The Gap, Inc.(GAP) - 2025 Q3 - Quarterly Report

Financial Performance - Net sales for Q3 fiscal 2024 increased by $62 million, or 2$1.64 billion, with a gross margin of 42.7%, up from $1.56 billion and 41.3$355 million, compared to $250 million in Q3 fiscal 2023, reflecting improved operational efficiency [89]. - Net income for Q3 fiscal 2024 was$274 million, an increase from $218 million in Q3 fiscal 2023, with diluted earnings per share rising to$0.72 from $0.58 [89]. - Operating expenses for Q3 fiscal 2024 were$1.28 billion, representing 33.4% of net sales, down from 34.7% in Q3 fiscal 2023 [103]. Inventory and Sales Performance - Merchandise inventory decreased by 2% as of Q3 fiscal 2024 compared to Q3 fiscal 2023, indicating effective inventory management [89]. - Comparable sales for Old Navy Global increased by 3% in Q3 fiscal 2024, while Banana Republic Global saw a decline of 1% [98]. Store Operations - The total number of company-operated stores decreased by 47 to 2,544, while franchise stores increased by 121 to 1,059, resulting in a total of 3,603 stores [100]. Tax and Income - The effective income tax rate for Q3 fiscal 2024 was 24.1%, significantly higher than 12.8% in Q3 fiscal 2023, primarily due to changes in valuation allowances [106]. - The effective tax rate for the first three quarters of fiscal 2024 increased compared to the same period in fiscal 2023, primarily due to prior year tax benefits and current year increases in income tax reserves [107]. Cash Flow and Liquidity - As of November 2, 2024, the company had cash and cash equivalents of $1.97 billion and short-term investments of$250 million, with no borrowings under the ABL Facility [110]. - Net cash provided by operating activities increased by $38 million during the first three quarters of fiscal 2024 compared to the same period in fiscal 2023, driven by an increase in net income [114]. - Net cash used for investing activities increased by$373 million during the first three quarters of fiscal 2024, primarily due to $246 million of net purchases of short-term investments [115]. - Free cash flow for the first three quarters of fiscal 2024 was$540 million, compared to $544 million for the same period in fiscal 2023 [120]. - The company’s liquidity sources include cash flows from operating activities, cash and cash equivalents, short-term investments, and Senior Notes totaling$1.5 billion [110]. - The company’s cash flows from financing activities decreased by $323 million during the first three quarters of fiscal 2024, primarily due to repayments of revolving credit facility borrowings in the prior year [116]. - The company believes its existing cash balances and cash flows from operations provide sufficient funds for business operations and capital expenditures over the next 12 months and beyond [113]. Strategic Priorities - Strategic priorities include enhancing omni-channel experiences and integrating sustainability into business practices to support long-term growth [90]. - The company continues to monitor U.S. and global legislative actions related to the OECD's Pillar Two global minimum corporate tax of 15$0.15 per share was paid during the third quarter of fiscal 2024, with the Board authorizing the same amount for the fourth quarter [121].