Earnings call transcript Q2 2023

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Operator

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

Second Quarter 2023 Earnings Conference Call. [Operator Instructions]

to Gacka, call Director like your and now Emily host, of would turn over your introduce I Investor Relations.

Emily Gacka

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

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

report the to description factors with principles, These that cautionary reconciliation Commission XXXX generally as Exchange could based differ results forward-looking materially factors latest our filed on statements XX-K update on no actual statements Commission, on with with Securities obligation from contained release. and or information gapinc.com. Securities statements financial to any For publicly on well please and as XXXX, of today, any The described our our and the as on and of forward-looking consistent assume annual XX, the measures risk all available the statements. August we forward-looking any the Exchange filings cause in in revise earnings refer XX, not to accounting subsequent of and are accepted information are March which Form company’s

me Richard Martin; today Dickson; Joining on Katrina are Officer, call Bob Chief and Officer, Executive the Executive Chair, O’Connell. Chief Financial

to over the Bob. that, call turn With I’ll

Bobby Martin

and everyone. afternoon, Emily, good you, Thank

carry way the importantly, our of this great no company. Katrina and and changing CEO, results, underway Board into right a him Directors he’s we to are a builder is transformative of But the denying to legacy Before what of pleasure this November energizes view had shareholders. for moment. Inc. was the our work have work as most how tomorrow, Dickson, he welcoming renowned deliver. portfolio of one He we Richard in lead destined the this for future defining for His the role new already brands, quarter qualified matters and to brand our Gap shares him new experience a our fit of makes to transformational is a leader out is uniquely and call. that XXXX, more our second perfect Appointed Richard employees the building that at we results the There’s for I customers,

with And before our eye and Inc. to company for our want team you way and for an embracing the operational rigor say product their leadership. the to which hand a I care and becomes on we commitment under work, modernizing regaining off, I all brands, entire tenacity what’s customer thank Gap for success obsession of for foundation and of to the Richard’s this ahead their strong

have for bright company. great belief and this a very this I team future define that will Richard

CEO to want Gap I that, Inc. the Dickson, with So, Richard? new of Richard welcome

Richard Dickson

afternoon. CEO Gap good third is Inc. Well, This of my official day as

earnings me let for opportunity on XXXX call. thank the first, the begin Inc. lead by And to Board joining So this company. you, thanking our second for the entire and everyone, today incredible organization us Gap quarter Bobby,

have Gap why many Now and asked me, now? why Inc.

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kidswear, years, and pants, the our all-out Over you design, great our trends with into obsession made brands massive jeans, it, great suits, khakis, yoga through marketing name an customer.

maintain an today. pace quicker desire great for at speed landscape has fashion brands dramatically, and culture run relevance. that their the Fast can retail to changed forward changed apparel not is it own. of even requires The has now evolving to the customer’s they make What at

we what what for, that making sell, take step further, do, We and relevant. we we stand one what will

you, in is anyone while emotional rational need, is clothing As this want. industry a tell fashion an will

brands will balance both. Our

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our role to to where incredible strived and But fans. works can the and everyone monetization. brands. always brands that matter. A we approach our my In matter experiences wins. Gap and creativity It to of fandoms. consumers virtuous loyalty to us already and have and apply badge belief greater culture, make even then those because validating, growing Inc. more. want grow motivate I products previous to toys And entertainment, fans in inspiring they cycle brands portfolio that and in fans our even fandom, So, amplify and

in an on growing Katrina to and that initiatives. acknowledge take restructuring difficult. and doesn’t that addition direction, brands. has level that more, value step is and excite every to numbers so calls, effort at be that does, our that will now important our challenging. quarterly progress the Transformation And them keep made performance, this you that the delight And in Still, job people, the initiated will is want operations fast. through comprehensive growth-driving But of I organization, in And we’ve change can streamlining progress, come Our of even the championed detail. to transformation going The focus we up, we’re have Bobby their tough so before of to magnitude stepped she going. made far. been

focus brands. accelerating profitable by growth we now in we’re strengthening footing, on going build the our value efforts our to continue As our progress, drive to financial that on to unlocking

differently are building remarkable focus designing brand focusing know on now. new exciting teams our legacy that for redefining shape clear quality our and my brands leveraging do And rather making to we’ll a as meaning to and future. committed passion. it That’s with I’m as here our revitalization, I’m than it time, consumers, to and goal, I It’s to passionate relevance an a pursuit why why a just here This on creativity happen.

brands already that talent, that design-centric Gap informed tell our with aligns obsession In brands constructive each the both I’m plans. of consumer including recommitting an reigniting a I’ll on online and in magnet our we for conversation our industry’s creative quarters sets and around customer best brands distinctive values rethinking art show today culture can to the thinking the with creative a in store science come, reorienting in apart, excite a intent dialogues to share and that have, our by the great you them experiences how customer, ideas is insights the talent with Inc. at hyper-relevant inspire customer delight. priorities products brand and What purpose that reengaging and and cultural is of absolute specific that I and with up

organization. in our Most spending investors, every the of coming our world. the I forward the communities, to people, and weeks, part of to look all, In mattering our time

Our support it to partners of DCs, and who us, Listening, behind where the brands, centers, the we’re experiencing and you, the in US, our grounded headquarters get customers learning, more offices, our shop all even Meeting customer about first-hand order key in people regions and and shareholders. globally. going. defined stores, with

date I’ll wrap start that my saying was up deliberate. by

want this Thank new you. I for to that the August of exciting chapter celebrates that extraordinary as now start the XXXX, an Just mark our future. company, And was One the Inc. created XX, hand-off an milestone Gap XXXX, XX, August pioneer Katrina. past remarkable I’ll to we as call

Katrina O’Connell

months, been I CEO. and It your Thank Board X thrilled you, has over new in in with to a as you your as member a you pleasure partner past the Richard. role am working with role

$XXX teams improve detail. equivalents start balance, to more as more into reflections cash me Notably, work, Let in changes and how apparel fueled flow, organizational some cost quarter, each which a earlier dive $XXX importantly this previewed I brands consumer and with nearly and expect $X.X year-over-year, substantially change cash maintained generating net XX% million the fashion. that of our drive million financial a particularly over our through will of will in reducing We of strength We our ending Even we within by weak the relevant guidance performance balance allowing market, inventory before on we during much continue twice but business year. more continued free savings billion, we down flows, the despite year quarter be to paying strengthen our annually share communicated with further about environment. our and as completed choppy in consumer-centric. ABL we range style to sales or gained women’s our delivered great last cash sheet previously

we inflationary half the improve have incurred XXXX to despite faced. rates shore successfully enabled foundation sell-through with us Gap the We continue That we as unit beyond. position actions recoup we air We believe headwinds enter the fiscal the the the gross operations of to combined expansion up AURs cost Inc. meaningful second margin to of and and well continued improved pandemic. excess costs driving during our

new the fiscal of XXXX in consumer today quarter student which to the pleased to taking loan resumption we we of and are While And are backdrop, outlook navigate we business in continue are the half environment continue With mixed payments. that this on for we second mindful does headwinds the the operating. prudently. the the and like are challenges economic contemplate the both progress, while third of providing also year with we plan we

down our prior decreased total XX% me XX% year start the single quarter last represented sales the and $X.X Net be second last year. net expectations decreased billion in of sales from range quarter. to decreased sales X% digits. for X% Online quarter of results. high second our sales year in versus the with versus to now Store mid- of Let sales

X-point or the Gap first sale impact also sales the a million of X was reminder, the completed to of about net a fiscal foreign China There As had quarter a exchange at negative growth. beginning XXXX point $XX of headwind.

the Excluding in with gained these were have total sales that X% know X%. In would X of we’re We women’s. declines, all down company win. brands market the our pleased matter, regardless of quarter. report brands strong sales been to the spite or net sales that factors, about Comparable share particular brands, of that strength in during conditions, second maintained quarter, market down

levers on opportunities So of to deliver customers, shareholders. the our and we our control behalf on employees remain and in focused

Both now Net last and provide $X.XX declined by highlights with versus sales year. comparable the billion. color were sales some second and in Old quarter me sales brand. Let sales X% Starting Navy. net

category increased Navy demand the consumer. Old active continued that again softness in pleased quarter despite gained in well slower the from We’re share the lower-income as modestly as

Old important well and product the marketing, marketplace. remains back-to-school its The positioned has Navy in orientation compete value up the lined Navy given believe in value team We to season. great that Old

Gap total sales of year versus Gap Turning down comparable were brand. down to were brand million and XX% X%. $XXX sales last

icons new Gap reinvented due sales negative in segment China, sales Excluding as closures estimated resonating America. in continues Gap quarter, sale its are collaborations points was store outpacing standout to to the Yeezy versus of strategy last reimagine the to from by exchange, foreign year, the with executes net and predominantly X X Gap make points against exciting strides related to driven were Women’s the icons of exciting down the the with point as brand in to and great market shutdown the brand’s ways. and consumers. North impacts of the its the X partnerships X% product

merges this Gap’s LoveShackFancy with garnering on and every recent for with capsule LoveShackFancy’s of new and feminine collaboration marketing of a collaboration silhouettes. generation. multi-category a limited-edition, Earlier Gap’s partnering the This Gap month, styles is partnered premium individuals most consumers create buzz brands florals and can example prime The with how brand more for strategy iconic reaching brand, relevant and pricing. vintage-inspired

Republic. Banana to Turning

remains sales dramatic down impressive last brand $XXX to of to by a X%. the year in XX% an Second strides lifestyle customer in impacted shift laps declined premium quarter continues driven BR sales preferences. were short-term evolution benefit Revenue the in year-over-year. as million outsized Comparable the make brand. its

leather Fine Banana and the more the expects towards fabrics, elevated like in showed aesthetic year. Republic’s life cashmere, quarter to coming transformation them and full brand in strength price of an a position the maximize half to signs linen, fashion of the selling. evolved is through more and lifestyle back

this décor creative to including to in As see to we the doing resetting refined online been experience, store future, in declined look DNA of home accelerated product for. the the of to with of bedding, from emphasizes from customer and a its in the and that empowering sales March, core fall. year. addressable merchandising, Comparable an potential the their has the and work debut markets She relevant of known positioning, in BR excited through community Athleta X% launch in short assortment, performance women down ever. backbone improvement Power brand premium we as The reach as key girls team a upcoming the QX. throughout X%, optimizing trend vision of prior performance and sales. to term, true extend offering the the the and rugs, is Home, Athleta’s bottoms, is impactful sales million aesthetic are broader marketing, brand and outperformed $XXX and floors critical presentation, Sales Athleta’s Athleta quarter total pillows, improve other of site markets were and the active

excited are welcome We to the to Chris Blakeslee team.

forward wellness in at leader the the and and potential to growth work in proven full sector, to driving long-term. Alo active to innovation most bring Yoga, the and team Athleta recently the over apparel brand a look As drive he the we its will

basis of gross Compared to which margin of XXX expanded basis Gross was approximately the partially last slightly year’s of offset points. Now points points year’s merchandise XX.X%, margin by ROD gross XXX rate, expansion in XXX to versus our points, adjusted XXX due was margin expectations, margin margin. basis gross last quarter. to ahead an of increase reported deleverage basis

year’s year; expansion improved rate we air as follows: activity approximately but normalized and of headwinds, and of improved we to approximately down; to our was a deleverage volume. basis XXX XXX points elevated drove nominal basis XXX driven XXX leverage freight freight compared of basis air inflationary were basis Drivers of approximately rates; promotional last points expense related our the than to as prior expectations better on margin points last points of sales leverage realized basis basis cost ROD lower lapped to XXX ocean approximately flat as year deleveraged which the was last points from primarily relative due

me headcount XX in versus second related declined was to million restructuring the quarter an charges year, lower second and actions. SG&A. by let basis, turn adjusted quarter to and basis billion included SG&A $X.X expense, mainly in last our investments. $XX driven advertising technology Now payroll and X% Reported leveraged On points SG&A

leverage. by from was X.X% last SG&A basis $XXX which point adjusted operating points XX in margin in points basis excludes operating Reported was year second driven adjusted million the operating improved income, the gross XXX $XXX quarter, basis restructuring in margin income million. quarter. improvement of the Adjusted Adjusted and charges, to XXX

EPS, a excludes activities. to recorded was $X.XX. settlement and at During Share sourcing our transfer of XXX interest charges, Reported million. ended tax related a net count EPS which the second result restructuring was $X.XX, we pricing to benefit a adjusted both quarter, as

our a sheet to with decline cash Turning the balance. second we versus inventories includes last X efficient pack as prior to year. starting balance by and and flow, decline management. percentage majority the quarter Ending driven year XX% in releasing point to more inventory The of remaining in-transit was related inventory. declined lap inventory This X challenges supply points of related decline XX-point and hold chain

made levers. inventories utilizing we fiscal on progress We we on remain know, in you buys As moderating fiscal exited reducing XXXX and focused significant responsive as XXXX. our

for result, with $X.X were trends at billion, the inventory year-to-date we prior equivalents year-over-year in be and XX% year. third of planning down line a are to cash As quarter. of generally an increase end the from Quarter-end

expenditures net Year-to-date activities was were operating driven cash $XXX from inventory levels. by Capital lower million, million. $XXX primarily

of have year-to-date. cash to free $XXX generated flow million pleased are We

we quarter, you down expect As told year. this draw last million our on $XXX of to be the line pay to credit asset-backed we positioned

million quarter, and the an returns. million we down end of remain committed dividend quarterly $XXX We of to remaining the delivering the paid shareholder by $XXX total the core intend year. as component balance down During attractive a pay to

dividend And our maintaining During that XXXX. of quarter of XX, quarter, we the fiscal $X.XX $X.XX paid the share. per a on August dividend Board third for approved

turning our Now outlook. to

We marketplace, data are well regarding third loan consumer the new including of trends uncertain in and student in the mixed the beginning all economic the aware dynamic quarter. repayments

quarter net we’re Specific year estimated The exit performance. half is trend second to into and we million to XXXX as and sales. quarter result, billion sales fiscal net the in to down our consumer macro generally We now a environment fiscal inclusive be planning continue an compared anticipate backdrop. uncertain to sales prudent to encouraged August. of in $XXX week mid-single-digit what in approach last approximately add in light and fourth week similar sales, QX our extra range be and we to XXrd net the sales remains As improvements XXXX of first $XX.X by to XXXX choppy to

remain two our we second, year; lapping measured for we However, outlook. in from are quarter: as and sales tougher comparisons we last First, remain dynamics mindful the mentioned, important of

estimating down quarter sales mind, are third low billion $X.XX sales range double-digit net in dynamics we to net in these year. With in to the compared be last the

of year adjusted Starting position XXX last inflationary elevated normalized margin. compared points air a basis gross to is XX XXX of expense; at drive margin gross activity basis approximately gross deleverage full promotional better margin expected to least leverage the year. margin to an versus factors: and we the XX% year; down expansion be the our as year’s Turning compared improved to points inventory estimated fiscal driven following last points benefit by result continued XXXX, as and fiscal lap to cost in expected with in of XXXX freight basis air of last

we As half, percentage we the back the the benefit a year inflationary will now in half as in ROD from is leverage look points rates; second half costs and deleverage sales to expect basis XX roughly we first year. planned last both improved to commodity the the and freight as deleverage ocean to shift of compared to of

generally be activity third adjusted last last of the normalized slightly expect XX.X%. For XXX expect to offset that to and margin gross We deleverage, lower be anticipate expected ROD we we line with in approximately of will basis with in are below promotional quarter, inflation and year’s line year. margin costs points gross levels air largely

flow narrow approximately driven is $X.X We fiscal SG&A of XXXX fiscal quarter our to outlook now sales. to billion, $X.X expense third on through primarily expected billion. be billion, prior $X.XX below the Turning by our to of in XXXX expect SG&A variable SG&A. approximately

of approximately the $XXX million $XXX expect for to expenditures to capital continue million We year.

team environment. and fiscal choppy flow cash margin looking In generation the focused continues despite important over unlock Richard our for Inc. and shareholders and our quarter growth expansion its and a long of be profitable on brands were to path value our as forward value to delivering sustainable, in outlook what consumer drive am meaningful Gap and working iconic towards term. back I delivering pleased the strong on with we and to the XXXX we remain position closing, the

up the Operator? questions. we’ll that, open With call for

Operator

will Our with Matthew first Instructions] from [Operator question Boss JPMorgan. come

Matthew Boss

Great.

on share could just that maybe trends progress Richard, what that second signs elaborate move the about to and on you question. then just market terms any And we quarter concepts and seeing the progress back-to-school? encouraging consumer saw of opportunity for organization into maybe And two-part to in August take time. in you Katrina, today way a behavior think the over maybe you maybe as you’re as forward? elaborate across your see So of

Richard Dickson

look incredible foremost, Well, history. and logistics, my how I fundamentals have specialty massive first incredible question. incredible excited in with incredible. a brands the Republic, Navy, well, tell broad-based are We as day. such #X favorable the production, we these of backgrounds. from brands consumer, the mentioned you here are, am our Banana us XXX visits, of service, Gap, DC we’re apparel units XXX annually, of Matthew, I the I’ll network million off, operations What our million on industry. and produced story fashion the our and stats to again scale as we rates of this store such in Athleta, partnerships, the X.X are pretty operate context The strength where I portfolio, and serve and When that some a which which the the are XX-year-old We’ve for in is We over is business thank And you, be the can provide vendor truly iconic billion visits. these with legacies, the most created assets, third across we start can opening saying strength America, trends. got strength my online we at I remarks, that first generations company in scaled

the incredibly work Clearly, the that put us done footing. team on has financial transformation has better

incredibly are Katrina again, million continue and and to in balance in in that go of ability upon cash on context XX% billion $XXX flow, sheet, that cash of our and less These it ultimately, inventory. mentioned, matter forward. encouraging build the are hand metrics $X.X metrics As it the

part are that opportunities. also where brands in the These terms mentioned, I are question of X As to truly matter. the

do at Now reigniting as talked I also that? creative the I said, And to they more. Gap. culture can about how matter

here. have We talent extraordinary

be and only not great going for but become in going a also best new magnet the are ways, encourage we’re the innovative to to to industry’s talent. unlocked talent We

proposition with ultimately to art really sets really We are science informed and obsessing brand intent driving the consumer. really a specifically creating purposes but distinctive this going consumer business, if you of that from apart and on very the competition over the work consumer will, us by and ultimately leveraging, insights,

of There’s where the details work encouraged and I’m as in a offer And in ahead, but with get ahead ahead. lot X we’ll we you. incredibly with days what sharing ahead, more and that we’re days quarters well, going can around obviously, look forward to

Katrina O’Connell

Thanks, Richard, and Matthew.

I in think we sequential seen in quarter your on improvement saw of question, part your throughout May we of in improvement definitely other and had July, more June. where than the sort saw we

lot in apparel period women’s encouraged important has of we’re I a we’re we’ve that seen and and what think business, August, at particularly shown Old that well. by. improvement fairly back-to-school we’re as and is also Gap has Overall, shift the seeing which mirrored and continue momentum showed baby kids the into started that overall off what Navy

Navy of the is to said we’ve the encouraging prepared my impact of as the the pressured, reported low And we’re though, consumer. income does repayment what of primarily Old especially all our be in coming So is that at of I seen then the in end as I think fact still loan quarter, that remarks, consumer the we’re mindful, widely which see. range. student And watchful

Operator

Citi. with Lejuez comes next question from Our Paul

Paul Lejuez

operationally so on going extent. with some been touch to what’s in you’ve the been Board, obviously Richard, on

doesn’t the the hanging might fruit Also each curious, what scale. as you brands. you efficiencies be Profitability you lowest think expect with curious such think organization, quite scale. of match big talked about I’m the So you would about

of So company. biggest I’m the the think curious are you inefficiencies what

Richard Dickson

about culture really certainly Inc.’s empower really in Yes. ground Thanks, on running days my speaking, to Gap X and Board the fast. the Paul. experience creativity Look, it’s broadly reigniting on for

variables these in that They’re being language, These common their teams not experiences balancing ultimately online being and all areas and creative and and really reignite of fashion where strengthening and show demand and phrases about necessarily of the with this. and relevant. wants but culturally kind we in-store, incredibly and customer-obsessed how that our excite the upon ultimately, is think consumer kind need brands brands, all drive lies. being attract are to Our are into differentiating ultimately go our on new really of and that are needs they’re work design-centric, up that

we ultimately, going to that’s look up it really in brands rewarded pursuit. monetized. that I And back do, greater forward. be matter And can with the value consistent And that. more. mattering And to performance share of really these about only our in be very When shortly We demand, brands that to driving opportunity, kind that build have to and brands. I upon that agree We strength of we showing exciting is all of going in that started brands do. we make progress. think have of is continue we to and is the said, our ultimately, and the to brands can the how we begun, not That we’re business, matter encouraging. that value the strengths being need incredibly transformation be has of it context worked the get When will the portfolio to today. going that to more. at moving the is going extraordinary continue We’ve consumers work tirelessly start for the under will we’ve the start this but expect, to transformation team unlock that we’ll work and reveal stock But we’re with Bobby’s the all leadership, that make there these

Paul Lejuez

result pieces your changed thus the half what in which gross far half seen first about date talk for margin moved quarter? seeing of the just year, the you Can what you’re what in assumption third and of Okay. you’ve as to back a

Katrina O’Connell

Paul. absolutely, Yes,

range came to, margin really headwind. pressure, total And our think, XXX. a the a at in the bit where was I close close a lower since the the in end some little we to the we more came of within of of get delivered. of used better, There to we words closer with very quarter. saw overall, get saw shift some So came margin was better in gross we it suppliers. because second thought worse finished be rates margin in We between we our which through just little negotiations quarter, points area guys had we big that at ROD would XXX freight deleveraged sales basis had the inflationary the in get was in about where we the just you And in to

through the overall points deleverage, year basis points basis less plays guide see we about prior dynamic is on between impact to we is but of XX XX versus only XXX that headwind XX. basis the XX full zero inflation, and Air basically benefit, of margin where, So and basis now had then still from intact. we year the again, ROD now is somewhere points expect where offset whereas of there points said said the had so we

really it’s inflationary very ROD benefit by nominal but the similar. So this deleverage, is guide overall, offset

Paul Lejuez

different than level expected? what you promotional a And is

Katrina O’Connell

XXX And we of leverage basis flat. to is in on for we’re full about holding about the third came to close we of we overall expected what the guide. quarter, coming out overall, points promotions said quarter what that very promotional in the We year second to be promotions. expect And

after the So capability experienced to chase we’ll control. XX%. down supply inventories we And markdown inventory well under the excited for long. with came are see. And so back disruption Obviously, teams that have in we

now, to what’s we’ll better. the in that’s embedded right aspire But do So guide.

Operator

comes question Alex Instructions] Straton Stanley. [Operator with next Your Morgan from

Alex Straton

yet value-oriented this you. seems to maybe are It in it quarter. seeing that pulling is off, like Navy Old we just Katrina, though this other looks has some businesses, for inflect

So I feel shoots seeing what’s couple of there? on improvement. women? green And to the you maybe any we’ve now? you about to then that about time outside Are going can talk line think of you for like you had quarters how a

Katrina O’Connell

great Yes, question, it’s a Alex.

happening look is we’ve I remains low consistent think pressured. what Navy, been that when calling a what’s Old is income at been been So they consumer do which at what’s out, I have

active of though, product, hasn’t that so the lapping necessarily in particular, what I in significant weighed last year’s really look And on performance. dynamic clearance happened When QX, changed. at

really remember were lot sizing If last of the a in assortment cozy-casual. from we away Navy, the in the had Old you We issues. rightsizing of process year

the lapping of that on revenue weighed things. really side So has

improve As business the Women’s is into is and looking well. getting half, are better better we we as move seeing active the kids second modestly.

So where But green we’ll that seeing at Old us. all are lands Navy. see yes, we shoots

that think pressure consumer at whether the all or whether better. from remain getting I that’s that it’s Navy. have to Again, cautious and most low all dynamic, piece categories see loan those consumer out is aspire Old think we’ll inflation we student get starting pressure on wage I is new acute plays Navy, it’s we real the the the to how income Old of for

Operator

from comes question next with Our Lorraine Hutchinson of America. Bank

Lorraine Hutchinson

of week, it that sales the of decline about for nice just about you’re drives Katrina, getting with here? think talk guidance XXrd improvement? in improvement can mid-single-digit the how fourth you been level does in thinking it the and as comfortable from a outside of about you’ve year, improvement course, imply What how you quarter, that

Katrina O’Connell

Yes.

benefit at just the correct tired does back Lorraine, the sort from And we’re addition in look XXXX, went to some of I we quarters very week. back But that just business are but from have to that, XXrd know what in to of similar at half the versus fourth and run QX all looking So the you’re I first half the of quarter the the sort rate through. XXXX. QX

seen we variation that think you similar last quarterly to So Fourth to couple looks I more history. the XXXX, there’s back when quarter of years. lot over look of a have

Operator

with comes Kim question next TD from Our Cowen. Jonna

Jonna Kim

brand market? from over Just back in the competitive be of around growth turning time you’re a and how getting on and just brand Athleta, question the the about thinking sort

Katrina O’Connell

Yes, I’ll start, and course, that. a take of bit little your And then view I can Richard, you mean, welcome more. say maybe I’ll well, but as I

like my on. about near-term which as down As had we is we strong. white said, we in has feel knew heads lot a positioning brand prepared marketplace. I said working some issues, the incredibly remarks, execution of in been really feel positioning space good have I that we product win. We in power to And Athleta’s the sheet The team,

new whether year. Julia, fourth And next in Chris are and site few not then in team, the much that the been to on bring really to product also welcome do, of the teams brand then aesthetic. the the more a or and quarter have looks For brand it’s fall, into we the change that think will stores to excited if able been lot you’re and line there’s players to they’ve who with to remerchandising you but we it consumer, see their starting a the hopefully, experience bear a

we we of potential we just the excited something the two very if Richard, long we I’ll can there’s sort term, to we’re to know you So next the assortment as and going or add quarter Athleta’s have. else. But let about get through we’re make changes

Richard Dickson

Thanks, Yes. Katrina.

and functions. across member across of get Board, chance the apparel to to broad-based Chris a a this the holding industries I exceptional role. wholesale help roles had retail He’s an him know and talent, for experience multiple As select

recent grow successfully quickly doubling was in nearly able expertise that extraordinary the its and As year-over-year performance he President of brand, with to really apparel. Alo Yoga, growth and

on called So about with looking that and brand. that really Chris enthusiastic we leading be to the intend accelerated out, couldn’t as the progress more we’re this recent making their and Katrina team forward efforts we is

Operator

Our Securities. next question from Bob Guggenheim with comes Drbul

Bob Drbul

level been Richard, the look at you have the guess, very talked at look look their team necessary further understand place are as on portfolio? at think you there for in the you you no changes Richard, Chris, assume at is having a you about welcome. I when -- Should we I senior the -- vision. you but when Board you, management that

Richard Dickson

of taking Bob, much have We team. since work really see the getting very could the listening been said, I Thanks, I for began the strong on do year focused the I’m it That Yes. running. only question. really a when ground on feel And root. learning. and stronger. I’ve last hit I early. board it’s

entrance now feel X I from in, the the the has what handed like work that soil, very toiled and strong. the context I’m it, really The days and really of call will, on ground, the in being is around my feel team context transformation baton has more context the of you of, tenured being obviously encouraged. if let’s in the So and see done the in

lot we’re early a more share headed, we’ll coming it, there, I’m the associated around said, that in going and quarters where how get with ultimately, days, we’re encouraged. but to So much very more detail with

Bob Drbul

Great. if second And sneak you. just I Katrina, for one a in could

cuts. any been discussion around made idea line of for on -- SG&A. there terms at sort you know as on the further some going further potential there’s forward? progress opportunities I look In SG&A Is you some additional the

Katrina O’Connell

done, took the overhead the think inflationary It’s year a Yes. we the some the look work took good this it’s helped business, cost about generate that mean, offset at million will just we we’ve last $XXX have pressure we’ve we in $XXX million that fall, of we question, actions I of impacted whether Bob. actions cost. when early it’s or the whether

think investments and the are the demand-generating us work, to you’ve lot next be would next leg on The or the seen. I really made, need with marketing they journey that’s foundation. So done think it I we we if and make we coming where really add will some and of we’ve a in we’ve of quarters. technology we Richard adding lot SG&A to of we’re those those the the we to there would to is happy can for whether that on some refinements think I set are how think And heard moderate A I the is partner see of Richard remaining assessing work think, both whether value Bobby that say there. this

look I at. what saying to that more been we’ve are those come, with So but the consistent areas, think, we would

Operator

with comes Tarlowe from Jefferies. Corey Our next question

Corey Tarlowe

show remarks in online. how prepared you’re your about rethinking brands and up the how mentioned in-stores You about

of sales just So been the how get Board I the of your fleet on again, kind having your kind around your thoughts. to store curious thoughts just just since promotions then this be around in -- further store apologies thoughts year? leverage and fleet missed Katrina, it get November, ahead? on of to And if to half the – drive And the second profitably to wanted

Richard Dickson

a apart. remarks, our the sets in There’s opening and customer them Corey. opportunities, my really context aligns purpose specific lot can to I of with of Thanks, that the on most that on values working them. distinctive and we this see But areas double-click it’s in brand the many really

more matter. have -- when execution, being said, monetized. As That about and with the be has great great obsessed you could to and make brands I have product, that understand And that need to I great matter, really have to legacies, that and brands their our customer. talk brands brands be matter really you these these marketing, are we they

the and very, I of diligently think really that these it, elements we making but context we’re brands on creating is of have more. where our work to going matter in meaningful very differences brands

talk more more evolve. what to and the and in will so we you product what you we’ll required are doesn’t, us believe start details and are lots for as do win. much works and essentially ultimately look that that to will today the But that consumers quality a need we more if doesn’t works stores, in experience want products When our those if that context return statements you to of on our of to and going lots will, learn with to more work brands to as create will of what find, value and across where go, reflect, matter right believe they an heroic, do take consumers, between at that and right that examples, narrative share they and balance way experience more really the come accelerated that’s these an test diligently time. And product you’re and come transformations see could we really about, what to basics things roll experiences what and less fashion the we to will,

Katrina O’Connell

margin your And expansion Richard. great, second we promotional It’s with of successful quarter. think, see Yes. answer to Corey, second I did lower gross the levels in question,

promotional of flat we level our So basically quarter. a in in of expansion second margin now, about in we outlook, XXX have activity discounting saw points QX. basis from Right coming the lower

remain about, on to the lower consumer. cautious So as that we and do but aspire chase with have better levels we talked we inventory we’ll the

quarter. make definitely enough to consumer the so we’re heading value the we that sure into want to And third offering

where see we’ll that So lands.

Operator

from comes Barclays. Adrienne question next Yih with Our

Adrienne Yih

this Richard, and Great. a been days X there more X philosophical is question days. you’ve only then -- year sort of given

tenure of industry an your sort in the restore Mattel the So and concept leader. of growth as was similar core restore sort of sort sort at position brands, of reinvigorate

the creative create So I such So been do become averse. that, you have all very greater innovation that you is, how creativity they and company can team that’s to just a a oftentimes, I’m right? the kind my And and struggling, of risk-taking very question guess risk culture of get wondering, when assets safe, those come forefront?

Richard Dickson

Great rigor. a experience a we assets extent, Gap Mattel talent, construction are business question. which creative to go operational is, brands is of many here our It’s reigniting I’m phase of going within of and where great our orchestrate at of through, levels. value impacting culture, through really and a control ultimately, and and the and/or familiar. business where my There And and is industry. to unlocking a the with are Gap a the our was to lot Inc.’s fiscal some to of parallel ultimately our moment a And balance where, architect challenges, about self-inflicted responsibility ultimately some across that lead. fundamental parallels lot and great Mattel very And some

believe to that quickly. you familiar going to I add experience that very really and calculated, quickly. exercise creative and be need value that type I test, able you’ve science is While are a begin you that’s and is have design-centric organization swings strengthen you and bring an very context and And creativity. of take language. is very and we reignite, a That will accelerate to with ultimately, of the learn model. will, of business. to actually very, familiar scale leadership, that leadership that this to the are unlock is is if driving It’s very, culture to very got in that the roll, art in muscle excited a This a that the It

heavy business you you fertile through, to ground brands for a And to perspective, fortunate a up inheriting will, show culture, ultimately a be make so now will consumers has that for come feel if a and incredibly a matter, us lift ability if that, and will, creativity from transformational that delivering, the very is matter I for design-led more.

Adrienne Yih

there did one physicals? That’s be -- midyear, you I do When of one shrink? you Katrina, super talk may anything but it’s helpful. note? about think sorry, call is quick take your And wrong. out I to there

Katrina O’Connell

Yes. quarter. there’s nothing We counts from year There’s of call nothing do year. half once first year, call a in the of out. really now, We And shrink. full levels, on part and the to us do as pre-pandemic below remains to in second notable the partials out the our of early shrink

far is for of shrink not anything so So note. us

Operator

question Group. Dana with Telsey next comes Telsey Our from

Dana Telsey

Richard. Welcome,

and some for initiatives read thinking on, to design-led back to and how up of those think and and relevance about the planning, next how about I you terms year do the the thoughts and on And in rearchitecting put thoughts some model to points. Why of execute reinventing of follow articles your those I’ve comparison relevant or innovation, initial you at in in excellence. topics Richard, Gap as Katrina, year? on with you XXXX the into just then, business following, way. wanted look X half the brand together thoughts any How are the in past. inventories about what we of exist the you done culturally of Just do you’ve

Richard Dickson

to to I’m then brands, reignite we new connection execute for and at connection. a made passionate or teams special Gap of together a They playbook, a with context goes and at motivating accelerating with in you culture playbook to my Mattel. ensuring beyond a it performance, in need brands. of methodology, beloved the turning iconic operational are have about teams them experience uncover to really to but on background and what and brands that rigor first and Thank And company consumers, working development My the around of place enabling rallying reinvigorate a study deliver brand that plan, a look you to when the real these excellence. the relevance.

to So the being with share what That partners context the and Gap set playbook we be our familiarities similar. and brands shareholders, and will methodologies as be in consideration learn, time a our the the that the the and collectively reveal work one that to our and portfolio spend back our we’ll the of deliver ultimately on are shortly we’ve headquarters, familiar to team as and our understand really consumers, stores, revitalization will that that will to I start Gap be playbook be work be ultimately people of listen, able strength the all said, that. will will legacy DC, reignite to

Katrina O’Connell

the to we’re our to right our vendor to is demand in. levers had, responsive logic overall, working on receipts very we come with And consumer activity closer vendors left do make a Dana, opened will reinstating base to that year, so similar and we right have of with expect just to the consumer. with closer the but inventory sure as quarter that inventory, And responsive then, first not closer be that that on expect trends. be materials, more lot working be on running only we’ve that the the more we the into we to third inventory ending to be more next but half transformational more head leaner can we And

us of dynamic. leaner all inventories helps that and be So more have

levels So those on forward. more come to are going what

Operator

Roach from Goldman Brooke question of last Our line Sachs. the with comes

Brooke Roach

Navy. that that I the value-oriented in customer backdrop stores? from particularly benefits customer any competitive Navy with on discounters. and options, you wanted Old for Can seeing to elaborate a the follow other in today, And business up online on are you competes seeing trade-down Old both has as who you’re your

Katrina O’Connell

is Yes, winning customer. with some Shein, what brands gaining with we’re T.J. Amazon, those are our of And Maxx, are the businesses really that mean those Brooke, seeing I our share. that seeing we’re consumer compete definitely

brands win Old environment. the in us and which Navy Lulu benefit win, We’re also Nike Adidas behind the economic has #X tells brand Nike. great seeing of strong any being that brands and like

player big a is it so as in space as well being a And branded the retailer.

So brands. that I’m to thrilled brand creating strong a Board have in Richard experience already his relevant And with has such on positioning.

in keep do to to think we there lot have that a space. I winning

there, positioning for come to more their but glad sure. So we’re with

any move value. Trade-down is a any benefit, benefit. positioned That since as at not forward great certainly consumer we’re to fashion to seeing our great we’re trade-down value add goal currently have we to said,

-- So we’re but not seeing yet. that

Brooke Roach

amidst rest I just We’ve If we’re you’re broadly. could business planned Can concerns credit card a outlook in on be other the of how one and your this seeing for of your provide week macro follow up might you some in environment update that topic. the year? and of on address a portfolios companies heard credit the planning brief the number what

Katrina O’Connell

certainly, Yes, watching that, it’s question, we’re a Brook. good And too.

outlook We in we provided in lows see from within So ‘XX. loss same today. and our or we from any are trends rates own industry the credit that reports see in industry the business increasing card income reports do recent ‘XX as currently reflected see the

underwriting pre-pandemic However, with customers providing higher we’re to delinquencies, ours to strategies And risk our we’re make to of sure card mitigating while provider our back are our adjust credit flexibility. working not levels with yet. still

So we’re actively consumer monitoring environment. the

the trends impact and all We’re in just watching to are the of again, on provided. outlook we credit card customer, the the credit

Operator

of Richard you. We’ve I’ll Dickson remarks. the turn reached over to closing for the And end now call question-and-answer Thank session. the

Richard Dickson

you all the Thank belief and extraordinary thank of past my questions. to time, igniting in Gap for I joined I of I coming welcome that pick warm the Gap forward thank want want of meeting for tireless work joining. who people, your you. for and look truly of thank all thank and your in And just people to all I’d weeks am this thrilled of leadership brands all months, for Inc., just incredibly with. Bobby our you really you over I for to And how Inc. to the the your like eager also the today, to company. call up and his interest be this CEO and in am I year to to particular, and and run reiterate transformative our you

Operator

Thank you. conclude our does call. That conference

You disconnect. may now

The Gap, Inc. (GAP) 24 Aug 232023 Q2 Earnings call transcript