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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 | |
---|---|---|---|---|---|---|---|---|
-0.785 | -3.65% | 20.705 | 21.49 | 20.53 | 21.28 | 2,112,456 | 16:40:12 |
Gap Inc. (NYSE: GPS) today reported results for the third quarter of fiscal year 2016. On a reported basis, Gap Inc.’s third quarter fiscal year 2016 diluted earnings per share were $0.51. On an adjusted basis, the company’s diluted earnings per share were $0.60, excluding a $0.09 impact from restructuring costs related to store closure and streamlining measures previously announced on May 19, 2016. 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.
“I’m pleased to see improved product across our brands, as well as areas of healthier merchandise margins, even against the backdrop of challenging traffic trends during the quarter,” said Art Peck, chief executive officer, Gap Inc.
“As we move into the holiday season, our teams are sharply focused on execution and delivering great experiences across the portfolio,” Peck continued. “Looking forward, we remain dedicated to utilizing our scale advantage in supply chain, as well as through knowledge sharing, in order to drive product innovation across brands and categories.”
Business Updates
Third Quarter 2016 Comparable Sales Results
Gap Inc.’s comparable sales for the third quarter of fiscal year 2016 were down 3 percent, including an estimated negative impact from the Fishkill distribution center fire of approximately 2 percentage points, versus a 2 percent decrease last year. Comparable sales by global brand for the third quarter were as follows:
Third Quarter 2016 Net Sales Results
For the third quarter of fiscal year 2016, Gap Inc.’s net sales decreased 2 percent to $3.80 billion compared with $3.86 billion for the third quarter last year.
The company noted that the translation of foreign currencies into U.S. dollars positively impacted the company’s reported net sales for the third quarter of fiscal year 2016 by about $17 million.
The following table details the company’s third quarter fiscal year 2016 net sales:
($ in millions)Quarter Ended October 29, 2016
Gap GlobalOld NavyGlobal
BananaRepublicGlobal
Other (2) TotalPercentageof Net Sales
U.S. (1) $ 756 $ 1,507 $ 479 $ 172 $ 2,91477
%
Canada 102 131 55 1 2898
%
Europe 150 — 14 — 1644
%
Asia 296 55 25 — 37610
%
Other regions 36 12 7 — 551
%
Total $ 1,340 $ 1,705 $ 580 $ 173 $ 3,798100
%
($ in millions)Quarter Ended October 31, 2015
Gap GlobalOld NavyGlobal
BananaRepublicGlobal
Other (2) TotalPercentageof Net Sales
U.S. (1) $ 838 $ 1,449 $ 520 $ 159 $ 2,96677
%
Canada 94 118 56 — 2687
%
Europe 182 — 17 — 1995
%
Asia 300 50 26 — 37610
%
Other regions 34 6 8 — 481
%
Total $ 1,448 $ 1,623 $ 627 $ 159 $ 3,857100
%
(1) U.S. includes the United States, Puerto Rico, and Guam. (2) Includes Athleta and Intermix.Additional Third Quarter Results and 2016 Outlook
Earnings per Share and Operating Margin
On a reported basis, the company expects its diluted earnings per share to be in the range of $1.41 to $1.50. The company reaffirmed its adjusted diluted earnings per share to be in the range of $1.87 to $1.92, excluding the negative impact of restructuring costs, which is now expected to be approximately $0.42 to $0.46. 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.
Excluding restructuring costs, the company continues to expect its adjusted operating margin to be about 8.5 percent in fiscal year 2016.
Operating Expenses
Third quarter operating expenses were $1.10 billion, including about $35 million of restructuring costs, compared with $1.03 billion in the third quarter of last year.
Marketing expenses for the third quarter were $148 million, an increase of $6 million when compared with the third quarter of last year.
Effective Tax Rate
The effective tax rate was 45.2 percent for the third quarter of fiscal year 2016. The third quarter effective tax rate reflects the impact of certain non-cash tax expenses related to foreign restructuring costs, which resulted in an increase to the effective tax rate of approximately 5 percentage points.
The company continues to expect its full-year fiscal 2016 effective tax rate to be about 44 percent. Excluding the tax impacts of the restructuring costs, the company expects its adjusted fiscal year 2016 effective tax rate to be about 40 percent.
Inventory
Total inventory dollars were down 4 percent at the end of the third quarter of fiscal year 2016. At the end of the fourth quarter of fiscal year 2016, the company expects total inventory dollars to be down in the low single digits year-over-year.
Cash and Cash Equivalents
The company ended the third quarter of fiscal year 2016 with $1.52 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 $417 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
The company paid a dividend of $0.23 per share during the third quarter of fiscal year 2016. In addition, on November 10, 2016, the company announced that its Board of Directors authorized a fourth quarter dividend of $0.23 per share.
Capital Expenditures
Fiscal year-to-date capital expenditures were $383 million. For fiscal year 2016, the company continues to expect capital spending to be approximately $525 million.
Depreciation and Amortization
The company continues to expect depreciation and amortization expense, net of amortization of lease incentives, to be about $550 million for fiscal year 2016.
Real Estate
The company ended the third quarter of fiscal year 2016 with 3,742 store locations in 50 countries, of which 3,281 were company-operated.
During the third quarter of fiscal year 2016, the company opened 36 and closed 28 company-operated stores. Square footage of company-operated stores was down about 2 percent compared with the third quarter of fiscal year 2016.
Gap Inc. now expects net closures of about 65 company-operated stores in fiscal year 2016 and a 3 percent reduction of square footage as compared to last year.
Store count, openings, closings, and square footage for our stores are as follows:
13 Weeks Ended October 29, 2016Store LocationsBeginning of Q3
Store LocationsOpened
Store LocationsClosed
Store LocationsEnd of Q3
Square Feet(millions)
Gap North America 856 6 4 858 9.0 Gap Asia 314 7 6 315 3.0 Gap Europe 167 - 1 166 1.4 Old Navy North America 1,032 11 4 1,039 17.4 Old Navy Asia 69 1 10 60 0.9 Banana Republic North America 609 5 2 612 5.1 Banana Republic Asia 50 - 1 49 0.2 Banana Republic Europe 10 - - 10 0.1 Athleta North America 126 4 - 130 0.5 Intermix North America 40 2 - 42 0.1 Company-operated stores total 3,273 36 28 3,281 37.7 Franchise 457 17 13 461 N/A Total 3,730 53 41 3,742 37.7Webcast 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 third quarter fiscal year 2016 results during a conference call and webcast from approximately 1:30 p.m. to 2:15 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: 5419872). International callers may dial 913-643-0954. The webcast can be accessed at www.gapinc.com.
November Sales
The company will report November sales at 1:15 p.m. Pacific Time on December 1, 2016.
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 30, 2016, as well as the company’s subsequent filings with the Securities and Exchange Commission.
These forward-looking statements are based on information as of November 17, 2016. 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 2015 net sales were $15.8 billion. Gap Inc. products are available for purchase in more than 90 countries worldwide through about 3,300 company-operated stores, about 450 franchise stores, and e-commerce sites. For more information, please visit www.gapinc.com.
The Gap, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS UNAUDITED ($ in millions)October 29,2016
October 31,2015
ASSETS Current assets: Cash and cash equivalents $ 1,522 $ 1,042 Merchandise inventory 2,398 2,498 Other current assets 751 821 Total current assets 4,671 4,361 Property and equipment, net 2,662 2,814 Other long-term assets 674 631 Total assets $ 8,007 $ 7,806 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of debt $ 424 $ 421 Accounts payable 1,413 1,327 Accrued expenses and other current liabilities 1,059 997 Income taxes payable 19 23 Total current liabilities 2,915 2,768 Long-term liabilities: Long-term debt 1,320 1,331 Lease incentives and other long-term liabilities 1,046 1,098 Total long-term liabilities 2,366 2,429 Total stockholders' equity 2,726 2,609 Total liabilities and stockholders' equity $ 8,007 $ 7,806 The Gap, Inc. CONDENSED CONSOLIDATED STATEMENTS OF INCOME UNAUDITED 13 Weeks Ended 39 Weeks Ended ($ and shares in millions except per share amounts)October 29,2016
October 31,2015
October 29,2016
October 31,2015
Net sales $ 3,798 $ 3,857 $ 11,087 $ 11,412 Cost of goods sold and occupancy expenses 2,305 2,417 6,948 7,132 Gross profit 1,493 1,440 4,139 4,280 Operating expenses 1,104 1,026 3,249 3,111 Operating income 389 414 890 1,169 Interest, net 17 18 51 38 Income before income taxes 372 396 839 1,131 Income taxes 168 148 383 425 Net income $ 204 $ 248 $ 456 $ 706 Weighted-average number of shares - basic 399 406 398 415 Weighted-average number of shares - diluted 400 408 400 417 Earnings per share - basic $ 0.51 $ 0.61 $ 1.15 $ 1.70 Earnings per share - diluted $ 0.51 $ 0.61 $ 1.14 $ 1.69 The Gap, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED 39 Weeks Ended ($ in millions)October 29,2016
October 31,2015
Cash flows from operating activities: Net income $ 456 $ 706 Depreciation and amortization (a) 402 390 Change in merchandise inventory (513 ) (615 ) Other, net 455 253 Net cash provided by operating activities 800 734 Cash flows from investing activities: Purchases of property and equipment (383 ) (505 ) Other (1 ) (4 ) Net cash used for investing activities (384 ) (509 ) Cash flows from financing activities: Proceeds from issuance of short-term debt - 400 Proceeds from issuances under share-based compensation plans 25 60 Withholding tax payments related to vesting of stock units (18 ) (68 ) Repurchases of common stock - (822 ) Excess tax benefit from exercise of stock options and vesting of stock units 1 24 Cash dividends paid (275 ) (285 ) Other - (1 ) Net cash used for financing activities (267 ) (692 ) Effect of foreign exchange rate fluctuations on cash and cash equivalents 3 (6 ) Net increase (decrease) in cash and cash equivalents 152 (473 ) Cash and cash equivalents at beginning of period 1,370 1,515 Cash and cash equivalents at end of period $ 1,522 $ 1,042 (a) Depreciation and amortization is net of amortization of lease incentives.The Gap, Inc.NON-GAAP FINANCIAL MEASURESUNAUDITED
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.
39 Weeks Ended ($ in millions)October 29,2016
October 31,2015
Net cash provided by operating activities $ 800 $ 734 Less: Purchases of property and equipment (383 ) (505 ) Free cash flow $ 417 $ 229The Gap, Inc.NON-GAAP FINANCIAL MEASURESUNAUDITED
ADJUSTED OPERATING EXPENSES
The following adjusted operating expenses are non-GAAP financial measures. These measures are provided to enhance visibility into the company's underlying results for the period excluding the impact of costs related to fiscal year 2016 restructuring activities and fiscal year 2015 strategic actions. However, these non-GAAP financial measures are not intended to supersede or replace the GAAP measures.
($ in millions) 13 Weeks Ended October 29, 2016OperatingExpenses
OperatingExpenses as a %of Net Sales
Operating expenses, as reported $ 1,104 29.1 % Adjustments for impact of fiscal year 2016 restructuring costs (a) (36 ) (1.0 )% Adjusted operating expenses $ 1,068 28.1 % ($ in millions) 13 Weeks Ended October 31, 2015OperatingExpenses
OperatingExpenses as a %of Net Sales
Operating expenses, as reported $ 1,026 26.6 % Adjustments for impact of fiscal year 2015 strategic actions (b) (7 ) (0.2 )% Adjusted operating expenses $ 1,019 26.4 %_______________________________
(a) Represents the restructuring costs recorded in operating expenses related to fiscal year 2016 store closures and streamlining the company's operations incurred in the third quarter of fiscal year 2016 and impact on percentage of net sales. The costs primarily include lease termination fees, store asset impairments, and employee related costs. (b) Represents the costs recorded in operating expenses associated with the fiscal year 2015 strategic actions primarily related to Gap brand incurred in the third quarter of fiscal year 2015 and impact on percentage of net sales. The costs primarily include lease termination fees, store asset impairments, and employee related costs.The Gap, Inc.NON-GAAP FINANCIAL MEASURESUNAUDITED
ADJUSTED NET INCOME FOR THE THIRD QUARTER OF FISCAL YEARS 2016 AND 2015
Adjusted net income is a non-GAAP financial measure. Adjusted net income for the third quarter of fiscal years 2016 and 2015 is provided to enhance visibility into the company's underlying results for the period excluding the impact of costs related to fiscal year 2016 restructuring activities and fiscal year 2015 strategic actions. However, this non-GAAP financial measure is not intended to supersede or replace the GAAP measure.
13 Weeks Ended ($ in millions)October 29,2016
October 31,2015
Net income, as reported $ 204 $ 248 Add: Fiscal year 2016 restructuring costs (a) 29 - Add: Fiscal year 2015 strategic actions (b) - 13 Less: Tax benefit (c) (12 ) (5 ) Add: Incremental tax expenses related to fiscal year 2016 restructuring costs (d) 17 - Adjusted net income $ 238 $ 256_______________________________
(a) Represents the restructuring costs incurred related to fiscal year 2016 store closures and streamlining the company's operations, and primarily include lease termination fees, store asset impairments, and employee related costs. $36 million was recorded in operating expenses and $7 million of credit, net, was recorded in cost of goods sold and occupancy expenses. (b) Represents the costs associated with the fiscal year 2015 strategic actions primarily related to Gap brand, and primarily include inventory impairment, lease termination fees, store asset impairments, and employee related costs. $7 million was recorded in operating expenses and $6 million was recorded in cost of goods sold and occupancy expenses. (c) The amount of tax benefit associated with the fiscal year 2016 restructuring costs is calculated using the adjusted effective tax rate. The amount of tax benefit associated with the fiscal year 2015 strategic actions is calculated using the reported effective tax rate. (d) Represents the incremental tax expenses related to fiscal year 2016 restructuring costs.The Gap, Inc.NON-GAAP FINANCIAL MEASURESUNAUDITED
ADJUSTED EARNINGS PER SHARE FOR THE THIRD QUARTER OF FISCAL YEARS 2016 AND 2015
Adjusted diluted earnings per share is a non-GAAP financial measure. Adjusted diluted earnings per share for the third quarter of fiscal years 2016 and 2015 are provided to enhance visibility into the company's underlying results for the period excluding the impact of costs related to fiscal year 2016 restructuring activities and fiscal year 2015 strategic actions, as well as the impact from foreign currency exchange rate fluctuations. We believe this measure provides 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 the GAAP measure.
13 Weeks EndedOctober 29,2016
October 31,2015
Earnings per share - diluted $ 0.51 $ 0.61 Add: Impact of fiscal year 2016 restructuring costs (a) 0.04 - Add: Impact of incremental tax expenses related to fiscal year 2016 restructuring costs (b) 0.05 - Add: Impact of fiscal year 2015 strategic actions (c) - 0.02 Diluted earnings per share adjusted for certain costs 0.60 $ 0.63 Add: Estimated impact from foreign exchange (d) 0.03 Diluted earnings per share adjusted for certain costs and foreign exchange $ 0.63 Earnings per share decline adjusted for certain costs (5 )% Earnings per share growth adjusted for certain costs and foreign exchange 0 %_______________________________
(a) Represents the earnings per share impact of restructuring costs incurred related to fiscal year 2016 store closures and streamlining the company's operations, calculated net of tax at adjusted effective tax rate. The costs primarily include lease termination fees, store asset impairments, and employee related costs. (b) Represents the earnings per share impact of incremental tax expenses related to fiscal year 2016 restructuring costs. (c) Represents the earnings per share impact of costs associated with the fiscal year 2015 strategic actions primarily related to Gap brand, calculated net of tax at reported effective tax rate. The costs primarily include inventory impairment, lease termination fees, store asset impairments, and employee related costs. (d) 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 adjusted 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.The Gap, Inc.NON-GAAP FINANCIAL MEASURESUNAUDITED
EXPECTED ADJUSTED EARNINGS PER SHARE FOR FISCAL YEAR 2016
Expected adjusted diluted earnings per share is a non-GAAP financial measure. Expected adjusted diluted earnings per share for fiscal year 2016 is provided to enhance visibility into the company's expected underlying results for the period excluding the impact of restructuring costs. However, this non-GAAP financial measure is not intended to supersede or replace the GAAP measure.
52 Weeks EndingJanuary 28, 2017
Low End High End Expected earnings per share - diluted $ 1.41 $ 1.50 Add: Estimated impact of restructuring costs (a) 0.46 0.42 Expected adjusted earnings per share - diluted $ 1.87 $ 1.92 _______________________________ (a) Represents the estimated earnings per share impact of restructuring costs related to fiscal year 2016 store closures, streamlining the company's operations, and certain incremental tax expenses.
View source version on businesswire.com: http://www.businesswire.com/news/home/20161117006240/en/
Gap Inc.Investor Relations Contact:Tina Romani, 415-427-5264Investor_relations@gap.comorMedia Relations Contact:Jennifer Poppers, 415-427-1729Press@gap.com
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