Gap(GPS) - 2025 Q2 - Quarterly Results

Second Quarter Fiscal 2024 Financial Highlights Gap Inc. reported strong second-quarter results, exceeding expectations with a 5% increase in net sales to $3.7 billion and a 3% rise in comparable sales. The company achieved significant margin expansion, with operating margin improving by 490 basis points to 7.9%. This performance was driven by market share gains for the sixth consecutive quarter, strength in online sales, and improved merchandise margins - The company gained market share for the 6th consecutive quarter, reflecting the successful execution of its brand reinvigoration strategy[1][2] Q2 Fiscal 2024 Key Financial Metrics | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $3.7 billion | $3.55 billion | +5% YoY | | Comparable Sales | +3% | -6% | N/A | | Gross Margin | 42.6% | 37.6% | +500 bps YoY | | Operating Margin | 7.9% | 3.0% | +490 bps YoY | | Net Income | $206 million | $117 million | +76% YoY | | Diluted EPS | $0.54 | $0.32 | +$0.22 YoY | - Sales growth was supported by a 4% increase in store sales and a 7% increase in online sales, which now represent 33% of total net sales[3] - Gross margin improvement was primarily driven by a 410 basis point increase in merchandise margin, benefiting from lower commodity costs and improved promotional activity[3] Global Brand Performance Brand performance was led by strong results at Old Navy and Gap, which both saw positive comparable sales growth for the fourth and third consecutive quarters, respectively. Old Navy's net sales grew 8%, and Gap's grew 1%. Banana Republic's sales were flat, showing stabilization, while Athleta's sales declined slightly, though it is expected to return to growth in the second half of the year Comparable Sales Growth by Brand (Q2 2024 vs. Q2 2023) | Brand | Q2 2024 Comp Sales | Q2 2023 Comp Sales | | :--- | :--- | :--- | | Old Navy | 5% | (6)% | | Gap | 3% | (1)% | | Banana Republic | 0% | (8)% | | Athleta | (4)% | (7)% | | Gap Inc. Total | 3% | (6)% | - Old Navy: Net sales reached $2.1 billion, up 8% YoY, with comparable sales up 5%. This marks the fourth consecutive quarter of positive comparable sales[7] - Gap: Net sales were $766 million, up 1% YoY, with comparable sales up 3%. This is the third consecutive quarter of positive comparable sales, with market share gains for five straight quarters[7] - Banana Republic: Net sales of $479 million were flat YoY, as were comparable sales, as the brand focuses on improving pricing and assortment[8] - Athleta: Net sales of $338 million were down 1% YoY, with comparable sales down 4%. The company expects Athleta to return to positive comparable sales growth for the rest of the year[9] Balance Sheet and Cash Flow The company significantly strengthened its financial position, ending the quarter with $2.1 billion in cash and equivalents, a 59% increase from the prior year. Free cash flow was robust at $397 million, and inventory levels were reduced by 5% to $2.11 billion, reflecting disciplined management. The company also maintained its dividend, paying $0.15 per share Key Balance Sheet and Cash Flow Metrics (as of August 3, 2024) | Metric | Q2 2024 | YoY Change | | :--- | :--- | :--- | | Cash, Cash Equivalents & Short-term Investments | $2.1 billion | +59% | | Ending Inventory | $2.11 billion | -5% | | Net Cash from Operating Activities (26 Weeks) | $579 million | +10% | | Free Cash Flow (26 Weeks) | $397 million | +21% | - The company paid a second-quarter dividend of $0.15 per share, totaling $56 million, and the Board approved a third-quarter dividend of the same amount[5] Fiscal 2024 Outlook Following strong Q2 performance, Gap Inc. raised its full-year guidance for gross margin and operating income growth. The company now expects gross margin to expand by approximately 200 basis points and operating income to grow in the mid to high 50% range. The outlook for net sales remains 'up slightly' on a 52-week basis Full Year Fiscal 2024 Outlook Full Year Fiscal 2024 Guidance Update | Metric | Current FY 2024 Outlook | Prior FY 2024 Outlook | FY 2023 Results | | :--- | :--- | :--- | :--- | | Net Sales | Up slightly (52-week basis) | Up slightly (52-week basis) | $14.9 billion | | Gross Margin | Approx. 200 bps expansion | At least 150 bps expansion | 38.8% | | Operating Income | Mid to High 50% growth | Mid 40% growth | $606 million (adj.) | | Operating Expense | Approx. $5.1 billion | Approx. $5.1 billion | $5.17 billion (adj.) | | Capital Expenditures | Approx. $500 million | Approx. $500 million | $420 million | Third Quarter (Q3) 2024 Outlook Q3 2024 Guidance | Metric | Q3 2024 Outlook | Q3 2023 Results | | :--- | :--- | :--- | | Net Sales | Up slightly | $3.77 billion | | Gross Margin | 50 to 75 bps expansion | 41.3% | | Operating Expense | Approx. $1.3 billion | $1.3 billion | Supplementary Information This section provides the detailed unaudited financial statements, including the Condensed Consolidated Balance Sheets, Statements of Operations, and Statements of Cash Flows. It also includes reconciliations for non-GAAP measures, a detailed breakdown of net sales by brand and region, and an overview of the company's real estate portfolio Consolidated Financial Statements - The report includes unaudited condensed consolidated financial statements for the period ended August 3, 2024[23][24][25] Financial Statement Summary (as of August 3, 2024) | Metric | Amount | | :--- | :--- | | Total Assets | $11.51 billion | | Total Liabilities | $8.61 billion | | Total Stockholders' Equity | $2.90 billion | | Net Income (26 Weeks) | $364 million | Non-GAAP Financial Measures - The company uses non-GAAP measures such as free cash flow and adjusted operating income to provide additional insight into its core financial performance, excluding items like restructuring costs[14][15] Free Cash Flow Reconciliation (26 Weeks Ended) | ($ in millions) | August 3, 2024 | July 29, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $579 | $528 | | Less: Purchases of property and equipment | ($182) | ($199) | | Free cash flow | $397 | $329 | Net Sales and Real Estate Details - In Q2 2024, the U.S. region accounted for $3.29 billion of the total $3.72 billion in net sales[31] - As of August 3, 2024, the company operated a total of 3,568 stores, including 2,541 company-operated and 1,027 franchise locations. The total number of company-operated stores decreased by a net of 21 in the first half of the year[34] Disclosures This section contains important legal information, including the 'safe harbor' statement regarding forward-looking statements. It outlines numerous risks and uncertainties that could cause actual results to differ from projections, such as the global economic environment, competitive pressures, and supply chain disruptions - The report contains forward-looking statements concerning strategic priorities, brand reinvigoration, financial outlook, and other projections[17][18] - Key risk factors cited include the global economic and geopolitical environment, the highly competitive nature of the apparel business, failure to manage inventory effectively, and risks associated with global sourcing and manufacturing[18][19]