking current the has I with -- it's great and back proud fashion, Gap the this. come in

with really more of modern that interest the they've I whether job a basics of whether like a a nice jacket into sleeve, just makes lot trend-right great fashion, And that the their of current. so, it's say, faux would pop five-pocket essentials. driven normal overall, or styles, product really have pants interpretation interpreted having just the that leather jean it's done but a in

the to has I'll I'll so anything other do answer Gap, and that. more on And two, him if Bobby add have

will importantly, and as we're spring, responsive we every very inventory think improvement able Old as to to Navy, inventory we're into chase far them be the excited to because making into just inventory give through that demand back, And to be the trends. progressive have I move that closer quarter. As start assortment, to opportunity optimal much

chase to the that time for instance, time leather as pop get well for short the in product As after denim into fall able sleeve Gap an as been of Gap they example, succeed, -- faux back back jacket, a very to amount holiday. it has styles that saw in

change to an the to come. see just We're of way now, customers. since on savings, so, the expense expected to example And wage to how can more seeing. are bonuses Navy that, stopping right get that's back, similarly likely for in they think the we're we're to of that $XXX at serve view that then performance, based able next bonus the once our of And not start their not we the year, responsive you as reset inventory I ability Old will is year million annualized just as to on offset as as said, imagine, inflation pay the this But Bobby $XXX well some really million.

be overall, feel But, right-size I a think about fit the think think efforts think really company's need the for more make cost down are hard to bearing will on more we how we good expense longer that's term structure like cost for it where that expansive company. to in purpose. to about we working to we start

add know, Gap, you'd if I anything. So, on don't Bobby,

Bobby Martin

really that I we taking do. work work. on think underline position is I double would real in mean, I cost. No, this this on comfortable we're where -- I the early a mean, we're just everything we said But questioning I mean,

the I will, think not strong a business would bottoms. lot well really, It's to a nicely, really going hot They've a I now, gotten ready women's Katrina that I chance but there. customer So, enough miss that across I turtleneck to we've turn meaningful wovens, come mean, work everything. there. oversized into it's that's I it's more in XXXX sweaters, because bold knowing seen trend-right a out. say, so get it's it think on deal did is right great specialty there's sweater

in category, So, and flannel forth. now, shirts the cetera, in it's partywear whether the right it's it's and et so

turn geared business team, way up has to has it seen that and keep my the I've going, that seeing So, I think, spring attention. summer. the and

to going ourselves the great find that, traction think So, hopefully, with some I interpretation here. we're positive of

Operator

Tarlowe is question next line from Corey Your Jefferies. with of the

Your open. line is

Corey Tarlowe

afternoon Hi, great. my Thanks. question. Good taking and thanks for

touch Gap. the wanted bit a I to So, little on

recently, on So whether is been I think driving business focused business to has X strategically, or selling thing the more franchising on going clear maybe fashion. capital-efficient on it's that that's international, Amazon China this really launching growth, even

So, could progressing next look that's the out you bit just strategy maybe to see how and how talk little the as brand about that a Gap overarching and we at and the playing quarter year? fourth you

Katrina O'Connell

we the Yes, America to out international which think on of other model not specialty brand, that markets, important potentially a but with in with as over-expanded there. getting out we in done put couple of the digital, the we've what much in to North back for is had it's can the is that a business modern capital the we more we that relevant that global our model years is spent very were Corey. really growth, closing sustaining really that focusing losses not important, those most Gap be It are more sustaining brand, operating that Gap brand, last for which being right-sizing way anymore, ensuring have stores much heyday, be consistent malls be pivoting people's we the is

America product through brand. focusing the into signs that, that head committed the third brand, creative the what relevance in North the remain and recipe for core. the articulated of of that's we about that I year. sort then think And and health as next relevance product And early out really quarter. core what to the partnerships on focus of playing on the their improvement Bobby It's So, we healthier really, a much is drives what's

Corey Tarlowe

you best Thank luck. much of very and Great.

Operator

question Your Research. of Kloppenburg line last with Janet comes the from JJK

Your line is open.

Janet Kloppenburg

like just of I margin appreciate the to breakdown, on you progress. did And down. Congratulations flesh but quarter inventory your seems for inventories everybody. Hi caution. Katrina, direction the merchandise great wanted you bringing have fourth where some a job I out the the it

were? you the start it marketing third you quarter. levels they that into pretty XXXX? more where like appear indication going on or uptick wondering, So much then -- seems though better product you with to but a balanced, better this the balanced, way, put be view. shape, in will is will be, I'm product, in and shape lot want this it than balanced on And good the That's promotional to fourth spend I'm wondering, much your saved not severe, marketing in let's there be SG&A, better even just forward Thank that my to quarter the the And it inventory some levels you.

Katrina O'Connell

Yes, sure.

basics caution what we with to have So, you know combined started we're do the to come fashion working we that the levels about that's their current I margin the gives the revenue is that still down. think, adjust the on Janet, That inventory we quarter. we fourth inventory are in-transit see outlook, get down. for are glad hard fact hold and the that the have levels us and the When into heading pack and the carrying, and others

So that. margin through lands, remain see take the in prudent we'll to might where but it what we of sort get about order

where the we'll about quarter. run we we on be see certainly XXX trying QX, certainly it the to head and articulating into mind could discounts for as it's hope in we its that of had in lands. better that and QX points while that, So that But QX impacting helpful margin our to basis again, be

believe quarter. don't third SG&A, we did fourth I we'll in So we On more would marketing yes, in in marketing some you be decide. spending quarter. in save let that

in heavily right We marketing spend marketing of both as balance that a into in continue we're after to quarter years the brand. investing. we year, focused make next couple and find prudent on as being to sure marketing well that of overall, we're of we head But, that try look effectiveness, as in fourth

the fourth to marketing in go So, I wouldn't expect quarter. up

Janet Kloppenburg

and a holiday. good of for so Okay, much luck Thanks best great.

Katrina O'Connell

Thanks, Janet.

You, too.

Operator

That conclude Thank our conference does call. you.

disconnect. You now may

The Gap, Inc. (GAP) 17 Nov 222022 Q3 Earnings call transcript