Gap Inc. (NYSE:GPS) today reported fourth quarter and fiscal
year 2016 results and provided guidance for fiscal year 2017.
“We’re pleased to finish the year strong, with positive comp and
sales growth during the critical holiday quarter,” said Art Peck,
chief executive officer, Gap Inc. “Going forward, we will maintain
our focus on improving the quality and relevance of our products,
increasing our responsiveness to trends and demand, and creating
more synergy across channels to deliver the experiences our
customers want and expect, however they choose to shop.”
“We have many opportunities ahead to position the company for
long-term growth, while keeping our attention focused on operating
discipline,” said Teri List-Stoll, executive vice president and
chief financial officer, Gap Inc.
On a reported basis, the company’s diluted earnings per share
were $0.55 for the fourth quarter of fiscal year 2016 and $1.69 for
fiscal year 2016. The company’s adjusted diluted earnings per share
were $0.51 for the fourth quarter of fiscal year 2016 and $2.02 for
fiscal year 2016, excluding the following:
- Costs associated with the company’s
previously announced store closure and streamlining initiatives,
including the impact from a higher tax rate, of about $0.04 and
$0.41 for the fourth quarter and fiscal year 2016,
respectively;
- A non-cash goodwill impairment charge
of $0.18 related to Intermix;
- An $0.11 benefit from insurance
proceeds related to the fire that occurred on the company’s
Fishkill distribution center campus; and
- A non-recurring tax benefit of about
$0.15.
Please see the reconciliations of adjusted diluted earnings per
share, a non-GAAP financial measure, in the tables at the end of
this press release.
The company noted that foreign currency fluctuations negatively
impacted adjusted earnings per share for fiscal year 2016 by an
estimated $0.15, or about 6 percentage points of earnings per share
growth on an adjusted basis.1
1 In calculating earnings per share excluding the impact of
foreign exchange, the company estimates current gross margins using
the appropriate prior year rates (including the impact of
merchandise-related hedges), translates current period foreign
earnings at prior year rates, and excludes the year-over-year
earnings impact of balance sheet remeasurement and gains or losses
from non-merchandise-related foreign currency hedges. This is done
in order to enhance the visibility of adjusted business results
excluding the direct impact of foreign currency exchange rate
fluctuations.
Business Highlights
- Old Navy delivered its fifth
consecutive year of net sales growth in fiscal year 2016 and grew
market share in key categories during the quarter, including
dresses, denim and knits.
- During the quarter, Gap brand’s
operating model helped drive improved product acceptance across
core categories and divisions. As part of its strategy to develop
engaging digital experiences, Gap piloted a new application during
the quarter, DressingRoom by Gap, to help customers virtually “try
on” clothing through a smartphone augmented reality
experience.
- Athleta grew its footprint to 132 U.S.
store locations by the end of 2016, and is scheduled to open about
15 additional U.S. stores in fiscal year 2017. The women’s
performance lifestyle brand continues to be on the leading edge of
fabric innovation, as demonstrated by the introduction of Sculptek,
which features 360-degree stretch, and Powervita, its newest soft
and supportive yoga fabric, in fiscal year 2016.
- Mobile point of sale functionality
expanded to about 20 percent of the Gap Inc. U.S. fleet in fiscal
year 2016, enabling store associates to better serve their
customers throughout their shopping experience.
Comparable Sales Results
The company’s fourth quarter fiscal year 2016 comparable sales
were up 2 percent compared with a decline of 7 percent last
year.
For fiscal year 2016, the company’s comparable sales were down 2
percent compared with a decline of 4 percent last year. Comparable
sales by global brand for fiscal year 2016 were as follows:
- Old Navy Global: positive 1
percent versus flat last year
- Gap Global: negative 3 percent
versus negative 6 percent last year
- Banana Republic Global: negative
7 percent versus negative 10 percent last year
Net Sales Results
Fourth quarter fiscal year 2016 net sales increased 1 percent to
$4.43 billion and fiscal year 2016 net sales were $15.5 billion.
The translation of foreign currencies into U.S. dollars negatively
impacted the company’s reported net sales for fiscal year 2016 by
about $20 million. Fourth quarter and fiscal year 2016 net sales
details appear in the tables at the end of this press release.
Additional Fiscal Year 2016 Results
- Operating Margin: The company’s
operating margin for fiscal year 2016 was 7.7 percent.
- Operating Expenses: Fourth
quarter fiscal year 2016 operating expenses were $1.20 billion
compared with $1.09 billion last year. Fourth quarter fiscal year
2016 operating expenses include $26 million in restructuring
charges, a $71 million goodwill impairment charge related to
Intermix, and a $73 million gain from insurance proceeds related to
the fire that occurred on the company’s Fishkill, New York
distribution center campus.Total operating expenses for fiscal year
2016 were $4.4 billion. Excluding full year restructuring charges
of $197 million and other fourth quarter 2016 items mentioned
above, total adjusted operating expenses for fiscal year 2016 were
$4.3 billion, up $156 million compared with last year. Please see
the reconciliation of adjusted operating expenses, a non-GAAP
financial measure, in the tables at the end of this press
release.In line with the company’s previous quarter’s guidance,
marketing expenses for the fourth quarter of fiscal year 2016 were
$195 million, up $26 million compared with last year. Fiscal year
2016 marketing expenses were $601 million compared with $578
million last year.
- Effective Tax Rate: The
effective tax rate was 22.8 percent for the fourth quarter of
fiscal year 2016. The fourth quarter tax rate reflects a
non-recurring income tax benefit related to a legal structure
realignment and benefits associated with changes in the company’s
geographical mix of earnings. Excluding the non-recurring income
tax benefit related to the legal structure realignment, as well as
the tax impact related to restructuring costs and a goodwill
impairment charge during the quarter, the adjusted effective tax
rate for the fourth quarter of fiscal year 2016 was about 10 points
higher than the reported effective tax rate.The effective tax rate
for fiscal year 2016 was 39.9 percent. Excluding the benefit from
the legal structure realignment, and tax impacts of the
restructuring costs and the goodwill impairment charge, the
adjusted fiscal year 2016 effective tax rate was about 1 percentage
point lower.
- Inventory: At the end of the
fourth quarter of fiscal year 2016, total inventory was down 2
percent year-over-year, in line with the company’s previous
guidance.
- Cash and Cash Equivalents: The
company ended fiscal year 2016 with $1.8 billion in cash and cash
equivalents. For fiscal year 2016, free cash flow, defined as net
cash provided by operating activities less purchases of property
and equipment, was an inflow of about $1.2 billion. Please see the
reconciliation of free cash flow, a non-GAAP financial measure,
from the GAAP financial measure in the tables at the end of this
press release.
- Cash Distribution: During the
fourth quarter of fiscal year 2016, the company paid a dividend of
$0.23 per share and repaid its $400 million term loan. No share
repurchases were made in fiscal year 2016.
- Capital Expenditures: Fiscal
year 2016 capital expenditures were $524 million, in line with the
company’s prior guidance.
- Depreciation and Amortization:
Fiscal year 2016 depreciation and amortization expense, net of
amortization of lease incentives, was $531 million.
- Real Estate: The company ended
fiscal year 2016 with 3,659 store locations in 50 countries, of
which 3,200 were company-operated. Square footage of
company-operated stores was down about 3 percent compared with the
end of fiscal year 2015, in line with the company’s prior guidance.
The company noted that it completed the closure of its Old Navy
Japan business and a number of dilutive Banana Republic stores,
primarily internationally, during fiscal year 2016. Store count,
openings, closings, and square footage of our stores for the fourth
quarter of fiscal year 2016 appear in the tables at the end of this
press release.
2017 Outlook
The company noted that fiscal year 2017 is a 53-week year versus
the 52-week fiscal year 2016.
- Earnings per Share: For fiscal
year 2017, the company expects diluted earnings per share to be in
the range of $1.95 to $2.05, which includes the estimated negative
impact of approximately $0.09 due to foreign currency fluctuations
at current exchange rates. This impact equates to approximately 5
percentage points of earnings per share growth when compared with
the company’s adjusted diluted earnings per share of $2.02 for
fiscal year 2016.The company also noted that comparable sales for
fiscal year 2017 are expected to be flat to up slightly. Net sales
are expected to be slightly below this range driven by an expected
negative impact from foreign currency fluctuations
year-over-year.The company noted that it expects its reported
diluted earnings per share for the first half of fiscal year 2017
to be down in the high single digits when compared with the
adjusted diluted earnings per share for the first half of fiscal
year 2016.
- Effective Tax Rate: For fiscal
year 2017, the company expects the effective tax rate to be about
39 percent.
- Inventory: The company expects
total inventory to be down in the low single digits at the end of
the first half of fiscal year 2017 when compared with the end of
the first half of fiscal year 2016.
- Cash Distribution: The company
announced today that its board of directors authorized a first
quarter fiscal year 2017 dividend of $0.23 per share.
- Capital Expenditures: The
company expects capital spending to be approximately $625 million
for fiscal year 2017, excluding an estimated $200 million related
to rebuilding of the company’s Fishkill, New York distribution
center campus, which the company expects will be covered by
insurance proceeds. The company noted that it intends to dedicate
about half of its fiscal year 2017 capital spending on store
investments, with the remainder focused on transformative
infrastructure investments to support its omni-channel and digital
strategies, such as information technology and supply chain.
- Real Estate: In fiscal year
2017, the company expects to open about 40 company-operated stores,
net of closures and repositions. In line with its strategy, the
company expects store openings to be focused on Athleta and Old
Navy locations, with closures weighted toward Gap brand.
Webcast and Conference Call Information
Jennifer Fall, senior vice president of Corporate Finance and
Investor Relations at Gap Inc., will host a summary of the
company’s fourth quarter and fiscal year 2016 results during a
conference call and webcast from approximately 2:00 p.m. to 3:00
p.m. Pacific Time today. Ms. Fall will be joined by Art Peck, Gap
Inc. chief executive officer, and Teri List-Stoll, Gap Inc.
executive vice president and chief financial officer.
The conference call can be accessed by calling 1-855-5000-GPS or
1-855-500-0477 (participant passcode: 3648818). International
callers may dial 913-643-0954. The webcast can be accessed at
www.gapinc.com and fourth quarter earnings call highlights can be
followed on Twitter at http://twitter.com/gapinc; cashtag $GPS.
Forward-Looking Statements
This press release and related conference call and webcast
contain forward-looking statements within the “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995.
All statements other than those that are purely historical are
forward-looking statements. Words such as “expect,” “anticipate,”
“believe,” “estimate,” “intend,” “plan,” “project,” and similar
expressions also identify forward-looking statements.
Forward-looking statements include statements regarding the
following:
- earnings per share for the first half
and full fiscal year 2017;
- comparable sales for fiscal year
2017;
- net sales for fiscal year 2017;
- effective tax rate for fiscal year
2017;
- total inventory at the end of the first
half of fiscal year 2017;
- future dividends;
- capital expenditures for fiscal year
2017;
- store openings in fiscal year 2017,
focused on Athleta and Old Navy, net of closures, weighted towards
Gap brand;
- returning excess cash to
shareholders;
- foreign exchange impact in fiscal year
2017;
- the impact of the additional week in
fiscal year 2017;
- insurance recovery for costs related to
the fire at our Fishkill distribution center; and
- share repurchases in fiscal year
2017.
Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause the
company’s actual results to differ materially from those in the
forward-looking statements. These factors include, without
limitation, the following:
- the risk that adjustments to the
company’s unaudited financial statements may be identified through
the course of the company’s independent registered public
accounting firm completing its integrated audit of the company’s
financial statements and financial controls;
- 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 unaudited financial information;
- the risk that the adoption of new
accounting pronouncements will impact future results;
- the risk that the company or its
franchisees will be unsuccessful in gauging apparel trends and
changing consumer preferences;
- the risk that changes in global
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 if the company is unable
to manage its inventory effectively, its gross margins will be
adversely affected;
- the risk that the failure to attract
and retain key personnel, or effectively manage succession, could
have an adverse impact on the company’s results of operations;
- the risk that the company is subject to
data or other security breaches that may result in increased costs,
violations of law, significant legal and financial exposure, and a
loss of confidence in the company’s security measures, which could
have an adverse effect on the company’s results of operations and
reputation;
- the risks to the company’s efforts to
expand internationally, including its ability to operate under a
global brand structure and operating in regions where it has less
experience;
- the risk that foreign currency exchange
rate fluctuations could adversely impact the company’s financial
results;
- the risks to the company’s business,
including its costs and supply chain, associated with global
sourcing and manufacturing;
- the risks to the company’s reputation
or operations associated with importing merchandise from foreign
countries, including failure of the company’s vendors to adhere to
its Code of Vendor Conduct;
- 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 the company’s
franchisees’ operation of franchise stores is not directly within
the company’s control and could impair the value of its
brands;
- 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 the company’s investments
in omni-channel shopping initiatives may not deliver the results
the company anticipates;
- 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 the
company’s access to the capital markets and adversely impact its
financial results or business initiatives;
- the risk that updates or changes to the
company’s information technology systems may disrupt its
operations;
- the risk that failure to maintain,
enhance and protect the company’s brand image could have an adverse
effect on its results of operations;
- the risk that natural disasters, public
health crises, political crises, or other catastrophic events could
adversely affect the company’s operations and financial results, or
those of its franchisees or vendors;
- the risk that changes in the regulatory
or administrative landscape could adversely affect the company’s
financial condition, strategies, and results of operations;
- the risk that the company does not
repurchase some or all of the shares it anticipates purchasing
pursuant to its repurchase program; and
- the risk that the company will not be
successful in defending various proceedings, lawsuits, disputes,
claims, and audits.
Additional information regarding factors that could cause
results to differ can be found in the company’s Annual Report on
Form 10-K for the fiscal year ended January 30, 2016, as well as
the company’s subsequent filings with the Securities and Exchange
Commission.
These forward-looking statements are based on information as of
February 23, 2017. 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.
About Gap Inc.
Gap Inc. is a leading global retailer offering clothing,
accessories, and personal care products for men, women, and
children under the Gap, Banana Republic, Old Navy, Athleta, and
Intermix brands. Fiscal year 2016 net sales were $15.5 billion. Gap
Inc. products are available for purchase in more than 90 countries
worldwide through about 3,200 company-operated stores, about 450
franchise stores, and e-commerce sites. For more information,
please visit www.gapinc.com.
The Gap, Inc. CONDENSED CONSOLIDATED
BALANCE SHEETS UNAUDITED
($ in millions)
January 28,2017
January 30,2016
ASSETS Current assets: Cash and cash equivalents $ 1,783 $ 1,370
Merchandise inventory 1,830 1,873 Other current assets 702
742 Total current assets 4,315 3,985 Property and equipment,
net 2,616 2,850 Other long-term assets 679 638 Total
assets $ 7,610 $ 7,473 LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: Current maturities of debt $ 65 $ 421 Accounts
payable 1,243 1,112 Accrued expenses and other current liabilities
1,113 979 Income taxes payable 32 23 Total current
liabilities 2,453 2,535 Long-term liabilities:
Long-term debt 1,248 1,310 Lease incentives and other long-term
liabilities 1,005 1,083 Total long-term liabilities
2,253 2,393 Total stockholders' equity 2,904
2,545 Total liabilities and stockholders' equity $ 7,610 $
7,473
The Gap, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME UNAUDITED
13 Weeks Ended
52 Weeks Ended ($ and shares in millions except per share
amounts)
January 28,2017
January 30,2016
January 28,2017
January 30,2016
Net sales $ 4,429 $ 4,385 $ 15,516 $ 15,797 Cost of goods sold and
occupancy expenses 2,928 2,945 9,876
10,077 Gross profit 1,501 1,440 5,640 5,720 Operating expenses
1,200 1,085 4,449 4,196 Operating
income 301 355 1,191 1,524 Interest, net 16 15
67 53 Income before income taxes 285 340 1,124 1,471 Income
taxes 65 126 448 551 Net income $ 220 $
214 $ 676 $ 920 Weighted-average number of shares - basic
399 400 399 411 Weighted-average number of shares - diluted 401 402
400 413 Earnings per share - basic $ 0.55 $ 0.54 $ 1.69 $
2.24 Earnings per share - diluted $ 0.55 $ 0.53 $ 1.69 $ 2.23
The Gap, Inc. CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS UNAUDITED 52 Weeks
Ended ($ in millions)
January 28,2017
January 30,2016
Cash flows from operating activities: Net income $ 676 $ 920
Depreciation and amortization (a) 531 527 Change in merchandise
inventory 46 (6 ) Other, net 466 153
Net cash provided by operating activities 1,719
1,594 Cash flows from investing activities:
Purchases of property and equipment (524 ) (726 ) Other (5 )
(4 ) Net cash used for investing activities (529 )
(730 ) Cash flows from financing activities: Proceeds
from issuance of short-term debt - 400 Payments of short-term debt
(400 ) - Payments of long-term debt (21 ) (21 ) Proceeds from
issuances under share-based compensation plans 29 65 Withholding
tax payments related to vesting of stock units (19 ) (69 )
Repurchases of common stock - (1,015 ) Excess tax benefit from
exercise of stock options and vesting of stock units 1 28 Cash
dividends paid (367 ) (377 ) Other - (1 ) Net
cash used for financing activities (777 ) (990 )
Effect of foreign exchange rate fluctuations on cash and
cash equivalents - (19 ) Net increase
(decrease) in cash and cash equivalents 413 (145 ) Cash and cash
equivalents at beginning of period 1,370 1,515
Cash and cash equivalents at end of period $ 1,783 $
1,370 (a) Depreciation and amortization is net of
amortization of lease incentives.
The Gap,
Inc. NON-GAAP FINANCIAL MEASURES UNAUDITED
FREE CASH FLOW 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.
52
Weeks Ended ($ in millions)
January 28,2017
January 30,2016
Net cash provided by operating activities $ 1,719 $ 1,594 Less:
Purchases of property and equipment (524 ) (726 )
Free cash flow $ 1,195 $ 868
The
Gap, Inc. NON-GAAP FINANCIAL MEASURES UNAUDITED
ADJUSTED OPERATING EXPENSES The following
adjusted operating expenses are non-GAAP financial measures. These
measures are provided to enhance visibility into the company's
underlying operating expenses for the periods excluding the impact
of the following charges for fiscal year 2016: restructuring costs,
goodwill impairment charge, and gain from insurance proceeds, and
excluding the impact of strategic actions primarily related to Gap
brand for fiscal year 2015. Management believes the adjusted
metrics are useful for the assessment of ongoing operations as we
believe the adjusted items are not indicative of our ongoing
operations due to the nature of the charges, and management
believes that the presentation of adjusted financial information
provides additional information to investors to facilitate the
comparison of results against prior years. However, these non-GAAP
financial measures are not intended to supersede or replace the
GAAP measures.
($ in millions) 13 Weeks Ended
January 28, 2017 Operating Expenses
Operating Expenses as a % ofNet
Sales
Operating expenses, as reported $ 1,200 27.1 % Less: Fiscal year
2016 restructuring costs (a) (26 ) (0.6 )% Less: Goodwill
impairment charge (b) (71 ) (1.6 )% Add: Gain from insurance
proceeds (c) 73 1.7 % Adjusted operating expenses $
1,176 26.6 %
($ in millions) 13 Weeks Ended
January 30, 2016 Operating Expenses
Operating Expenses as a % ofNet
Sales
Operating expenses, as reported $ 1,085 24.7 % Less: Fiscal year
2015 strategic actions (d) (19 ) (0.4 )% Adjusted operating
expenses $ 1,066 24.3 %
($ in millions) 52
Weeks Ended January 28, 2017 Operating Expenses
Operating Expenses as a % ofNet
Sales
Operating expenses, as reported $ 4,449 28.7 % Less: Fiscal year
2016 restructuring costs (a) (197 ) (1.3 )% Less: Goodwill
impairment charge (b) (71 ) (0.5 )% Add: Gain from insurance
proceeds (c) 73 0.5 % Adjusted operating expenses $
4,254 27.4 %
($ in millions) 52 Weeks Ended
January 30, 2016 Operating Expenses
Operating Expenses as a % ofNet
Sales
Operating expenses, as reported $ 4,196 26.6 % Less: Fiscal year
2015 strategic actions (d) (98 ) (0.7 )% Adjusted operating
expenses $ 4,098 25.9 %
______________________________ (a) Represents the restructuring
costs recorded in operating expenses related to fiscal year 2016
store closures and streamlining the company's operations and impact
on percentage of net sales. The costs primarily include lease
termination fees, store asset impairments, and employee related
costs. (b) Represents the goodwill impairment charge related
to Intermix. (c) Represents the gain from insurance proceeds
related to the fire that occurred in one of the buildings at a
Company-owned distribution center campus in Fishkill, New York.
(d) Represents the costs recorded in operating expenses
associated with the fiscal year 2015 strategic actions primarily
related to Gap brand and impact on percentage of net sales. The
costs primarily include lease termination fees, store asset
impairments, and employee related costs.
The Gap, Inc. NON-GAAP FINANCIAL MEASURES
UNAUDITED ADJUSTED NET INCOME Adjusted
net income is a non-GAAP financial measure. Adjusted net income is
provided to enhance visibility into the company's underlying
results for the periods excluding the impact of the following
charges for fiscal year 2016: restructuring costs, goodwill
impairment charge, gain from insurance proceeds, and the tax impact
of a legal structure realignment, and excluding the impact of
strategic actions primarily related to Gap brand for fiscal year
2015. Management believes the adjusted metrics are useful for the
assessment of ongoing operations as we believe the adjusted items
are not indicative of our ongoing operations due to the nature of
the charges, and management believes that the presentation of
adjusted financial information provides additional information to
investors to facilitate the comparison of results against prior
years. Additionally, management uses adjusted net income as a key
performance measure for the purposes of evaluating performance
internally. However, this non-GAAP financial measure is not
intended to supersede or replace the GAAP measure.
13
Weeks Ended 52 Weeks Ended ($ in millions)
January 28,2017
January 30,2016
January 28,2017
January 30,2016
Net income, as reported $ 220 $ 214 $ 676 $ 920 Add: Fiscal year
2016 restructuring costs (a) 18 - 197 - Add: Fiscal year 2015
strategic actions (b) - 25 - 132 Less: Tax benefit related to
restructuring costs and strategic actions (c) (6 ) (9 ) (76 ) (50 )
Add: Incremental tax expenses related to fiscal year 2016
restructuring costs (d) 2 - 41 - Add: Goodwill impairment charge
(e) 71 - 71 - Less: Gain from insurance proceeds (f) (73 ) - (73 )
- Add: Tax expense related to gain from insurance proceeds (g) 28 -
28 - Add: Tax impact of a legal structure realignment (h)
(57 ) - (57 ) - Adjusted net
income $ 203 $ 230 $ 807 $ 1,002
____________________ (a) Represents the restructuring costs
incurred related to fiscal year 2016 store closures and
streamlining the company's operations, and primarily include lease
termination fees, store asset impairments, and employee related
costs. $26 million was recorded in operating expenses and $8
million of credit, net, was recorded in cost of goods sold and
occupancy expenses during the fourth quarter of fiscal year 2016,
and $197 million was recorded in operating expenses and $0 million
of credit, net, was recorded in cost of goods sold and occupancy
expenses during fiscal year 2016. (b) Represents the costs
associated with the fiscal year 2015 strategic actions primarily
related to Gap brand, and primarily include inventory impairment,
lease termination fees, store asset impairments, and employee
related costs. $19 million was recorded in operating expenses and
$6 million was recorded in cost of goods sold and occupancy
expenses during the fourth quarter of fiscal year 2015 and $98
million was recorded in operating expenses and $34 million was
recorded in cost of goods sold and occupancy expenses during fiscal
year 2015. (c) The amount of tax benefit associated with the
fiscal year 2016 restructuring costs is calculated using the
adjusted effective tax rate. The amount of tax benefit associated
with the fiscal year 2015 strategic actions is calculated using the
reported effective tax rate. (d) Represents the incremental
tax expenses related to fiscal year 2016 restructuring costs.
(e) Represents the goodwill impairment charge related to
Intermix, which is not deductible for tax purposes. (f)
Represents the gain from insurance proceeds related to the fire
that occurred in one of the buildings at a Company-owned
distribution center campus in Fishkill, New York. (g)
Represents the tax impact of the gain from insurance proceeds,
calculated at the adjusted effective tax rate, related to the fire
that occurred in one of the buildings at a Company-owned
distribution center campus in Fishkill, New York. (h)
Represents the favorable income tax impact of a legal structure
realignment.
The Gap, Inc. NON-GAAP
FINANCIAL MEASURES UNAUDITED ADJUSTED EARNINGS
PER SHARE FOR THE FOURTH QUARTER Adjusted diluted
earnings per share is a non-GAAP financial measure. Adjusted
diluted earnings per share is provided to enhance visibility into
the company's expected underlying results for the period excluding
the impact of the following charges for fiscal year 2016:
restructuring costs, goodwill impairment charge, gain from
insurance proceeds, and the tax impact of a legal structure
realignment, and excluding the impact of strategic actions
primarily related to Gap brand for fiscal year 2015. Management
believes the adjusted metrics are useful for the assessment of
ongoing operations as we believe the adjusted items are not
indicative of our ongoing operations due to the nature of the
charges, and management believes that the presentation of adjusted
financial information provides additional information to investors
to facilitate the comparison of results against prior years.
Additionally, management uses adjusted earnings per share as a key
performance measure for the purposes of evaluating performance
internally. However, this non-GAAP financial measure is not
intended to supersede or replace the GAAP measure.
13
Weeks Ended
January 28,2017
January 30,2016
Earnings per share - diluted $ 0.55 $ 0.53 Add: Impact of fiscal
year 2016 restructuring costs (a) 0.03 - Add: Impact of incremental
tax expenses related to fiscal year 2016 restructuring costs (b)
0.01 - Add: Impact of goodwill impairment charge (c) 0.18 - Less:
Impact of gain from insurance proceeds (d) (0.11 ) Less: Tax impact
of a legal structure realignment (e) (0.15 ) - Add: Impact of
fiscal year 2015 strategic actions (f) - 0.04
Diluted earnings per share adjusted for certain costs 0.51 $ 0.57
Add: Estimated impact from foreign exchange (g) 0.04
Diluted earnings per share adjusted for certain costs and
foreign exchange $ 0.55 Earnings per share decline
adjusted for certain costs
(11 )%
Earnings per share growth adjusted for
certain costs and foreign exchange
(4
)%
____________________ (a) Represents the earnings per share
impact of restructuring costs incurred related to fiscal year 2016
store closures and streamlining the company's operations,
calculated net of tax at adjusted effective tax rate. The costs
primarily include lease termination fees, store asset impairments,
and employee related costs. (b) Represents the earnings per
share impact of incremental tax expenses related to fiscal year
2016 restructuring costs. (c) Represents the goodwill
impairment charge related to Intermix, which is not deductible for
tax purposes. (d) Represents the gain from insurance
proceeds, net of tax at adjusted effective tax rate, related to the
fire that occurred in one of the buildings at a Company-owned
distribution center campus in Fishkill, New York. (e)
Represents the favorable income tax impact of a legal structure
realignment. (f) Represents the earnings per share impact of
costs associated with the fiscal year 2015 strategic actions
primarily related to Gap brand, calculated net of tax at reported
effective tax rate. The costs primarily include inventory
impairment, lease termination fees, store asset impairments, and
employee related costs. (g) In estimating the earnings per
share impact from foreign currency exchange rate fluctuations, the
company estimates current gross margins using the appropriate prior
year rates (including the impact of merchandise-related hedges),
translates current period adjusted foreign earnings at prior year
rates, and excludes the year-over-year earnings impact of balance
sheet remeasurement and gains or losses from
non-merchandise-related foreign currency hedges.
The Gap,
Inc. NON-GAAP FINANCIAL MEASURES UNAUDITED
ADJUSTED EARNINGS PER SHARE FOR THE FULL YEAR
Adjusted diluted earnings per share is a non-GAAP financial
measure. Adjusted diluted earnings per share for the full year of
fiscal year 2016 is provided to enhance visibility into the
company's expected underlying results for the period excluding the
impact of the following charges for fiscal year 2016: restructuring
costs, goodwill impairment charge, gain from insurance proceeds,
and the tax impact of a legal structure realignment, and excluding
the impact of strategic actions primarily related to Gap brand for
fiscal year 2015. Management believes the adjusted metrics are
useful for the assessment of ongoing operations as we believe the
adjusted items are not indicative of our ongoing operations due to
the nature of the charges, and management believes that the
presentation of adjusted financial information provides additional
information to investors to facilitate the comparison of results
against prior years. Additionally, management uses adjusted
earnings per share as a key performance measure for the purposes of
evaluating performance internally. However, this non-GAAP financial
measure is not intended to supersede or replace the GAAP measure.
52 Weeks Ended
January 28,2017
January 30,2016
Earnings per share - diluted $ 1.69 $ 2.23 Add: Impact of fiscal
year 2016 restructuring costs (a) 0.30 - Add: Impact of incremental
tax expenses related to fiscal year 2016 restructuring costs (b)
0.11 - Add: Impact of goodwill impairment charge (c) 0.18 - Less:
Impact of gain from insurance proceeds (d) (0.11 ) Less: Tax impact
of a legal structure realignment (e) (0.15 ) - Add: Impact of
fiscal year 2015 strategic actions (f) - 0.20
Diluted earnings per share adjusted for certain costs 2.02 $ 2.43
Add: Estimated impact from foreign exchange (g) 0.15
Diluted earnings per share adjusted for certain costs and
foreign exchange $ 2.17 Earnings per share
decline adjusted for certain costs (17 )% Earnings
per share growth adjusted for certain costs and foreign exchange
(11 )% ____________________ (a)
Represents the earnings per share impact of restructuring costs
incurred related to fiscal year 2016 store closures and
streamlining the company's operations, calculated net of tax at
adjusted effective tax rate. The costs primarily include lease
termination fees, store asset impairments, and employee related
costs. (b) Represents the earnings per share impact of
incremental tax expenses related to fiscal year 2016 restructuring
costs. (c) Represents the goodwill impairment charge related
to Intermix, which is not deductible for tax purposes. (d)
Represents the gain from insurance proceeds, net of tax at adjusted
effective tax rate, related to the fire that occurred in one of the
buildings at a Company-owned distribution center campus in
Fishkill, New York. (e) Represents the favorable income tax
impact of a legal structure realignment. (f) Represents the
earnings per share impact of costs associated with the fiscal year
2015 strategic actions primarily related to Gap brand, calculated
net of tax at reported effective tax rate. The costs primarily
include inventory impairment, lease termination fees, store asset
impairments, and employee related costs. (g) In estimating
the earnings per share impact from foreign currency exchange rate
fluctuations, the company estimates current gross margins using the
appropriate prior year rates (including the impact of
merchandise-related hedges), translates current period adjusted
foreign earnings at prior year rates, and excludes the
year-over-year earnings impact of balance sheet remeasurement and
gains or losses from non-merchandise-related foreign currency
hedges.
The Gap,
Inc. NET SALES RESULTS UNAUDITED The
following table details the company’s fourth quarter and fiscal
year 2016 net sales (unaudited):
($ in millions)
Old Navy
Banana
Percentage of
13 Weeks Ended January 28, 2017
Gap Global
Global
Republic Global
Other (3)
Total
Net Sales
U.S. (1) $ 910 $ 1,716 $ 596 $ 223 3,445 78 % Canada 104 132 64 1
301 7 % Europe 177 - 14 - 191 4 % Asia 359 49 29 - 437 10 % Other
regions 29 21 5 - 55 1 % Total $
1,579 $ 1,918 $ 708 $ 224 $ 4,429 100 %
($ in
millions)
Old Navy
Banana
Percentage of
13 Weeks Ended January 30, 2016
Gap Global
Global
Republic Global
Other (2)
Total
Net Sales
U.S. (1) $ 935 $ 1,635 $ 613 $ 201 3,384 77 % Canada 97 123 62 1
283 7 % Europe 204 - 17 - 221 5 % Asia 360 52 32 - 444 10 % Other
regions 31 15 7 - 53 1 % Total $
1,627 $ 1,825 $ 731 $ 202 $ 4,385 100 %
($ in
millions)
Old Navy
Banana
Percentage of
52 Weeks Ended January 28, 2017
Gap Global
Global
Republic Global
Other (3)
Total
Net Sales
U.S. (1) $ 3,113
$ 6,051
$ 2,052
$ 773 $ 11,989 77 % Canada 368 490 223 3 1,084 7 % Europe 630 - 59
- 689 5 % Asia 1,215 220 109 - 1,544 10 % Other regions 129
53 28 - 210 1 % Total $ 5,455 $ 6,814 $
2,471 $ 776 $ 15,516 100 %
($ in millions)
Old Navy
Banana
Percentage of
52 Weeks Ended January 30, 2016
Gap Global
Global
Republic Global
Other (4)
Total
Net Sales
U.S. (1) $ 3,303
$ 5,987
$ 2,211
$ 712 $ 12,213 77 % Canada 348 467 229 3 1,047 7 % Europe 726 - 71
- 797 5 % Asia 1,215 194 112 - 1,521 10 % Other regions 159
27 33 - 219 1 % Total $ 5,751 $ 6,675 $
2,656 $ 715 $ 15,797 100 % (1) U.S. includes the
United States, Puerto Rico, and Guam. (2) Includes Athleta and
Intermix. (3) Includes Athleta, Intermix, and beginning in the
fourth quarter of fiscal 2016, Weddington Way. (4) Includes
Athleta, Intermix, and Piperlime, which was discontinued as of the
first quarter of fiscal 2015.
The Gap, Inc. REAL ESTATE Store count,
openings, closings, and square footage for our stores are as
follows:
13 Weeks Ended January 28, 2017
Store Locations
Store Locations
Store Locations
Store Locations
Square Feet
Beginning of Q4
Opened
Closed
End of Q4
(millions)
Gap North America 858 3 17 844 8.8 Gap Asia 315 9 13 311 3.0 Gap
Europe 166 1 3 164 1.4 Old Navy North America 1,039 8 4 1,043 17.4
Old Navy Asia 60 - 47 13 0.2 Banana Republic North America 612 2 13
601 5.0 Banana Republic Asia 49 - 1 48 0.2 Banana Republic Europe
10 - 9 1 - Athleta North America 130 2 - 132 0.6 Intermix North
America 42 1 - 43 0.1 Company-operated stores total 3,281 26 107
3,200 36.7 Franchise 461 4 6 459 N/A Total 3,742 30 113 3,659 36.7
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170223006546/en/
Gap Inc.Investor Relations Contact:Tina Romani,
415-427-5264Investor_relations@gap.comorMedia Relations
Contact:Jennifer Poppers, 415-427-1729Press@gap.com
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