The Gap, Inc.(GAP) - 2026 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the company's interim period Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for The Gap, Inc., including the Balance Sheets, Statements of Operations, Comprehensive Income, Stockholders' Equity, and Cash Flows, along with accompanying notes Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific dates Condensed Consolidated Balance Sheets (Selected Data) | Metric ($ in millions) | August 2, 2025 | February 1, 2025 | August 3, 2024 | | :--------------------- | :------------- | :--------------- | :------------- | | Cash and cash equivalents | $2,194 | $2,335 | $1,900 | | Merchandise inventory | $2,294 | $2,067 | $2,107 | | Total current assets | $5,377 | $5,203 | $4,809 | | Total assets | $12,146 | $11,885 | $11,509 | | Total current liabilities | $3,197 | $3,256 | $3,224 | | Long-term debt | $1,491 | $1,490 | $1,489 | | Total stockholders' equity | $3,433 | $3,264 | $2,901 | - Merchandise inventory increased by 9% to $2,294 million as of August 2, 2025, compared to $2,107 million as of August 3, 2024[15][86] Condensed Consolidated Statements of Operations This section outlines the company's financial performance over specific periods, detailing net sales, gross profit, operating income, and net income Condensed Consolidated Statements of Operations (Selected Data) | Metric ($ in millions) | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Net sales | $3,725 | $3,720 | $7,188 | $7,108 | | Gross profit | $1,536 | $1,583 | $2,984 | $2,980 | | Operating income | $292 | $293 | $552 | $498 | | Net income | $216 | $206 | $409 | $364 | | Diluted EPS | $0.57 | $0.54 | $1.07 | $0.95 | - Net sales for the 13 weeks ended August 2, 2025, were flat at $3,725 million compared to the prior year, while net income increased to $216 million from $206 million[17][86] - For the 26 weeks ended August 2, 2025, net sales increased 1% to $7,188 million, and net income rose to $409 million from $364 million in the prior year[17][97] Condensed Consolidated Statements of Comprehensive Income This section presents the company's comprehensive income, including net income and other comprehensive income (loss) components Condensed Consolidated Statements of Comprehensive Income (Selected Data) | Metric ($ in millions) | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Net income | $216 | $206 | $409 | $364 | | Other comprehensive income (loss), net of tax | $1 | $4 | $(19) | $8 | | Comprehensive income | $217 | $210 | $390 | $372 | - Other comprehensive income (loss) for the 26 weeks ended August 2, 2025, was a loss of $19 million, primarily due to changes in fair value of derivative financial instruments[18] Condensed Consolidated Statements of Stockholders' Equity This section details changes in the company's equity, including net income, share repurchases, and dividends Condensed Consolidated Statements of Stockholders' Equity (Selected Data) | Metric ($ in millions) | August 2, 2025 | May 3, 2025 | August 3, 2024 | May 4, 2024 | | :--------------------- | :------------- | :---------- | :------------- | :---------- | | Total stockholders' equity | $3,433 | $3,321 | $2,901 | $2,707 | | Net income | $216 | | $206 | | | Repurchases and retirement of common stock | $(82) | | — | | | Common stock dividends declared and paid | $(62) | | $(56) | | - Total stockholders' equity increased to $3,433 million as of August 2, 2025, from $3,264 million as of February 1, 2025[15][21] - The company repurchased $152 million of common stock during the 26 weeks ended August 2, 2025, compared to no repurchases in the prior year period[21][23][113] - Cash dividends paid amounted to $123 million for the 26 weeks ended August 2, 2025, up from $112 million in the prior year period[21][23] Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (Selected Data) | Metric ($ in millions) | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | | Net cash provided by operating activities | $308 | $579 | | Net cash used for investing activities | $(164) | $(425) | | Net cash used for financing activities | $(292) | $(124) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $(143) | $28 | | Cash, cash equivalents, and restricted cash at end of period | $2,222 | $1,929 | - Net cash provided by operating activities decreased by $271 million to $308 million for the first half of fiscal 2025, primarily due to higher payments for performance-based compensation and increased merchandise inventory[23][112][114] - Net cash used for investing activities decreased by $261 million to $164 million, mainly due to $260 million fewer net purchases of short-term investments[23][112] - Net cash used for financing activities increased by $168 million to $292 million, driven by $152 million in common stock repurchases[23][113] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements Note 1. Accounting Policies This note outlines the significant accounting policies and estimates used in preparing the financial statements - The financial statements are unaudited and prepared in accordance with SEC rules and U.S. GAAP, with certain disclosures omitted as permitted for interim statements[25][26] - Significant accounting judgments include estimates for inventory valuation, income taxes, sales return and bad debt allowances, deferred revenue, and impairment of long-lived assets[27] - The company is assessing the impact of new accounting pronouncements: ASU No. 2023-09 (Improvements to Income Tax Disclosures) and ASU No. 2024-03 (Disaggregation of Income Statement Expenses), effective for fiscal years beginning after December 15, 2024, and December 15, 2026, respectively[31][32] Note 2. Revenue This note disaggregates net sales by channel and brand, and details deferred revenue components Net Sales Disaggregated by Channel ($ in millions) | Channel | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :---------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Store and franchise sales | $2,440 | $2,476 | $4,547 | $4,582 | | Online sales | $1,285 | $1,244 | $2,641 | $2,526 | | Total net sales | $3,725 | $3,720 | $7,188 | $7,108 | Net Sales Disaggregated by Brand (13 Weeks Ended Aug 2, 2025, $ in millions) | Brand | U.S. | Canada | Other regions | Total | | :-------------------- | :--- | :----- | :------------ | :---- | | Old Navy Global | $1,978 | $157 | $15 | $2,150 | | Gap Global | $581 | $76 | $115 | $772 | | Banana Republic Global | $408 | $46 | $21 | $475 | | Athleta Global | $290 | $9 | $1 | $300 | | Other | $28 | — | — | $28 |\ | Total | $3,285 | $288 | $152 | $3,725 | - Online sales increased by 3% for the 13 weeks ended August 2, 2025, compared to the prior year, while store and franchise sales decreased by 1%[33][86] - Deferred revenue from gift cards, licensing, loyalty points, and credit card reimbursements had an opening balance of $249 million for the 13 weeks ended August 2, 2025, with $84 million recognized as revenue[38] Note 3. Income Taxes This note provides information on effective income tax rates and the impact of recent tax law changes Effective Income Tax Rates (%) | Period | August 2, 2025 | August 3, 2024 | | :----- | :------------- | :------------- | | 13 Weeks Ended | 27.0% | 30.4% | | 26 Weeks Ended | 26.8% | 27.8% | - The decrease in the effective tax rate for both the 13 and 26 weeks ended August 2, 2025, is primarily due to prior year increases to certain income tax reserves and changes in the mix of jurisdictional earnings[42][43][105][106] - The recently enacted One Big Beautiful Bill Act of 2025 (OBBBA) in the U.S. changes income tax law, with certain provisions effective in fiscal 2025, but its impact was not material to the financial statements in Q2 FY25[44][45][107][108] Note 4. Debt and Credit Facilities This note details the company's long-term debt and available credit facilities Long-term Debt ($ in millions) | Debt Type | August 2, 2025 | February 1, 2025 | August 3, 2024 | | :------------------------ | :------------- | :--------------- | :------------- | | 2029 Notes (3.625%) | $750 | $750 | $750 | | 2031 Notes (3.875%) | $750 | $750 | $750 | | Less: Unamortized debt issuance costs | $(9) | $(10) | $(11) | | Total long-term debt | $1,491 | $1,490 | $1,489 | - The company has $1.5 billion in aggregate principal amount of Senior Notes (2029 Notes and 2031 Notes)[48] - A senior secured asset-based revolving credit agreement (ABL Facility) provides $2.2 billion in borrowing capacity, expiring in July 2027, with no borrowings outstanding as of August 2, 2025[49][50] Note 5. Fair Value Measurements This note describes the fair value hierarchy for financial assets and liabilities and related measurements Fair Value Measurements of Financial Assets and Liabilities (August 2, 2025, $ in millions) | Asset/Liability | Total Fair Value | Level 1 | Level 2 | Level 3 | | :------------------------------ | :--------------- | :------ | :------ | :------ | | Assets: | | | | | | Cash equivalents | $235 | $225 | $10 | — | | Short-term investments | $238 | $117 | $121 | — | | Derivative financial instruments | $9 | — | $9 | — | | Deferred compensation plan assets | $42 | $42 | — | — | | Other assets | $3 | — | — | $3 | | Total Assets | $527 | $384| $140| $3 | | Liabilities: | | | | | | Derivative financial instruments | $6 | — | $6 | — | - The company categorizes financial assets and liabilities measured at fair value using a three-level hierarchy, with most assets and liabilities falling into Level 1 (quoted prices in active markets) or Level 2 (significant other observable inputs)[51][53] - No material impairment charges were recorded for long-lived assets, goodwill, or other indefinite-lived intangible assets during the 13 and 26 weeks ended August 2, 2025, or August 3, 2024[58][59] Note 6. Derivative Financial Instruments This note explains the company's use of derivative financial instruments to manage foreign currency risk - The company uses foreign exchange forward contracts to manage exposure to foreign currency exchange rate risk, hedging merchandise purchases and intercompany transactions[60] Outstanding Notional Amounts of Foreign Exchange Forward Contracts ($ in millions) | Type of Derivative | August 2, 2025 | February 1, 2025 | August 3, 2024 | | :--------------------------------- | :------------- | :--------------- | :------------- | | Designated as cash flow hedges | $527 | $363 | $457 | | Not designated as hedging instruments | $422 | $419 | $410 | | Total | $949 | $782 | $867 | - For the 26 weeks ended August 2, 2025, derivatives designated as cash flow hedges resulted in a $5 million gain recognized in cost of goods sold, while non-designated derivatives resulted in a $20 million loss in operating expenses[68] Note 7. Share Repurchases This note provides details on the company's common stock repurchase activities and remaining authorization Share Repurchase Activity | Metric | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :----------------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Number of shares repurchased (millions) | 3 | — | 7 | — | | Total cost ($ in millions) | $82 | — | $152 | — | | Average per share cost | $23.67 | — | $21.41 | — | - The company repurchased 7 million shares for $152 million during the first half of fiscal 2025. The February 2019 repurchase program has $249 million remaining as of August 2, 2025[69][70] Note 8. Earnings Per Share This note outlines the calculation of basic and diluted earnings per share, including weighted-average shares Weighted-Average Number of Shares for EPS Calculation (shares in millions) | Metric | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :-------------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Weighted-average number of shares - basic | 373 | 376 | 374 | 375 | | Common stock equivalents | 6 | 7 | 7 | 8 | | Weighted-average number of shares - diluted | 379 | 383 | 381 | 383 | - Anti-dilutive shares related to stock options and other awards, totaling 2 million for the 13 weeks and 2 million for the 26 weeks ended August 2, 2025, were excluded from diluted EPS calculations[71] Note 9. Commitments and Contingencies This note describes the company's contractual obligations, indemnification agreements, and legal proceedings - The company is party to various contractual agreements with indemnification obligations, but historically has not made significant payments, and believes potential losses would not materially affect financial statements[73] - The company is subject to various legal proceedings and claims, including class action lawsuits, but the liability recorded for estimated losses was not material for any individual action or in total[74][75] Note 10. Segment Information This note provides financial information for the company's operating segments, aggregated into one reportable segment - The company's operating segments include Old Navy Global, Gap Global, Banana Republic Global, and Athleta Global, which are aggregated into one reportable segment due to similar qualitative and economic characteristics[76] Segment Profit and Significant Expenses (13 Weeks Ended, $ in millions) | Metric | August 2, 2025 | August 3, 2024 | | :--------------------- | :------------- | :------------- | | Net sales | $3,725 | $3,720 | | Cost of goods sold | $1,725 | $1,668 | | Occupancy expenses | $464 | $469 | | Operating expenses | $1,244 | $1,290 | | Operating income | $292 | $293 | Note 11. Divestitures This note details the status of the transition of Gap China operations and the decision regarding Gap Taiwan operations - The transition of Gap China operations to Baozun Inc. closed on January 31, 2023. However, the parties decided not to proceed with the transition of Gap's operations in Taiwan, which will continue as usual[80] Note 12. Supply Chain Finance Program This note describes the company's supply chain finance program and outstanding obligations - The company's voluntary supply chain finance (SCF) program allows suppliers to sell receivables to financial institutions. Outstanding obligations under the SCF program were $392 million as of August 2, 2025, included in accounts payable[81][82] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the second quarter and first half of fiscal 2025 - The Gap, Inc. operates a house of iconic brands (Old Navy, Gap, Banana Republic, Athleta) offering apparel, accessories, and personal care products through company-operated stores, online channels, and franchise agreements globally[84] - Strategic priorities include maintaining financial and operational rigor, reinvigorating brands, strengthening the operating platform with a digital-first mindset, energizing culture, and integrating sustainability[86] - Macroeconomic factors such as global geopolitical instability, inflationary pressures, foreign currency fluctuations, and changes in trade policy and tariffs continue to create a challenging retail environment, potentially impacting gross margins[85][100] OUR BUSINESS This section describes The Gap, Inc.'s core business, iconic brands, product offerings, and sales channels - The Gap, Inc. is a house of iconic brands (Old Navy, Gap, Banana Republic, Athleta) offering apparel, accessories, and personal care products[84] - Products are available through company-operated and franchise stores, websites, and third-party arrangements, leveraging omni-channel capabilities like buy online pick-up in store and ship-from-store[84] - Most products are designed by the company and manufactured by independent global sources, with shared investments in supply chain and inventory management[84] OVERVIEW This section summarizes key financial results for Q2 fiscal 2025, strategic priorities, and the impact of macroeconomic factors Financial Results for Q2 Fiscal 2025 vs Q2 Fiscal 2024 ($ in millions) | Metric | Q2 FY25 | Q2 FY24 | Change | | :--------------------- | :------ | :------ | :----- | | Net sales | $3,725 | $3,720 | Flat | | Gross profit | $1,536 | $1,583 | Down | | Gross margin | 41.2% | 42.6% | Down | | Operating income | $292 | $293 | Flat | | Net income | $216 | $206 | Up | | Diluted EPS | $0.57 | $0.54 | Up | | Merchandise inventory (YoY) | +9% | | | - Online sales increased 3% in Q2 FY25, while store and franchise sales decreased 1% compared to Q2 FY24[86] - The company is focused on strategic priorities including financial rigor, brand reinvigoration, digital-first operating platform, talent attraction/retention, and sustainability integration[86] - Macroeconomic volatility, including trade policy changes and tariffs, is expected to continue impacting consumer behavior and potentially increasing merchandise costs and negatively affecting gross margins[85][87] RESULTS OF OPERATIONS This section analyzes the company's financial performance, including net sales, comparable sales, and various expense categories Net Sales This section analyzes the drivers of net sales changes for the quarter and first half of fiscal 2025 - Net sales increased by $5 million in Q2 fiscal 2025 compared to Q2 fiscal 2024, driven by an increase in Comparable Sales, partially offset by incremental income from the credit card agreement in the prior year[97] - For the first half of fiscal 2025, net sales increased $80 million (1%) compared to the first half of fiscal 2024, primarily due to an increase in online sales[97] Comparable Sales ("Comp Sales") This section presents comparable sales performance by global brand for the current and prior fiscal periods - Comparable Sales include Company-operated stores and online channel sales, excluding franchise and licensing business[89] Percentage Change in Comparable Sales by Global Brand (%) | Brand | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :-------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Old Navy Global | 2% | 5% | 2% | 4% | | Gap Global | 4% | 3% | 4% | 3% | | Banana Republic Global | 4% | 0% | 2% | 1% | | Athleta Global | (9)% | (4)% | (9)% | 0% | | The Gap, Inc. | 1% | 3% | 2% | 3% | - The Gap, Inc. reported a 1% increase in comparable sales for the 13 weeks ended August 2, 2025, a decrease from 3% in the prior year[93] Store Count and Square Footage This section provides details on the number of company-operated stores and total square footage by brand Company-Operated Store Count and Square Footage | Brand | Number of Store Locations (Feb 1, 2025) | Net Opened/(Closed) (26 Weeks) | Number of Store Locations (Aug 2, 2025) | Square Footage (Aug 2, 2025, in millions) | | :-------------------- | :------------------------------------ | :----------------------------- | :-------------------------------------- | :---------------------------------------- | | Old Navy North America | 1,249 | (9) | 1,240 | 19.6 | | Gap North America | 453 | — | 453 | 4.8 | | Gap Asia | 122 | 3 | 125 | 1.1 | | Banana Republic North America | 380 | (9) | 371 | 3.1 | | Banana Republic Asia | 42 | — | 42 | 0.1 | | Athleta North America | 260 | (5) | 255 | 1.0 | | Company-operated stores total | 2,506 | (20) | 2,486 | 29.7 | - The total number of company-operated stores decreased by 20 locations during the 26 weeks ended August 2, 2025, resulting in 2,486 stores and 29.7 million square feet[94] - Approximately 1,000 franchise stores were operated by the company's franchise partners as of August 2, 2025[95] Cost of Goods Sold and Occupancy Expenses This section analyzes changes in cost of goods sold, occupancy expenses, and gross margin, including external factors Cost of Goods Sold and Occupancy Expenses ($ in millions) | Metric | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Cost of goods sold and occupancy expenses | $2,189 | $2,137 | $4,204 | $4,128 | | Gross profit | $1,536 | $1,583 | $2,984 | $2,980 | | Gross margin | 41.2% | 42.6% | 41.5% | 41.9% | - Gross margin decreased to 41.2% in Q2 fiscal 2025 from 42.6% in Q2 fiscal 2024, primarily due to incremental income from the credit card agreement in the prior year[98][101] - Occupancy expenses as a percentage of net sales decreased by 0.1 percentage points in Q2 fiscal 2025, driven by increased online sales without a corresponding increase in expenses[101] - Uncertainty regarding U.S. trade policy and tariffs is expected to increase cost of goods sold and potentially negatively impact future gross margins[100] Operating Expenses This section discusses the changes in operating expenses and their impact on the company's financial performance Operating Expenses ($ in millions) | Metric | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Operating expenses | $1,244 | $1,290 | $2,432 | $2,482 | | Operating expenses as a percentage of net sales | 33.4% | 34.7% | 33.8% | 34.9% | - Operating expenses decreased by $46 million (1.3 percentage points as a percentage of net sales) in Q2 fiscal 2025 and $50 million (1.1 percentage points) in the first half of fiscal 2025, primarily due to a decrease in performance-based compensation[102] Interest Expense This section details the components and trends of the company's interest expense Interest Expense ($ in millions) | Metric | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Interest expense | $23 | $24 | $46 | $45 | - Interest expense remained relatively stable, primarily consisting of interest on Senior Notes and tax-related interest[103] Interest Income This section outlines the sources and changes in the company's interest income Interest Income ($ in millions) | Metric | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Interest income | $(27) | $(27) | $(53) | $(51) | - Interest income was flat in Q2 fiscal 2025 and increased slightly in the first half of fiscal 2025, mainly due to higher cash balances partially offset by lower interest rates[104] Income Taxes This section analyzes income tax expense and effective tax rates, including factors influencing changes Income Tax Expense and Effective Tax Rate ($ in millions, %) | Metric | 13 Weeks Ended Aug 2, 2025 | 13 Weeks Ended Aug 3, 2024 | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Income tax expense | $80 | $90 | $150 | $140 | | Effective tax rate | 27.0% | 30.4% | 26.8% | 27.8% | - The effective tax rate decreased for both periods, primarily due to prior year increases to income tax reserves and changes in jurisdictional earnings mix[105][106] - The impact of the One Big Beautiful Bill Act of 2025 (OBBBA) on income tax law was not material to the financial statements in the second quarter of fiscal 2025[107][108] LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's sources and uses of cash, liquidity position, and capital management strategies - Primary liquidity sources include cash and cash equivalents ($2.19 billion), short-term investments ($238 million), and a $2.2 billion ABL Facility with no outstanding borrowings as of August 2, 2025[109] - The company believes existing liquidity and cash flows from operations are sufficient for business operations, capital expenditures, dividends, share repurchases, and other requirements for the next 12 months and beyond[111] - Seasonality and macroeconomic factors (geopolitical instability, inflation, foreign currency, interest rates, tariffs) can cause significant fluctuations in cash flows[110] Cash Flows from Operating Activities This section analyzes the changes in cash generated from the company's primary business operations - Net cash provided by operating activities decreased by $271 million to $308 million for the first half of fiscal 2025 compared to the prior year[23][112] - The decrease was primarily due to a $156 million decrease related to accrued expenses (higher payments for FY24 performance-based compensation) and a $96 million decrease related to merchandise inventory (timing of receipts and higher costs)[114] Cash Flows from Investing Activities This section details the cash flows related to the acquisition and disposal of long-term assets and investments - Net cash used for investing activities decreased by $261 million to $164 million for the first half of fiscal 2025[23][112] - This decrease was primarily driven by $260 million fewer net purchases of short-term investments[112] Cash Flows from Financing Activities This section outlines the cash flows related to debt, equity, and dividend transactions - Net cash used for financing activities increased by $168 million to $292 million for the first half of fiscal 2025[23][113] - The increase was primarily due to $152 million in common stock repurchases during the first half of fiscal 2025, compared to no repurchases in the prior year period[113] Free Cash Flow This section presents the calculation and analysis of free cash flow, a non-GAAP liquidity measure - Free cash flow is a non-GAAP financial measure representing cash available after capital expenditures, used internally as a driver of value creation[115] Free Cash Flow Reconciliation ($ in millions) | Metric | 26 Weeks Ended Aug 2, 2025 | 26 Weeks Ended Aug 3, 2024 | | :--------------------- | :------------------------- | :------------------------- | | Net cash provided by operating activities | $308 | $579 | | Less: Purchases of property and equipment | $(181) | $(182) | | Free cash flow | $127 | $397 | - Free cash flow decreased to $127 million for the first half of fiscal 2025 from $397 million in the prior year period[117] Dividend Policy This section describes the company's dividend policy and recent dividend declarations - The Board considers sustainability, operating performance, liquidity, and market conditions when determining dividends[118] - A dividend of $0.165 per share was paid in Q2 fiscal 2025, and the Board authorized another $0.165 per share for Q3 fiscal 2025[118] Share Repurchases This section refers to detailed information on the company's share repurchase program - Information on share repurchases is detailed in Note 7 of the Notes to Condensed Consolidated Financial Statements[119] Summary Disclosures about Contractual Cash Obligations and Commercial Commitments This section provides an update on the company's contractual obligations and commercial commitments - No material changes to contractual obligations and commercial commitments have occurred since the Annual Report on Form 10-K, other than those in the normal course of business[120] - Further details on commitments and contingencies are provided in Note 9[120] Critical Accounting Policies and Estimates This section confirms no significant changes to critical accounting policies and estimates since the last annual report - No significant changes to critical accounting policies and estimates have occurred since the Annual Report on Form 10-K for fiscal year ended February 1, 2025[121] - Details on accounting policies are available in Note 1 of the Notes to Condensed Consolidated Financial Statements[121] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk profile has not significantly changed since the disclosure in its Annual Report on Form 10-K as of February 1, 2025 - The market risk profile remains largely unchanged from the Annual Report on Form 10-K as of February 1, 2025[122] - Disclosures on debt and credit facilities, investments, and derivative financial instruments can be found in Notes 4, 5, and 6 of the Condensed Consolidated Financial Statements[122] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[123] Changes in Internal Control over Financial Reporting There were no material changes in internal control over financial reporting during the second quarter of fiscal 2025 - No material changes in the company's internal control over financial reporting occurred during the second quarter of fiscal 2025[124] PART II - OTHER INFORMATION This section provides additional information not included in the financial statements, covering legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The company is involved in various legal proceedings, lawsuits, disputes, and claims arising in the ordinary course of business - The company is subject to various legal proceedings, including commercial, intellectual property, customer, employment, securities, and data privacy claims, some of which are class action lawsuits[125] - The company cannot predict the outcome of these actions but does not believe any current action would have a material effect on its financial results[126] Item 1A. Risk Factors This section updates risk factors related to business operations, specifically highlighting the impact of trade matters, tariffs, and supply chain disruptions - The risk factor concerning trade matters and tariffs has been updated, emphasizing the potential disruption to the supply chain and adverse effects on business, financial condition, and results of operations[127][128] - Significant tariffs have been imposed on imported goods from various countries, including Vietnam (20%), Indonesia (19%), and China (additional 20%), increasing merchandise costs[129] - In fiscal 2024, approximately 27% and 19% of merchandise was purchased from factories in Vietnam and Indonesia, respectively, while less than 10% was from China[130] - The company continues to evaluate the impact of tariffs and implement mitigation strategies, but there is no assurance these strategies will be fully successful, and escalating trade tensions could worsen impacts[132] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 3,434,491 shares of common stock for a total cost of $82 million during the 13 weeks ended August 2, 2025 Common Stock Purchases (13 Weeks Ended August 2, 2025) | Period | Total Number of Shares Purchased | Average Price Paid Per Share Including Commissions ($) | | :-------------------- | :----------------------------- | :----------------------------------------------- | | Month 1 (May 4 - May 31) | 1,122,800 | $27.82 | | Month 2 (June 1 - July 5) | 1,283,791 | $21.64 | | Month 3 (July 6 - August 2) | 1,027,900 | $21.67 | | Total | 3,434,491 | $23.67 | - As of August 2, 2025, $249 million remained under the $1.0 billion share repurchase authorization approved in February 2019[135][136] Item 5. Other Information Several directors and Section 16 officers adopted Rule 10b5-1 trading plans during the 13 weeks ended August 2, 2025 - Julie Gruber, Chief Legal and Compliance Officer, adopted a 10b5-1 trading plan on July 11, 2025, to sell up to 537,160 shares[137] - Mark Breitbard, President and CEO of Gap brand, adopted a 10b5-1 trading plan on June 13, 2025, to sell up to 1,251,398 shares[138] - Katrina O'Connell, Chief Financial Officer, adopted a 10b5-1 trading plan on June 12, 2025, to sell up to 442,529 shares[139] - Sarah (Sally) Gilligan, Chief Supply Chain and Transformation Officer, adopted a 10b5-1 trading plan on June 6, 2025, to sell up to 303,882 shares[140] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, executive compensation plans, certifications from the CEO and CFO, and XBRL formatted financial statements - Exhibits include the Restated Certificate of Incorporation, Amended and Restated Bylaws, Senior Executive Severance Plan, various stock award agreements, and certifications from the CEO and CFO (Sections 302 and 906 of Sarbanes-Oxley Act)[142] - The financial statements (Balance Sheets, Statements of Operations, Comprehensive Income, Stockholders' Equity, Cash Flows, and Notes) are provided in Inline XBRL format as Exhibit 101[142]