EX-99.1 3 dex991.htm PRESS RELEASE Press Release
EXHIBIT 99.1
 
GAP INC. ANNOUNCES THIRD QUARTER 2002 RESULTS;
REPORTS EARNINGS PER SHARE of $0.15
 
SAN FRANCISCO — November 14, 2002 — Gap Inc. (NYSE:GPS) today reported sales and earnings for the third quarter, which ended November 2, 2002.
 
Net sales for the third quarter increased 9 percent to $3.6 billion, compared with $3.3 billion for the third quarter last year. Comparable store sales increased 2 percent, compared with a 17 percent decrease during the same period last year.
 
The company reported third quarter diluted earnings per share of $0.15, compared with a net loss per share of $0.21 the prior year. Net earnings for the third quarter increased to $135 million, compared with a $179 million net loss last year.
 
“We’re certainly pleased with our earnings for the quarter and the overall progress we’re making in each of our divisions,” said Gap Inc. President and CEO Paul Pressler. “Gap, Banana Republic and Old Navy are each moving in the right direction.”
 
Store Sales Results By Division
The company’s third quarter comparable store sales by division were as follows:
 
 
•
 
Gap Domestic: negative 2 percent, compared with a negative 17 percent last year.
 
•
 
Gap International: positive 2 percent, compared with a negative 13 percent last year.
 
•
 
Banana Republic: positive 1 percent, compared with a negative 13 percent last year.
 
•
 
Old Navy: positive 6 percent, compared with a negative 18 percent last year.
 
Net sales for the third quarter in each division were:
 
 
•
 
Gap Domestic: $1.3 billion, compared with $1.3 billion last year.
 
•
 
Gap International: $420 million, compared with $387 million last year.
 
•
 
Banana Republic: $456 million, compared with $429 million last year.
 
•
 
Old Navy: $1.5 billion, compared with $1.3 billion last year.
 
Quarterly net sales by division dating back to fiscal 2000 are now available on gapinc.com and will be updated as reported each quarter.
 
Company Announces Merchandise Inventory and Accounts Payable Adjustment — No Impact on Reported or Prospective Net Sales or Net Earnings
 
The company also announced that it has made changes in an accounting report used to record in-transit merchandise inventory. These changes correct an understatement of the company’s in-transit inventory balances and the corresponding accounts payable balances.
 
While the company’s in-transit inventory tracking system was accurately capturing data, a software upgrade in April 2002 inadvertently caused the system to begin generating accounting reports that understated in-transit inventory levels, the company said. While addressing this issue, the company also determined that its methodology for recording in-transit inventory required modifications to accurately report in-transit balances. These issues were identified in October and have been fully resolved. The company said its in-transit reporting system has been thoroughly tested and reviewed following the changes.

 
The table below shows the balance sheet adjustments resulting from these changes. The company said it has elected to amend its quarterly filings for the first and second quarters of 2002 to reflect the adjustments.
 
These adjustments will not impact previously reported or prospective net sales, net earnings, net cash flow, net working capital or financial covenant compliance. The company added that there was no impact on the amount of inventory actually ordered from vendors or sold to customers in any affected reporting period.
 
Table: Balance Sheet Adjustments ($000)
 
    
 
Q2 ’02
   
 
Q1 ’02
   
 
Q4 ’01
   
 
Q3 ’01
   
 
Q2 ’01
   
 
Q1 ’01
Merchandise Inventory
                                          
Originally Reported
   
$
1,853,726
   
$
1,686,424
   
$
1,677,116
   
$
2,589,230
   
$
2,149,223
   
$
2,048,822
Adjusted
   
$
2,087,485
   
$
1,792,713
   
$
1,768,613
   
$
2,837,534
   
$
2,305,149
   
$
2,119,967
Accounts Payable
                                          
Originally Reported
   
$
882,086
   
$
935,218
   
$
1,105,117
   
$
1,156,302
   
$
1,081,819
   
$
912,215
Adjusted
   
$
1,115,845
   
$
1,041,507
   
$
1,196,614
   
$
1,404,606
   
$
1,237,745
   
$
983,360
 
Fourth Quarter Outlook
Commenting on the fourth quarter, CFO Heidi Kunz said: “October performance significantly exceeded our expectations. However, our outlook remains cautious until we see more consistent performance in our business over time.”
 
Real Estate Growth
Gap brand store count is based on a concepts definition. Any Gap Adult, GapKids, babyGap or GapBody concept that meets a certain square footage threshold is counted as a store, even when residing within a single physical location that may have other concepts. Store count by concept, location and square footage at third quarter end for 2002 and 2001 are as follows:
 
    
November 2, 2002
   
November 3, 2001
    
Number of Stores by Concept
   
Number of Stores by Location
   
Sq. Ft. (millions)
   
Number of Stores by Concept
   
Number of Stores by Location
   
Sq. Ft. (millions)
Gap
Domestic
   
2,339
   
1,487
   
13.3
   
2,279
   
1,499
   
13.0
Gap
International
   
659
   
375
   
3.6
   
630
   
364
   
3.5
Banana
Republic
   
446
   
446
   
3.7
   
442
   
442
   
3.5
Old Navy
   
850
   
850
   
17.0
   
796
   
796
   
16.0
Total
   
4,294
   
3,158
   
37.6
   
4,147
   
3,101
   
36.0
 
2002 and 2003 Real Estate Outlook
The company said it still expects to end fiscal 2002 with net square footage growth of around 3 percent. Concept closures will be similar to last year, but location closures will likely be higher.
 
Commenting on future growth, Ms. Kunz said: “For fiscal 2003, we expect to open stores at 30-40 new locations, which translates to 40-60 concepts. Approximately 60 percent of the resulting square footage growth is from Old Navy, with the balance spread equally among the other brands. At this point, we anticipate that store closures will likely be higher than 2002 levels, with net square footage expected to decline about 2 percent for the full 2003 fiscal year.”

 
Webcast and Conference Call Information
 
Heidi Kunz, Executive Vice President and Chief Financial Officer, will host a summary of Gap Inc.’s third quarter results in a live conference call and real-time webcast at approximately 5 p.m. Eastern Time today. Ms. Kunz will be joined by Paul Pressler, President & CEO; John Lillie, Vice Chairman; Maureen Chiquet, President of Banana Republic; Jenny Ming, President of Old Navy; and Gary Muto, President of Gap; to discuss details on the business.
 
To access the conference call, please dial (800) 374-0168. International callers may dial (706) 634-0994. The webcast is located on the Conference Calls & Webcast page in the Financials & Media section of gapinc.com
 
Forward-Looking Statements
 
The information made available on this press release, conference call and webcast contain certain forward-looking statements which reflect Gap Inc.’s current view of future events and financial performance. Wherever used, the words “estimate”, “expect,” “plan,” “anticipate,” “believe,” “may” and similar expressions identify forward-looking statements. Any such forward-looking statements are subject to risks and uncertainties and the company’s future results of operations could differ materially from historical results or current expectations. Some of these risks include, without limitation, ongoing competitive pressures in the apparel industry, risks associated with challenging domestic and international retail environments, changes in the level of consumer spending or preferences in apparel, trade restrictions and political or financial instability in countries where the company’s goods are manufactured, impact of legal proceedings and/or other factors that may be described in the company’s annual report on Form 10-K and/or other filings with the Securities and Exchange Commission. Future economic and industry trends that could potentially impact revenues and profitability are difficult to predict. 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.
 
Gap Inc. Copyright Information
 
All recordings made on 800-GAP-NEWS have been recorded on behalf of Gap Inc. and consist of copyrighted material. They may not be re-recorded, reproduced, retransmitted or rebroadcast without Gap Inc.’s express written permission. Your participation represents your consent to these terms and conditions, which are governed under California law.

Gap, Inc.
 
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
 
($ In thousands)
   
November 2, 2002
   
November 3, 2001
ASSETS
              
Current Assets
              
Cash and equivalents
   
$
2,501,118
   
$
799,510
Merchandise inventory
   
 
2,821,441
   
 
2,837,534
Prepaid expenses and other
   
 
330,914
   
 
355,478
Total Current Assets
   
 
5,653,473
   
 
3,992,522
Property and equipment, net
   
 
3,870,053
   
 
4,241,924
Lease rights and other assets
   
 
385,393
   
 
355,975
Total Assets
   
$
9,908,919
   
$
8,590,421
LIABILITIES AND SHAREHOLDERS' EQUITY
              
Current Liabilities
              
Notes payable
   
$
—
   
$
1,029,250
Current maturities of long-term debt
   
 
499,959
   
 
250,000
Accounts payable
   
 
1,443,870
   
 
1,404,606
Accrued expenses and other current liabilities
   
 
960,447
   
 
894,879
Income taxes payable
   
 
200,271
   
 
113,196
Total Current Liabilities
   
 
3,104,547
   
 
3,691,931
Long-Term Liabilities
              
Long-term debt
   
 
2,875,683
   
 
1,273,025
Deferred lease credits and other liabilities
   
 
540,147
   
 
571,838
Total Long-Term Liabilities
   
 
3,415,830
   
 
1,844,863
Shareholders' Equity
   
 
3,388,542
   
 
3,053,627
Total Liabilities and Shareholders' Equity
   
$
9,908,919
   
$
8,590,421

Gap Inc.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
Thirteen Weeks Ended
     
Thirty-nine Weeks Ended
  
($000 except share
and per share amounts)
  
November 2,
2002
    
% to Sales
     
November 3,
2001
     
% to Sales
     
November 2,
2002
    
% to Sales
     
November 3,
2001
    
% to Sales
  
Net sales
  
$
3,644,956
 
  
100.0
%
   
$
3,333,373
 
   
100.0
%
   
$
9,804,105
 
  
100.0
%
   
$
9,758,248
 
  
100.0
%
   
 
  
  
  
 
  
 
Costs and expenses
                                                            
Cost of goods sold and occupancy expenses
  
 
2,329,347
 
  
63.9
%
   
 
2,382,734
 
   
71.5
%
   
 
6,518,883
 
  
66.5
%
   
 
6,641,353
 
  
68.1
%
Operating expenses
  
 
1,009,393
 
  
27.7
%
   
 
946,882
 
   
28.4
%
   
 
2,697,890
 
  
27.5
%
   
 
2,740,066
 
  
28.1
%
Interest expense
  
 
67,475
 
  
1.9
%
   
 
23,748
 
   
0.7
%
   
 
182,556
 
  
1.9
%
   
 
76,649
 
  
0.8
%
Interest income
  
 
(9,570
)
  
(0.3
)%
   
 
(5,408
)
   
(0.2
)%
   
 
(26,786
)
  
(0.3
)%
   
 
(8,436
)
  
(0.2
)%
   
 
  
  
  
 
  
 
Earnings before income taxes
  
 
248,311
 
  
6.8
%
   
 
(14,583
)
   
(0.4
)%
   
 
431,562
 
  
4.4
%
   
 
308,616
 
  
3.2
%
Income taxes
  
 
113,041
 
  
3.1
%
   
 
164,254
 
   
5.0
%
   
 
202,834
 
  
2.1
%
   
 
282,222
 
  
2.9
%
   
 
  
  
  
 
  
 
Net earnings/(loss)
  
$
135,270
 
  
3.7
%
   
$
(178,837
)
   
(5.4
)%
   
$
228,728
 
  
2.3
%
   
$
26,394
 
  
0.3
%
   
 
  
  
  
 
  
 
Weighted average number of shares—basic
  
 
879,275,933
 
         
 
862,420,054
 
          
 
871,826,795
 
         
 
858,808,170
 
      
Weighted average number of shares—diluted
  
 
968,163,722
 
         
 
862,420,054
 
          
 
877,828,469
 
         
 
876,068,384
 
      
   
        
         
        
     
Earnings/(loss) per share—basic
  
$
0.15
 
         
$
(0.21
)
          
$
0.26
 
         
$
0.03
 
      
Earnings/(loss) per share—diluted
  
$
0.15
 
         
$
(0.21
)
          
$
0.26
 
         
$
0.03
 
      
   
        
         
        
     
Number of stores open at end of period
                                 
 
4,294
 
         
 
4,147
 
      
Total square footage at end of period
                                 
 
37,644,744
 
         
 
36,033,394
 
      
                                  
        
     

 
Gap Inc.
 
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
    
39 Weeks Ended
     
39 Weeks Ended
  
($ In thousands)
   
November 2, 2002
     
November 3, 2001
  
Cash Flows from Operating Activities:
                  
Net earnings
   
$
228,728
 
   
$
26,394
 
Adjustments to reconcile net earnings to net cash provided by operating activities:
                  
Depreciation and amortization
   
 
581,591
 
   
 
589,626
 
Tax benefit from exercise of stock options and vesting of restricted stock
   
 
42,146
 
   
 
54,481
 
Loss on disposal
   
 
13,195
 
   
 
—  
 
Changes in operating assets and liabilities:
                  
Merchandise inventory
   
 
(1,040,125
)
   
 
(941,474
)
Prepaid expenses and other
   
 
10,223
 
   
 
(32,842
)
Accounts payable
   
 
241,497
 
   
 
343,813
 
Accrued expenses and other
   
 
105,966
 
   
 
211,357
 
Income taxes payable
   
 
115,694
 
   
 
95,789
 
Deferred lease credits and other long-term liabilities
   
 
(15,198
)
   
 
45,726
 
    
  
Net cash provided by operating activities
   
 
283,717
 
   
 
392,870
 
    
  
Cash Flows from Investing Activities:
                  
Purchase of property and equipment
   
 
(216,762
)
   
 
(796,258
)
Proceeds from sale of property & equipment
   
 
8,513
 
   
 
—  
 
Acquisition of lease rights and other assets
   
 
(6,660
)
   
 
(6,505
)
    
  
Net cash used for investing activities
   
 
(214,909
)
   
 
(802,763
)
    
  
Cash Flows from Financing Activities:
                  
Net (decrease)/increase in notes payable
   
 
(41,942
)
   
 
252,136
 
Proceeds from issuance of long-term debt
   
 
1,345,500
 
   
 
495,886
 
Issuance of common stock
   
 
135,346
 
   
 
114,245
 
Cash dividends paid
   
 
(58,620
)
   
 
(57,176
)
    
  
Net cash provided by financing activities
   
 
1,380,284
 
   
 
805,091
 
    
  
Effect of exchange rate fluctuations on cash
   
 
16,277
 
   
 
(4,482
)
    
  
Net increase in cash and equivalents
   
 
1,465,369
 
   
 
390,716
 
Cash and equivalents at beginning of year
   
 
1,035,749
 
   
 
408,794
 
    
  
Cash and equivalents at end of quarter
   
$
2,501,118
 
   
$
799,510