GPS - Earnings call transcript Q2 2024

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Operator

Good afternoon, ladies and gentlemen. My name is Briana, 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

a release, to filings of description which factors principles, on March and Commission that cautionary company's reconciliation earnings on all latest generally filed as could differ with results materially described Exchange our XXXX, Commission, and on actual statements, with from contained risk information statements financial annual Form any and the For well Exchange in please any XX, report gapinc.com. Securities our as subsequent and of consistent the measures the with the forward-looking are any cause in factors refer not XX-K to the accounting on available Securities accepted

These of and today, revise forward-looking forward-looking to obligation statements. August information update our publicly as on assume no XXXX, we XX, are based statements or

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

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

Bobby Martin

Thank everyone. you, Emily, and good afternoon,

I Before our results, shares Officer, Katrina our of to second the call. have welcoming Richard pleasure the quarter new Dickson, Chief Executive

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

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

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

Richard Dickson

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

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

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

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excite growing will be of more, them the and to delight Our value our job now even numbers brands. their and

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

to I'm new leveraging relevance to As our value revitalization, rather as our and creativity, It's to that we'll a and and on than time a passionate designing brand for making growth This That's passion. as to our quality I'm shape on know remarkable we pursuit here now brands And progress, my it an future. are focus goal, now. happen. focus efforts in on why legacy brands. the why just we're build profitable building that committed I going here differently, to footing, meaning unlocking by do our our teams our exciting redefining drive it clear with on consumers, continue accelerating to strengthening a financial to focusing

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

and organization, our our all the In behind shareholders, the firsthand get weeks, listening, who shop support the time I more order defined coming grounded us part about centers, offices, people of and headquarters key stores, the customer in learning, it forward DCs with to in you, brands, and we're regions meeting where spending even to of customers look our experiencing in going. partners and globally, the U.S. every

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

milestone an Inc., our want mark XXXX Just for celebrates future. one was I as August the new start company, chapter Gap XX, remarkable created an as this extraordinary past pioneer that that exciting of XX, August we to the XXXX

you. to Thank off hand Katrina. I'll call And the now

Katrina O'Connell

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

business through detail. quarter, Let twice by quarter of more of down continued me in sheet and dive inventory our style start with balance XX% strengthen equivalents market, $XXX gained relevant with share some strength and $X.X the as ABL choppy our balance our brands during or further maintained I Notably, much reflections last cash the paying particularly on billion, into women's we each financial year-over-year, over performance cash and consumer million our Even our and in fueled flows, flow, cash before reducing year. a nearly of free fashion. ending great generating as to improve

net cost delivered more that within We continue consumer-centric. more annually, range, be allowing this expect to will substantially teams apparel organizational despite previewed guidance a previously which about to savings sales we changes drive million communicated environment. we year, importantly, We work, we the completed weak how earlier $XXX our in will but change

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

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

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

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

sales down company were Excluding these would factors, about have Comparable X%. down quarter. net been X% the in sales total

women's. brands brands the conditions, that the particular pleased of strength second that matter, with our or to market gained market quarter, know spite brands, all that in strong In maintained of X win. sales regardless report declines, We share we're during of

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

and Old Net now color me consumer. starting softness and We're lower-income sales category with declined the remains second Old quarter, continued back-to-school orientation slower X% in important net Both active in and sales provide its last We as the has the increased despite quarter Let as positioned up Navy Old season. year. in some the Old believe product compete pleased demand given billion. team sales that Navy. by value that highlights the versus Navy comparable in marketing, share marketplace. value from sales to gained well the well lined The in $X.XX modestly again great brand, were Navy

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

store versus standout related impacts the to Yeezy with Gap shutdown negative by driven segment the down predominantly points from sale to of estimated in X as foreign last quarter, were and X reinvented the the closures point America. X% China, Gap was to the exchange, X sales are resonating North brand's sales net outpacing Excluding Women's the the the due in icons of points market consumers. year, of

for feminine with how strategy of reaching styles collaboration pricing. prime icons LoveShackFancy recent month, the Gap make brands executes a silhouettes. partnerships a consumers individuals ways. brand, florals more every partnered on multi-category strides iconic Gap for collaborations LoveShackFancy's limited-edition, as create great buzz Gap's brand example with is collaboration can the and new new vintage-inspired partnering Earlier with exciting to against merges with This marketing and reimagine generation. and continues its this most and its premium strategy in brand to and capsule relevant of garnering product The exciting and Gap's

Turning to Banana Republic.

Fine continues were last term sales sales quarter short Second the year-over-year. Revenue as impacted in declined million by brand remains dramatic $XXX of Comparable BR XX% down brand. them year, of strength of like an leather in half strides make laps preferences. driven premium the shift a the outsized fabrics maximize the quarter, to the signs customer to expects X%. benefit its the impressive to and in the in year. showed brand lifestyle linen, evolution back cashmere and in

life towards evolved transformation elevated a and is lifestyle position Republic's more through full-price aesthetic Banana selling. more coming an fashion to

As and with offering markets refined excited its upcoming the of a bedding, decor future, aesthetic to the BR Home, we're we including see and look debut vision broader in other of extend to the launch brand addressable pillows and home the rugs, March to this fall. premium

sales. sales of Athleta an and Athleta's critical performance throughout the Sales from million in QX. assortment, declined improvement prior brand the were accelerated from core sales X%, bottoms, Comparable total in X% $XXX trend backbone year. the down outperformed of quarter

the floors DNA experience the for. active as merchandising in excited has the The She, Power a Athleta marketing, store Athleta's of emphasizes doing been to community site to markets, Chris in known improve resetting potential team the product online relevant is positioning, presentation, and short impactful women customer and to their reach girls through that team. optimizing work Blakeslee as the is ever. key to term, of We're welcome and empowering and creative performance true really

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

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

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

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

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

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

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

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

levels. the for were line billion, generally inventory year-over-year are planning net equivalents cash in increase Capital Year-to-date driven $XXX activities we with of third by down the trends primarily was result, to $X.X year-to-date million. be inventory operating from lower at a from expenditures year. of quarter. Quarter-end an end $XXX As and were prior cash million, XX%

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

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

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

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

Now turning our outlook. to

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

environment in macro backdrop. a approach As be consumer our choppy of uncertain prudent to an light result, in planning, and continue remains what to we

inclusive now in compared to be estimated XXXX million sales, down anticipate and net in add to week, of $XX.X week net generally We fourth net to the sales fiscal extra range fiscal year XXXX to last first is sales our approximately The and mid-single-digit sales. performance. half the XXrd XXXX similar quarter billion to $XXX

to trend as and we exit sales, Specific improvements into we're August. quarter second encouraged QX by

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

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

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

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

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

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

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

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

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

Operator

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

Matthew Boss

signs could the the see take of you So a for organization share elaborate concepts your question. market that over think to two-part maybe time? opportunity as about encouraging progress we you across just maybe and Richard, on

second way elaborate forward, saw in maybe to Katrina, and of into August maybe that you're then And consumer back-to-school. quarter the trends in what and progress seeing as moved today on any terms behavior just you

Richard Dickson

And in I massive how I'll to here brands where incredible What consumer, foremost, legacies, created and day. these strength are, iconic I Gap, We've for first third Well, first Old a some these context the a Navy, excited storied Republic, such are backgrounds. tell got the history. start question. Athleta, We've XX-year-old trends. broad-based are generations of can you, and as in of you fashion assets, We off, is my is Banana be the truly Matthew, industry. again we am that the saying incredible brands on such most well, a serve which with thank

XXX look I in the mentioned billion America. scaled operate specialty store I we as we strength visits, million visits; the in When the we're X.X across portfolio, network units us provide our that we opening remarks, with, at and apparel vendor company fundamentals #X have of operations The from The the my online the XXX can business production, of which logistics; stats million service; rates produce this and are DC incredible. our incredible our partnerships, favorable pretty annually. strength over and scale

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

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

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

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

We have extraordinary talent here.

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

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

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

Katrina O'Connell

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

apparel of showed overall. a mirrored lot that think I what

in fairly Old started that by. into and we've well. we're seeing encouraged momentum period, August, important the Navy, also we're at seen And baby, women's business, continue kids Gap improvement what and off is which shift. as has has we're back-to-school And that Overall, the particularly shown

So see. that encouraging is all of to

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

Matthew Boss

aboard, great Welcome That's color. Richard.

Richard Dickson

you. Thank

Operator

Our next comes with question from Lejuez Paul Citi.

Paul Lejuez

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

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

you what at curious the I'm the are inefficiencies So biggest think company.

Richard Dickson

Yes. Thanks, this. Board, are our design-centric, to ultimately, the empower They're teams and days experience strengthening Paul. and, they're creative broadly the In X on really being brands, on culturally for Inc.'s certainly incredibly about creativity. our relevant. being fast, speaking, Look, it's differentiating running ground on customer-obsessed my and reigniting Gap and really all-in culture being

the and and are upon ultimately, they're that but excite attract, kind needs. really of that show demand phrases language, how in brands ultimately, of of areas store, and, these necessarily new fashion our That, not lies. balancing into all to consumer we common that and online, really drive wants reignite are experiences where and These about the with go kind is variables need up work think and

to can matter, going matter ultimately, is about And of think business, brands the extraordinary has I encouraging. We've that be to these pursuit. that kind and the monetized. this to said, have the team it at of context tirelessly work work brands have Bobby's in we opportunity, We When brands progress. be That more. need we the look brands I strengths make that leadership, that is of started being When do. the our do, worked transformation to make incredibly the under strength

today. that continue consumers share start value we we're rewarded in agree to that will And really these not consistent the unlock be performance reveal the we've going stock portfolio we We going shortly we're build upon ultimately, that exciting continue And to and demand, But we to that. with to there in the is it of only brands. showing the value really and more. begun, moving can to that's is forward. up get of expect, will all than start greater transformation And for very the but we'll mattering our driving back with going that and all how

Paul Lejuez

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

Katrina O'Connell

absolutely, Yes, Paul.

pressure, of second used, the words quarter, to get was inflationary shift the guys close total between a think points came basis we I in little So came headwind. in of margin very at gross -- in just There to to had we overall, you delivered. was the margin bit which close better, a the in about XXX

was quarter. we we range our through some be we the the really ROD, saw big get came of in we worse would our lower little where it suppliers, margin of thought where saw to closer just the a finished we end in deleveraged within since with that and get rates negotiations the sales in And because freight XXX. had area more better at We some

year plays the where, again, the guide year intact. margin that full So overall to is dynamic on through the basically

of deleverage, had Air basis points and basis where had XX said of we XX. between less we now whereas XX And we prior we XX is said X is now points there the still so basis expect versus from about somewhere inflation, see XXX headwind. benefit, points points of ROD, then but offset only impact basis

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

Paul Lejuez

than level different your promotional is you're assumptions? And you what expected, the softening

Katrina O'Connell

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

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

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

Operator

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

Alexandra Straton

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

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

Katrina O'Connell

it's great Yes, question, a Alex.

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

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

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

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

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

lands that where all us. see we'll So

seeing But Navy. green Old at shoots we are yes,

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

Operator

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

Lorraine Maikis

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

Katrina O'Connell

Yes.

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

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

Operator

comes question Jonna next with Our Kim Cowen. TD from

Jungwon Kim

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

Katrina O'Connell

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

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

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

quarter of long the the we just next very we excited term, can about we're Athleta's get have. we changes make as X know to to or So assortment we and potential we're going the through sort

there's But Richard, I'll let if something you else. add

Richard Dickson

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

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

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

Operator

question Drbul from Guggenheim Securities. next comes Our Bob with

Robert Drbul

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

Richard Dickson

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

what and Board the in the I being very ground, of and in days encouraged. in, see I'm feel it, the on from tenure So obviously, now, of, let's context X context call

has the is entrance The toiled really the you done in work my handed like the of really transformation the team strong. context will, that if has the soil, being feel baton around and

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

Robert Drbul

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

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

Katrina O'Connell

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

So this that Bobby think we've and of work with you've say foundation. lot Richard we're done happy set heard to both I the a

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

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

Operator

next comes Corey with Our from Jefferies. Tarlowe question

Corey Tarlowe

Richard. Welcome,

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

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

Richard Dickson

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

brands the are that about talk brands -- I matter. really legacies, As these I their and

And when marketing, said, That brands has and you our be you we have make obsessed to to product, great That matter need have monetized. great to have and customer. execution, with brands great could being that these matter, they more. be understand really

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

find, heroic, right between need will, narrative consumers, talk they we experience our balance reflect, you to and and context that that across are product that in basics products are product return you and the to we will, experience an where look to the will today stores, that consumers our to if about, that matter to, the believe for details will and required statements brands an experiences fashion, of create really value the win. right want if you at and come When quality believe ultimately

going And us work that's diligently to you're what more much see on.

really and that with to examples, more in what learn works time. what more go, doesn't evolve. start less those accelerated of works test we Lots doesn't. what more will a so do and these come do As to what we as transformations more things could essentially way, But of take they and roll we'll and and lots share

Katrina O'Connell

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

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

quarter. talked to enough we want into with we're we we'll on and But better consumer lower we make offering to that to third have. the so sure [ about, the chase remain as aspire value So consumer, the we ] levels inventory definitely cautious and that heading do the

where that lands. we'll So see

Operator

Yih comes from with question next Our Barclays. Adrienne

Adrienne Yih-Tennant

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

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

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

Richard Dickson

a Gap orchestrate; It's for across here Yes. you Inc.'s to There and with levels. Adrienne, and I'm parallels great And architect many experience at my question. lead. that ultimately, thank Mattel question. business lot are a to of

ultimately, familiar: assets, And and is, Gap the extent, a was parallel phase some, great within a the business talent; a our some to construction about to are impacting which unlocking where, through, go where control through is a and of we of industry; of that where is going our our challenges, value some brands great our and self-inflicted and culture. ultimately, really lot creative reigniting Mattel moment very

ultimately, in a is very is and that you are scale and to art and accelerate It's you language. familiar and/or learn is culture, we actually The be muscle Test, calculated. that of able creative a science this That business. to roll, responsibility design-centric strengthen. and and operational need rigor, will fiscal that driving you've a exercise the begin a quickly. while It the familiar very take got And model. to very, have to are of balance swings fundamental very and leadership

and to very that organization that is With the that, value an of if in really that's believe This creativity. of unlock to type I that excited experience reignite, I the add bring you very, leadership, will, quickly. is context going

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

Adrienne Yih-Tennant

one quick Katrina, helpful. super That's one.

wrong. Sorry, did is And note? out there to take you it's talk you I about do think When I midyear, be physicals? your may there shrink? of anything but call

Katrina O'Connell

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

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

Adrienne Yih-Tennant

Okay. Best of welcome. luck, and

Richard Dickson

Thank you.

Operator

with next Dana Telsey Telsey question comes Our Group. from

Dana Telsey

Richard. Welcome,

thoughts your articles about Just of following how in past. the the and terms in [ some up relevance Richard, of we the reinventing model in do rearchitecting on done topics thoughts or any X at excellence. on of to culturally points: with initiatives you those Gap, I've look How together some brand initial do why relevant exist, in business design-led of the you the and way? thoughts those ], what comparison to you've read and innovation, put execute

for of you as and follow planning, And then, how on, back the are about Katrina, XXXX year year? I the into and next thinking you think up just inventories wanted about to half

Richard Dickson

background on thank accelerating the operational around deliver teams experience playbook enabling for of execute plan, rigor But beyond it the to and really My my a in a and playbook. you of brands with Dana, study and performance, at Mattel. excellence. to goes development ensuring a culture rallying turning

made methodology, a company and and teams They of that and consumers, are together place, brands, brands. iconic with connection. I'm or Gap reinvigorate have reignite need first what the then motivating a them connection to new at a relevance. these that look context special we real about you brand the working beloved in to passionate to uncover to In when

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

Katrina O'Connell

then, half And we be quarter we in. but And trends. can the will responsive that to more into third first to consumer Dana, overall, so demand that next on more and with we as closer on similar inventory, head inventory do running expect leaner year, open very be expect to more more ending be we to receipts inventory come left

just not with consumer. of And with transformational that the the that be the closer had, activity vendor closer that to our we only materials, right vendors, on base is sure working right to the make logic to the working have we're we've our but lot responsive reinstating levers a

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

] [ (sic) So forward. levels more those levers on are to going come what

Operator

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

Brooke Roach

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

Katrina O'Connell

seeing that win are Amazon, Yes, Shein, also us T.J. compete Adidas with which tells really share. consumer seeing businesses environment. winning Brooke, is strong brands economic with the seeing some brands that brands And those and I customer. are our we're our definitely like Maxx, and we're We're that win, gaining any Lulu of those Nike mean what great in

behind Navy Old benefit the Nike. of brand #X being has the

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

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

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

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

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

Brooke Roach

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

Katrina O'Connell

Yes, certainly, watching too. question, good it's and that, we're a Brooke,

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

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

credit watching consumer So impact credit. in we're card just on We're the of trends all provided. we actively the environment. monitoring outlook And the to customer, are again, the the

Brooke Roach

luck. Best Great. of

Katrina O'Connell

Thanks, Brooke.

Operator

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

Richard Dickson

brands how Inc., questions. extraordinary to Thank belief And and Gap all interest like the my to people, our for thrilled CEO just and you company. to be of truly want am you. I your I'd reiterate your thank I of time, your in this our

the Inc. am all of forward Bobby, all to really weeks with. this work today, eager in you who igniting welcome you the over meeting call months, his thank for the look for past year leadership I particular, just to of that all warm and tireless I I pick transformative and thank thank And also Gap and in you up for for and the coming incredibly joining. to people to run of joined want and

Operator

That call. you. our conclude does conference Thank

disconnect. now may You

The Gap, Inc. (GAP) 24 Aug 232024 Q2 Earnings call transcript