Delaware | 1-7562 | 94-1697231 | ||
(State of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
Two Folsom Street San Francisco, California | 94105 | |
(Address of principal executive offices) | (Zip Code) |
[ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
[ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
99.1 | Press Release dated November 15, 2012 announcing the Company’s earnings for the third quarter ended October 27, 2012. |
THE GAP, INC. | |||
(Registrant) | |||
Date: November 15, 2012 | By: | /s/ Sabrina L. Simmons | |
Sabrina L. Simmons | |||
Executive Vice President and | |||
Chief Financial Officer |
Exhibit Number | Description |
99.1 | Press Release dated November 15, 2012 announcing the Company’s earnings for the third quarter ended October 27, 2012. |
• | In North America, Gap, Banana Republic, and Old Navy each delivered positive comparable sales for the third consecutive quarter. |
• | Total net sales for the Gap Inc. Direct division increased 23 percent to $509 million compared with $414 million last year, and the company launched e-commerce in Japan. |
• | Net sales outside of the U.S. and Canada (including Gap Inc. Direct and Franchise) increased 7 percent, and the company opened its first Gap Outlet store in China in September. |
• | The company opened 8 Athleta stores in the quarter, toward its goal of about 50 stores by the end of 2013. |
• | The company announced a transition to a global brand management structure to support long-term growth. |
• | Gap Foundation celebrated its 35th anniversary and, in November, Gap Inc. announced a donation of more than $1 million to aid recovery efforts following Hurricane Sandy. |
• | Gap North America: positive 7 percent versus negative 6 percent last year |
• | Banana Republic North America: positive 6 percent versus negative 1 percent last year |
• | Old Navy North America: positive 9 percent versus negative 4 percent last year |
• | International: negative 3 percent versus negative 10 percent last year |
($ in millions) Quarter Ended October 27, 2012 | Gap | Old Navy | Banana Republic | Franchise (3) | Piperlime and Athleta | Total (4) | Percentage of Net Sales | |||||||||||||||||||||
U.S. (1) | $ | 838 | $ | 1,194 | $ | 515 | $ - | $ - | $ | 2,547 | 66 | % | ||||||||||||||||
Canada | 93 | 107 | 55 | - | - | 255 | 7 | |||||||||||||||||||||
Europe | 165 | - | 15 | 15 | - | 195 | 5 | |||||||||||||||||||||
Asia | 245 | 3 | 35 | 23 | - | 306 | 8 | |||||||||||||||||||||
Other regions | - | - | - | 52 | - | 52 | 1 | |||||||||||||||||||||
Total Stores reportable segment | 1,341 | 1,304 | 620 | 90 | - | 3,355 | 87 | |||||||||||||||||||||
Direct reportable segment (2) | 146 | 210 | 64 | - | 89 | 509 | 13 | |||||||||||||||||||||
Total | $ | 1,487 | $ | 1,514 | $ | 684 | $ | 90 | $ | 89 | $ | 3,864 | 100 | % | ||||||||||||||
($ in millions) Quarter Ended October 29, 2011 | Gap | Old Navy | Banana Republic | Franchise (3) | Piperlime and Athleta | Total (4) | Percentage of Net Sales | |||||||||||||||||||||
U.S. (1) | $ | 819 | $ | 1,105 | $ | 495 | $ - | $ - | $ | 2,419 | 67 | % | ||||||||||||||||
Canada | 89 | 100 | 48 | - | - | 237 | 7 | |||||||||||||||||||||
Europe | 171 | - | 13 | 22 | - | 206 | 6 | |||||||||||||||||||||
Asia | 219 | - | 31 | 21 | - | 271 | 7 | |||||||||||||||||||||
Other regions | - | - | - | 38 | - | 38 | 1 | |||||||||||||||||||||
Total Stores reportable segment | 1,298 | 1,205 | 587 | 81 | - | 3,171 | 88 | |||||||||||||||||||||
Direct reportable segment (2) | 121 | 178 | 47 | - | 68 | 414 | 12 | |||||||||||||||||||||
Total | $ | 1,419 | $ | 1,383 | $ | 634 | $ | 81 | $ | 68 | $ | 3,585 | 100 | % |
(1) | U.S. includes the United States and Puerto Rico. |
(2) | Online sales shipped from distribution centers located outside the U.S. were $44 million ($33 million for Canada and $11 million for Europe) and $34 million ($24 million for Canada and $10 million for Europe) for the thirteen weeks ended October 27, 2012 and October 29, 2011, respectively. |
(3) | Franchise sales were $90 million ($78 million for Gap and $12 million for Banana Republic) and $81 million ($71 million for Gap and $10 million for Banana Republic) for the thirteen weeks ended October 27, 2012 and October 29, 2011, respectively. |
(4) | Net sales outside of the U.S. and Canada (including Direct and franchise) were $564 million and $525 million for the thirteen weeks ended October 27, 2012 and October 29, 2011, respectively. |
Quarter Ended October 27, 2012 | |||||||||
Store Locations Beginning of Q3 | Store Locations Opened | Store Locations Closed | Store Locations End of Q3 | Square Feet (millions) | |||||
Gap North America | 1,014 | 6 | 4 | 1,016 | 10.5 | ||||
Gap Europe | 194 | 2 | - | 196 | 1.7 | ||||
Gap Asia | 165 | 11 | 1 | 175 | 1.7 | ||||
Old Navy North America | 1,010 | 9 | 6 | 1,013 | 17.7 | ||||
Old Navy Asia | 1 | - | - | 1 | - | ||||
Banana Republic North America | 586 | 5 | 2 | 589 | 4.9 | ||||
Banana Republic Asia | 33 | 4 | - | 37 | 0.2 | ||||
Banana Republic Europe | 10 | - | - | 10 | 0.1 | ||||
Athleta North America | 22 | 8 | - | 30 | 0.1 | ||||
Piperlime North America | - | 1 | - | 1 | - | ||||
Company-operated stores total | 3,035 | 46 | 13 | 3,068 | 36.9 | ||||
Franchise | 250 | 25 | 4 | 271 | N/A | ||||
Total | 3,285 | 71 | 17 | 3,339 | 36.9 | ||||
• | delivering top line and long-term growth; |
• | earnings per share for fiscal year 2012; |
• | depreciation and amortization for fiscal year 2012; |
• | operating expenses in the fourth quarter of fiscal year 2012; |
• | operating expense deleverage in the fourth quarter of fiscal year 2012; |
• | operating margin for fiscal year 2012; |
• | effective tax rate for fiscal year 2012; |
• | inventory dollars per store at the end of fiscal year 2012; |
• | dividends per share for fiscal year 2012; |
• | capital expenditures for fiscal year 2012; |
• | optimizing square footage; |
• | store openings and closings for fiscal year 2012; |
• | real estate square footage for fiscal year 2012; |
• | increasing sales with healthy merchandise margins; |
• | growing earnings per share; |
• | share repurchases, including the level of repurchases in 2012; and |
• | future growth, including international stores and Athleta stores. |
• | the risk that additional information may arise during the company's close process or as a result of subsequent events that would require the company to make adjustments to the financial information; |
• | the risk that adoption of new accounting pronouncements will impact future results; |
• | the risk that changes in general economic conditions or consumer spending patterns could adversely impact the company's results of operations; |
• | the highly competitive nature of the company's business in the United States and internationally; |
• | the risk that the company or its franchisees will be unsuccessful in gauging apparel trends and changing consumer preferences; |
• | the risk to the company's business associated with global sourcing and manufacturing, including sourcing costs, events causing disruptions in product shipment, or an inability to secure sufficient manufacturing capacity; |
• | the risk that the company's franchisees will be unable to successfully open, operate, and grow their franchised stores in a manner consistent with the company's requirements regarding its brand identities and customer experience standards; |
• | the risk that the company or its franchisees will be unsuccessful in identifying, negotiating, and securing new store locations and renewing, modifying or terminating leases for existing store locations effectively; |
• | the risk that comparable sales and margins will experience fluctuations; |
• | the risk that changes in the company's credit profile or deterioration in market conditions may limit its access to the capital markets and adversely impact its financial results and its ability to service its debt while maintaining other initiatives; |
• | the risk that trade matters could increase the cost or reduce the supply of apparel available to the company and adversely affect its business, financial condition, and results of operations; |
• | the risk that updates or changes to the company's information technology ("IT") systems may disrupt its operations; |
• | the risk that actual or anticipated cyber attacks, and other cybersecurity risks, may cause the company to incur increasing costs; |
• | the risk that natural disasters, public health crises, political crises, or other catastrophic events could adversely affect the company's operations and financial results; |
• | the risk that acts or omissions by the company's third-party vendors, including a failure to comply with the company's code of vendor conduct, could have a negative impact on its reputation or operations; |
• | the risk that the company does not repurchase some or all of the shares it anticipates purchasing pursuant to its repurchase program; |
• | the risk that the company will not be successful in defending various proceedings, lawsuits, disputes, claims, and audits; and |
• | the risk that changes in the regulatory or administrative landscape could adversely affect the company's financial condition, strategies, and results of operations. |
The Gap, Inc. | |||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||
UNAUDITED | |||||||||||
($ in millions) | October 27, 2012 | October 29, 2011 | |||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash, cash equivalents, and short-term investments | $ | 1,770 | $ | 1,417 | |||||||
Merchandise inventory | 2,269 | 2,322 | |||||||||
Other current assets | 794 | 815 | |||||||||
Total current assets | 4,833 | 4,554 | |||||||||
Property and equipment, net | 2,559 | 2,550 | |||||||||
Other long-term assets | 615 | 553 | |||||||||
Total assets | $ | 8,007 | $ | 7,657 | |||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
Current liabilities: | |||||||||||
Current maturities of debt | $ | 2 | $ | 52 | |||||||
Accounts payable | 1,584 | 1,472 | |||||||||
Accrued expenses and other current liabilities | 1,041 | 957 | |||||||||
Income taxes payable | 1 | 1 | |||||||||
Total current liabilities | 2,628 | 2,482 | |||||||||
Long-term liabilities: | |||||||||||
Long-term debt | 1,246 | 1,606 | |||||||||
Lease incentives and other long-term liabilities | 972 | 910 | |||||||||
Total long-term liabilities | 2,218 | 2,516 | |||||||||
Total stockholders' equity | 3,161 | 2,659 | |||||||||
Total liabilities and stockholders' equity | $ | 8,007 | $ | 7,657 |
The Gap, Inc. | |||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||
UNAUDITED | |||||||||||||||
13 Weeks Ended | 39 Weeks Ended | ||||||||||||||
($ and shares in millions except per share amounts) | October 27, 2012 | October 29, 2011 | October 27, 2012 | October 29, 2011 | |||||||||||
Net sales | $ | 3,864 | $ | 3,585 | $ | 10,926 | $ | 10,266 | |||||||
Cost of goods sold and occupancy expenses | 2,271 | 2,271 | 6,531 | 6,397 | |||||||||||
Gross profit | 1,593 | 1,314 | 4,395 | 3,869 | |||||||||||
Operating expenses | 1,073 | 968 | 3,055 | 2,803 | |||||||||||
Operating income | 520 | 346 | 1,340 | 1,066 | |||||||||||
Interest, net | 21 | 21 | 63 | 47 | |||||||||||
Income before income taxes | 499 | 325 | 1,277 | 1,019 | |||||||||||
Income taxes | 191 | 132 | 493 | 404 | |||||||||||
Net income | $ | 308 | $ | 193 | $ | 784 | $ | 615 | |||||||
Weighted-average number of shares - basic | 481 | 503 | 485 | 542 | |||||||||||
Weighted-average number of shares - diluted | 488 | 505 | 491 | 547 | |||||||||||
Earnings per share - basic | $ | 0.64 | $ | 0.38 | $ | 1.62 | $ | 1.13 | |||||||
Earnings per share - diluted | $ | 0.63 | $ | 0.38 | $ | 1.60 | $ | 1.12 |
The Gap, Inc. | ||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
UNAUDITED | ||||||||||||
39 Weeks Ended | ||||||||||||
($ in millions) | October 27, 2012 | October 29, 2011 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 784 | $ | 615 | ||||||||
Depreciation and amortization (a) | 363 | 382 | ||||||||||
Change in merchandise inventory | (655) | (694) | ||||||||||
Other, net | 733 | 335 | ||||||||||
Net cash provided by operating activities | 1,225 | 638 | ||||||||||
Cash flows from investing activities: | ||||||||||||
Purchases of property and equipment | (449) | (416) | ||||||||||
Purchases of short-term investments | (175) | (50) | ||||||||||
Maturities of short-term investments | 125 | 125 | ||||||||||
Change in other assets | (12) | (4) | ||||||||||
Net cash used for investing activities | (511) | (345) | ||||||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from issuance of short-term debt | - | 9 | ||||||||||
Payments of short-term debt | (17) | - | ||||||||||
Proceeds from issuance of long-term debt | - | 1,646 | ||||||||||
Payments of long-term debt issuance costs | - | (11) | ||||||||||
Payments of long-term debt | (400) | - | ||||||||||
Proceeds from issuances under share-based compensation plans, net of withholding tax payments | 159 | 55 | ||||||||||
Repurchases of common stock | (467) | (2,013) | ||||||||||
Excess tax benefit from exercise of stock options and vesting of stock units | 32 | 11 | ||||||||||
Cash dividends paid | (182) | (181) | ||||||||||
Net cash used for financing activities | (875) | (484) | ||||||||||
Effect of foreign exchange rate fluctuations on cash | (4) | 22 | ||||||||||
Net decrease in cash and cash equivalents | (165) | (169) | ||||||||||
Cash and cash equivalents at beginning of period | 1,885 | 1,561 | ||||||||||
Cash and cash equivalents at end of period | $ | 1,720 | $ | 1,392 | ||||||||
(a) Depreciation and amortization is net of amortization of lease incentives. |
The Gap, Inc. | ||||||||
SEC REGULATION G | ||||||||
UNAUDITED | ||||||||
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW | ||||||||
39 Weeks Ended | ||||||||
($ in millions) | October 27, 2012 | October 29, 2011 | ||||||
Net cash provided by operating activities | $ | 1,225 | $ | 638 | ||||
Less: purchases of property and equipment | (449) | (416) | ||||||
Free cash flow (a) | $ | 776 | $ | 222 | ||||
_________ | ||||||||
(a) 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. |