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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Gap Inc | NYSE:GPS | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
1.17 | 5.79% | 21.39 | 21.36 | 20.06 | 20.19 | 8,786,185 | 00:42:33 |
Gap Inc. (NYSE:GPS) today reported second quarter fiscal year 2015 results and reaffirmed its full-year earnings per share guidance to be in the range of $2.75 to $2.80, excluding the impact from strategic actions previously announced on June 15, 2015.
“I remain confident in our strategies to improve business performance and drive loyalty going forward,” said Art Peck, chief executive officer, Gap Inc. “Our evolving product operating model is laying the foundation to more consistently deliver on-trend product collections across our portfolio.”
On a reported basis, Gap Inc.’s second quarter of fiscal year 2015 diluted earnings per share were $0.52, including the negative impacts associated with foreign currency fluctuations, West Coast port delays, and the strategic actions.
Excluding the negative impact of about $0.12 from the strategic actions, the company’s adjusted diluted earnings per share were $0.64 for the second quarter of fiscal year 2015. Please see the reconciliation of adjusted diluted earnings per share, a non-GAAP financial measure, from the GAAP financial measure in the table at the end of this press release.
In addition, Gap Inc. distributed about $800 million to shareholders through share repurchases and dividends fiscal year-to-date, reinforcing the company’s commitment to returning excess cash to shareholders.
First Half Fiscal Year 2015 Results
For the first half of fiscal year 2015, the company’s diluted earnings per share were $1.09. The company’s adjusted diluted earnings per share were $1.42, or an increase of approximately 12 percent compared with adjusted diluted earnings per share for the first half of fiscal year 2014, which excludes a $0.05 gain on asset sale. The company noted that its adjusted diluted earnings per share for the first half of fiscal year 2015 excludes the following negative impacts:
“We’re pleased to deliver earnings per share growth of about 12 percent on an adjusted basis for the first half of the year, while continuing to work through product challenges at two of our global brands,” said Sabrina Simmons, chief financial officer, Gap Inc.
Please see the reconciliation of adjusted diluted earnings per share, a non-GAAP financial measure, from the GAAP financial measure in the table at the end of this press release.
Business Highlights
Second Quarter 2015 Comparable Sales Results
Gap Inc.’s comparable sales for the second quarter of fiscal year 2015 were down 2 percent versus flat last year. Comparable sales by global brand for the second quarter were as follows:
Second Quarter 2015 Net Sales Results
For the second quarter of fiscal year 2015, Gap Inc.’s net sales decreased 2 percent to $3.90 billion compared with $3.98 billion for the second quarter last year.
On a constant currency basis, net sales for the second quarter of fiscal year 2015 were about flat compared with last year. In calculating the net sales change on a constant currency basis, current year foreign exchange rates are applied to both current year and prior year net sales. This is done to enhance the visibility of underlying sales trends, excluding the impact of foreign currency exchange rate fluctuations.
The translation of net sales in foreign currencies into U.S. dollars negatively impacted the company’s reported sales for the second quarter of fiscal year 2015 by about $100 million, primarily due to the weakening Japanese yen and Canadian dollar.
The following table details the company’s second quarter 2015 net sales:
Banana($ in millions)
Old Navy Republic PercentageQuarter Ended August 1, 2015
Gap Global Global Global Other (2) Total of Net Sales U.S. (1) $ 795 $ 1,500 $ 563 $ 177 $ 3,035 78 % Canada 88 124 59 1 272 7 % Europe 176 — 20 — 196 5 % Asia 270 49 27 — 346 9 % Other regions 39 2 8 — 49 1 % Total $ 1,368 $ 1,675 $ 677 $ 178 $ 3,898 100 % Banana($ in millions)
Old Navy Republic PercentageQuarter Ended August 2, 2014
Gap Global Global Global Other (3) Total of Net Sales U.S. (1) $ 850 $ 1,460 $ 576 $ 185 $ 3,071 77 % Canada 95 127 58 1 281 7 % Europe 206 — 26 — 232 6 % Asia 274 35 37 — 346 9 % Other regions 44 — 7 — 51 1 % Total $ 1,469 $ 1,622 $ 704 $ 186 $ 3,981 100 %(1) U.S. includes the United States, Puerto Rico, and Guam.(2) Includes Athleta and Intermix.(3) Includes Piperlime, Athleta, and Intermix.
Additional Second Quarter Results and 2015 Outlook
Earnings per Share and Operating Margin
On a reported basis, second quarter of fiscal year 2015 diluted earnings per share were $0.52, including the negative impacts associated with foreign currency fluctuations, West Coast port delays, and the strategic actions.
Excluding the negative impact of about $0.12 from the strategic actions, the company’s adjusted diluted earnings per share were $0.64 for the second quarter of fiscal year 2015. Please see the reconciliation of adjusted diluted earnings per share, a non-GAAP financial measure, from the GAAP financial measure in the table at the end of this press release.
The company also noted that the estimated impact from foreign currency fluctuations reduced the company’s diluted earnings per share growth rate in the second quarter of fiscal year 2015 by about $0.04 or about 5 percentage points.1
1 In calculating earnings per share excluding the impact of foreign exchange, the company estimates current gross margins using the appropriate prior year rates (including the impact of merchandise-related hedges), translates current period foreign earnings at prior year rates, and excludes the year-over-year earnings impact of balance sheet remeasurement and gains or losses from non-merchandise-related foreign currency hedges. This is done in order to enhance the visibility of business results excluding the direct impact of foreign currency exchange rate fluctuations.
The company reaffirmed its full-year earnings per share guidance to be in the range of $2.75 to $2.80 for fiscal year 2015, excluding the negative impact associated with the strategic actions. The company updated its estimate of the charges associated with the strategic actions to approximately $130 million to $140 million, from the previously announced range of $140 million to $160 million. This guidance is provided to enhance visibility into the company’s expectations regarding its ongoing business, excluding the strategic actions.
The company continues to expect operating margin, excluding the impact associated with the strategic actions, to be down about 1 percentage point in fiscal year 2015 compared with fiscal year 2014.
Operating Expenses
Second quarter operating expenses were $1.09 billion, compared with $1.00 billion in the second quarter of last year. Marketing expenses for the second quarter were $131 million, down $11 million from last year.
Effective Tax Rate
The effective tax rate was 38 percent for the second quarter of fiscal year 2015. The company continues to expect its full-year fiscal 2015 effective tax rate to be about 38 percent.
Inventory
At the end of the second quarter of fiscal year 2015, inventory dollars per store were up about 1 percent on a year-over-year basis, in line with the company’s previously communicated guidance.
At the end of the third quarter of fiscal year 2015, the company expects year-over-year inventory dollars per store to be down slightly compared with last year.
Cash and Cash Equivalents
The company ended the second quarter of fiscal year 2015 with $1.04 billion in cash and cash equivalents. Year-to-date free cash flow, defined as net cash provided by operating activities less purchases of property and equipment, was an inflow of $341 million. Please see the reconciliation of free cash flow, a non-GAAP financial measure, from the GAAP financial measure in the tables at the end of this press release.
Cash Distribution
During the quarter, Gap Inc. repurchased 10 million shares for about $375 million and ended the second quarter of fiscal year 2015 with 410 million shares outstanding.
Including the company’s dividend, shareholder distributions totaled about $800 million for the first half of fiscal year 2015, underscoring the company’s commitment to returning excess cash to shareholders.
The company paid a dividend of $0.23 per share during the second quarter of fiscal year 2015. In addition, on August 13, 2015, the company announced that its Board of Directors authorized a third quarter dividend of $0.23 per share.
Capital Expenditures
Fiscal year-to-date capital expenditures were $301 million. For fiscal year 2015, the company continues to expect capital spending to be approximately $800 million.
Depreciation and Amortization
The company continues to expect depreciation and amortization expense, net of amortization of lease incentives, to be about $525 million for fiscal year 2015.
Real Estate
The company ended the second quarter of fiscal year 2015 with 3,751 store locations in 51 countries, of which 3,309 were company-operated.
While the company continues to pursue its previously stated growth initiatives with a focus on Asia, global outlets and Athleta in the U.S., it now expects its overall store count and square footage to remain flat in fiscal year 2015, as compared to last year due to Gap brand store closures.
Store count, openings, closings, and square footage for our stores are as follows:
13 Weeks Ended August 1, 2015 Store Locations Store Locations Store Locations Store Locations Square Feet Beginning of Q2 Opened Closed End of Q2 (millions) Gap North America 963 6 26 943 9.9 Gap Asia 281 6 1 286 2.8 Gap Europe 188 3 2 189 1.6 Old Navy North America 1,010 7 4 1,013 17.1 Old Navy Asia 50 1 - 51 0.8 Banana Republic North America 612 4 2 614 5.1 Banana Republic Asia 46 2 - 48 0.2 Banana Republic Europe 11 - - 11 0.1 Athleta North America 105 6 - 111 0.5 Intermix North America 43 - - 43 0.1 Company-operated stores total 3,309 35 35 3,309 38.2 Franchise 440 7 5 442 N/A Total 3,749 42 40 3,751 38.2Webcast and Conference Call Information
Jack Calandra, senior vice president of Corporate Finance and Investor Relations at Gap Inc., will host a summary of the company’s second quarter fiscal year 2015 results during a conference call and webcast from approximately 2:00 p.m. to 2:45 p.m. Pacific Time today. Mr. Calandra will be joined by Art Peck, Gap Inc. chief executive officer, and Sabrina Simmons, Gap Inc. chief financial officer.
The conference call can be accessed by calling 1-855-5000-GPS or 1-855-500-0477 (participant passcode: 7779269). International callers may dial 913-643-0954. The webcast can be accessed at www.gapinc.com.
August Sales
The company will report August sales on September 3, 2015.
Forward-Looking Statements
This press release and related conference call and webcast contain forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements other than those that are purely historical are forward-looking statements. Words such as “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan,” “project,” and similar expressions also identify forward-looking statements. Forward-looking statements include statements regarding the following:
Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause the company’s actual results to differ materially from those in the forward-looking statements. These factors include, without limitation, the following:
Additional information regarding factors that could cause results to differ can be found in the company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2015, as well as the company’s subsequent filings with the Securities and Exchange Commission.
These forward-looking statements are based on information as of August 20, 2015. The company assumes no obligation to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
About Gap Inc.
Gap Inc. is a leading global retailer offering clothing, accessories, and personal care products for men, women, and children under the Gap, Banana Republic, Old Navy, Athleta, and Intermix brands. Fiscal year 2014 net sales were $16.4 billion. Gap Inc. products are available for purchase in more than 90 countries worldwide through about 3,300 company-operated stores, over 400 franchise stores, and e-commerce sites. For more information, please visit www.gapinc.com.
The Gap, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS UNAUDITEDAugust 1, August 2,
($ in millions)
2015 2014 ASSETS Current assets: Cash and cash equivalents $ 1,043 $ 1,518 Merchandise inventory 2,005 1,948 Other current assets 899 778 Total current assets 3,947 4,244 Property and equipment, net 2,740 2,739 Other long-term assets 600 695 Total assets $ 7,287 $ 7,678 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of debt $ 20 $ 24 Accounts payable 1,206 1,227 Accrued expenses and other current liabilities 954 985 Income taxes payable 4 26 Total current liabilities 2,184 2,262 Long-term liabilities: Long-term debt 1,328 1,369 Lease incentives and other long-term liabilities 1,104 1,101 Total long-term liabilities 2,432 2,470 Total stockholders' equity 2,671 2,946 Total liabilities and stockholders' equity $ 7,287 $ 7,678 The Gap, Inc. CONDENSED CONSOLIDATED STATEMENTS OF INCOME UNAUDITED 13 Weeks Ended 26 Weeks Ended August 1, August 2, August 1, August 2,($ and shares in millions except per share amounts)
2015 2014 2015 2014 Net sales $ 3,898 $ 3,981 $ 7,555 $ 7,755 Cost of goods sold and occupancy expenses 2,440 2,412 4,715 4,720 Gross profit 1,458 1,569 2,840 3,035 Operating expenses 1,089 1,002 2,085 2,025 Operating income 369 567 755 1,010 Interest, net 16 18 20 35 Income before income taxes 353 549 735 975 Income taxes 134 217 277 383 Net income $ 219 $ 332 $ 458 $ 592 Weighted-average number of shares - basic 417 439 419 442 Weighted-average number of shares - diluted 418 443 421 447 Earnings per share - basic $ 0.53 $ 0.76 $ 1.09 $ 1.34 Earnings per share - diluted $ 0.52 $ 0.75 $ 1.09 $ 1.32 The Gap, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED 26 Weeks EndedAugust 1, August 2,
($ in millions)
2015 2014 Cash flows from operating activities: Net income $ 458 $ 592 Depreciation and amortization (a) 263 240 Change in merchandise inventory (124 ) (18 ) Other, net 45 182 Net cash provided by operating activities 642 996 Cash flows from investing activities: Purchases of property and equipment (301 ) (328 ) Proceeds from sale of property and equipment - 121 Other (1 ) (1 ) Net cash used for investing activities (302 ) (208 ) Cash flows from financing activities: Issuances under share-based compensation plans, net (15 ) (4 ) Repurchases of common stock (622 ) (608 ) Excess tax benefit from exercise of stock options and vesting of stock units 24 25 Cash dividends paid (192 ) (194 ) Other (1 ) - Net cash used for financing activities (806 ) (781 ) Effect of foreign exchange rate fluctuations on cash and cash equivalents (6 ) 1 Net increase (decrease) in cash and cash equivalents (472 ) 8 Cash and cash equivalents at beginning of period 1,515 1,510 Cash and cash equivalents at end of period $ 1,043 $ 1,518 (a) Depreciation and amortization is net of amortization of lease incentives. The Gap, Inc. NON-GAAP FINANCIAL MEASURES UNAUDITED FREE CASH FLOW Free cash flow is a non-GAAP financial measure. We believe free cash flow is an important metric because it represents a measure of how much cash a company has available for discretionary and non-discretionary items after the deduction of capital expenditures, as we require regular capital expenditures to build and maintain stores and purchase new equipment to improve our business. We use this metric internally, as we believe our sustained ability to generate free cash flow is an important driver of value creation. However, this non-GAAP financial measure is not intended to supersede or replace our GAAP results. 26 Weeks EndedAugust 1, August 2,
($ in millions)
2015 2014 Net cash provided by operating activities $ 642 $ 996 Less: Purchases of property and equipment (301 ) (328 ) Free cash flow $ 341 $ 668 The Gap, Inc. NON-GAAP FINANCIAL MEASURES UNAUDITED ADJUSTED EARNINGS PER SHARE FOR THE SECOND QUARTER OF FISCAL YEAR 2015 Adjusted diluted earnings per share is a non-GAAP financial measure. Adjusted diluted earnings per share for the second quarter of fiscal year 2015 is provided to enhance visibility into the company's underlying results for the period excluding impact from its strategic actions primarily related to Gap brand. However, this non-GAAP financial measure is not intended to supersede or replace our GAAP results. 13 Weeks Ended August 1, 2015 Earnings per share - diluted $ 0.52 Add: Impact from strategic actions (a) 0.12 Adjusted earnings per share - diluted $ 0.64
____________________
(a) Represents the earnings per share impact of previously announced strategic actions primarily related to Gap brand. The charges associated with the strategic actions primarily include lease termination fees, store asset impairments, inventory impairment, and employee related costs. The Gap, Inc. NON-GAAP FINANCIAL MEASURES UNAUDITED ADJUSTED OPERATING EXPENSES Adjusted operating expenses is a non-GAAP financial measure. We believe this is an important metric because it excludes items that we do not consider to be part of the company's ordinary operating results, as well as the impact from foreign currency exchange rate fluctuations. We believe this measure provides an important perspective of underlying business trends and results and provides a more comparable measure of year-over-year operating expenses. However, this non-GAAP financial measure is not intended to supersede or replace our GAAP results. 13 Weeks EndedAugust 1, August 2,
($ in millions)
2015 2014 Operating expenses $ 1,089 $ 1,002 Add: Estimated impact from foreign exchange (a) 28 - Add: Gain from sale of corporate asset (b) - 39 Less: Impact from strategic actions (c) (71 ) - Adjusted operating expenses $ 1,046 $ 1,041
____________________
(a) In estimating the impact from foreign currency exchange rate fluctuations on operating expenses, the company translates current period foreign operating expenses at prior year rates and excludes the year-over-year impact of balance sheet remeasurement and gains or losses from non-merchandise-related foreign currency hedges. (b) Represents the gain recognized in the second quarter of fiscal year 2014 related to the sale of a building. (c) Represents the costs associated with the previously announced strategic actions primarily related to Gap brand, and primarily include lease termination fees, store asset impairments, and employee related costs. The Gap, Inc. NON-GAAP FINANCIAL MEASURES UNAUDITED ADJUSTED EARNINGS PER SHARE FOR THE FIRST HALF OF FISCAL YEARS 2015 AND 2014Adjusted diluted earnings per share is a non-GAAP financial measure. Adjusted diluted earnings per share for the first half of fiscal years 2015 and 2014 exclude items that we do not consider to be part of the company's ordinary operating results, as well as the impact from foreign currency exchange rate fluctuations. We believe this measure provides an important perspective of underlying business trends and results and provide a more comparable measure of year-over-year earnings per share growth. However, this non-GAAP financial measure is not intended to supersede or replace our GAAP results.
26 Weeks Ended August 1, August 2, 2015 2014 Earnings per share - diluted $ 1.09 $ 1.32 Add: Estimated impact from foreign exchange (a) 0.06 - Add: Estimated impact from delayed merchandise receipts at West Coast ports (b) 0.13 - Add: Impact from strategic actions (c) 0.14 - Less: Gain from sale of corporate asset (d) - (0.05 ) Adjusted earnings per share - diluted $ 1.42 $ 1.27 Adjusted earnings per share growth 12 %
____________________
(a) In estimating the earnings per share impact from foreign currency exchange rate fluctuations, the company estimates current gross margins using the appropriate prior year rates (including the impact of merchandise-related hedges), translates current period foreign earnings at prior year rates, and excludes the year-over-year earnings impact of balance sheet remeasurement and gains or losses from non-merchandise-related foreign currency hedges. (b) Represents the estimated earnings per share impact of West Coast port congestion in the first half of fiscal year 2015. In estimating the earnings per share impact, the company's calculation primarily includes estimated sales loss and margin deterioration due to the delayed or canceled receipts of merchandise, as well as an increase in shipping costs. (c) Represents the earnings per share impact of previously announced strategic actions primarily related to Gap brand. The charges associated with the strategic actions primarily includes lease termination fees, store asset impairments, inventory impairment, and employee related costs. (d) Represents the earnings per share impact of gain recognized in the second quarter of fiscal year 2014 related to the sale of a building.
View source version on businesswire.com: http://www.businesswire.com/news/home/20150820006076/en/
Gap Inc.Investor Relations Contact:Jack Calandra, 415-427-1726Investor_relations@gap.comMedia Relations Contact:Kari Shellhorn, 415-427-1805Press@gap.com
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