Market Overview

Gap Inc. Reports Fourth Quarter and Fiscal Year 2017 Results

Share:
  • Delivers Fifth Consecutive Quarter of Positive Comparable Sales
    Growth, with Positive Five Percent.
  • Delivers Fiscal Year 2017 Gross Margin Expansion of 200 Basis Points.
  • Distributed $676 Million in Fiscal Year 2017 to Shareholders Through
    Share Repurchases and Dividends.

Gap
Inc.
(NYSE:GPS) today reported fourth quarter and fiscal year 2017
results and provided guidance for fiscal year 2018.

"Our strong positive comp and margin expansion during the critical
holiday quarter affirms our balanced growth strategy," said Art Peck,
president and chief executive officer, Gap Inc. "Our outlook for 2018
demonstrates confidence in our strategy and a meaningful step up in
earnings capacity for the company."

"We are positioning the company for long term growth," said Teri
List-Stoll, executive vice president and chief financial officer, Gap
Inc. "In addition to leveraging productivity initiatives to fund
investments in the business, recent tax reform changes provide a
meaningful increase in future earnings."

On a reported basis, the company's diluted earnings per share were $0.52
for the fourth quarter of fiscal year 2017 and $2.14 for fiscal year
2017, which includes $34 million of provisional net tax impacts related
to tax reform as a result of the enactment of the U.S. Tax Cuts and Jobs
Act of 2017 ("TCJA").

Excluding the net provisional impacts related to tax reform and the
second quarter benefit from insurance proceeds related to the Fishkill
fire of $64 million, the company's adjusted diluted earnings per share
were $0.61 for the fourth quarter of fiscal year 2017 and $2.13 for
fiscal year 2017, inclusive of the 53rd week, compared with
fourth quarter and fiscal year 2016 adjusted diluted earnings per share
of $0.51 and $2.02, respectively.

The company noted that foreign currency fluctuations negatively impacted
adjusted earnings per share for fiscal year 2017 by an estimated $0.08,
or about 4 percentage points of earnings per share growth on an adjusted
basis.1 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.

Comparable Sales Results

The company's fourth quarter fiscal year 2017 comparable sales were up 5
percent compared with an increase of 2 percent last year. Comparable
sales by global brand for the fourth quarter of fiscal year 2017 were as
follows:

  • Old Navy Global: positive 9 percent versus positive 5 percent
    last year
  • Gap Global: flat versus flat last year
  • Banana Republic Global: positive 1 percent versus negative 3
    percent last year

For fiscal year 2017, the company's comparable sales were up 3 percent
compared with a decline of 2 percent last year. Comparable sales by
global brand for fiscal year 2017 were as follows:

  • Old Navy Global: positive 6 percent versus positive 1 percent
    last year
  • Gap Global: negative 1 percent versus negative 3 percent last
    year
  • Banana Republic Global: negative 2 percent versus negative 7
    percent last year

Net Sales Results

Fourth quarter fiscal year 2017 net sales increased 8 percent to $4.8
billion and fiscal year 2017 net sales were $15.9 billion. Fourth
quarter and fiscal year 2017 net sales details appear in the tables at
the end of this press release.

The company noted that fiscal year 2017 had 53 weeks versus 52 weeks in
fiscal year 2016. As a result, the company's results for the fourth
quarter of fiscal year 2017 and for the fiscal year 2017 include the
additional week, while comparable sales calculations exclude the 53rd
week.

Additional Fourth Quarter and Fiscal Year 2017 Results

Operating Margin: The company's operating margin for
fiscal year 2017 was 9.3 percent compared with 7.7 percent last year.

The company's adjusted operating margin for fiscal year 2017 was 8.9
percent compared with adjusted operating margin of 8.9 percent last
year. Please see the reconciliation of adjusted operating margin, a
non-GAAP financial measure, in the tables at the end of this press
release.

Operating Expenses: Fourth quarter fiscal year 2017
operating expenses were $1.36 billion compared with $1.20 billion last
year. Excluding $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 recorded in the
fourth quarter of fiscal year 2016, operating expenses were up about
$187 million, on an adjusted basis. Please see the reconciliation of
adjusted operating expenses, a non-GAAP financial measure, in the tables
at the end of this press release.

Total operating expenses for fiscal year 2017 were $4.6 billion.
Excluding the $64 million gain from insurance proceeds related to the
Fishkill fire recorded in the second quarter of fiscal year 2017 and
restructuring costs of $197 million recorded in fiscal year 2016 and
other fourth quarter fiscal 2016 items mentioned above, fiscal year 2017
operating expenses were up about $397 million when compared with last
year, on an adjusted basis. The company noted that adjusted operating
expenses were impacted by an increase in variable expenses as a result
of higher sales and the addition of the 53rd week. Please see
the reconciliation of adjusted operating expenses, a non-GAAP financial
measure, in the tables at the end of this press release.

Effective Tax Rate: The effective tax rate was 46.5
percent for the fourth quarter of fiscal year 2017. The fourth quarter
tax rate reflects $34 million of net provisional impacts related to the
enactment of the U.S. TCJA. This net provisional impact is primarily
related to the one-time transition tax on foreign earnings not
previously subject to U.S. tax, re-measurement of U.S. deferred taxes
partially offset by the reversal of deferred taxes provided on certain
foreign earnings and a one-time income tax benefit related to legal
entity structuring that was also impacted by TCJA. The company continues
to analyze TCJA and the provisional amounts will be finalized in fiscal
year 2018.

Excluding the net provisional impacts related to TCJA, the adjusted
effective tax rate for the fourth quarter of fiscal year 2017 was about
9 percentage points lower than the reported effective tax rate.

The effective tax rate for fiscal year 2017 was 40.4 percent. Excluding
the net provisional impacts related to TCJA, the adjusted fiscal year
2017 effective tax rate was about 2 percentage points lower.

Inventory: At the end of the fourth quarter of fiscal year
2017, total inventory was up 9 percent year-over-year.

The company noted the increase is primarily due to timing of receipts,
particularly with the 53rd week, and the negative impact of
foreign exchange.

Cash and Cash Equivalents: The company ended fiscal year
2017 with about $1.8 billion in cash and cash equivalents. For fiscal
year 2017, free cash flow, defined as net cash provided by operating
activities less purchases of property and equipment, net of insurance
proceeds related to loss of property and equipment, was $715 million,
reflecting the timing of lease payments and a larger increase in
inventory from the beginning to end of the fiscal year when compared to
the same period in fiscal year 2016. 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 2017, the company repurchased 0.5 million shares for $15 million
and ended the fourth quarter of fiscal year 2017 with 389 million shares
outstanding.

The company paid a dividend of $0.23 per share during the fourth quarter
of fiscal year 2017.

Capital Expenditures: Fiscal year 2017 capital
expenditures were $731 million including costs associated with the
rebuilding of the company's Fishkill, New York distribution center
campus and related supply chain spend, of $167 million. The company
noted the majority of these costs are expected to be covered by
insurance proceeds. Please see the reconciliation of adjusted capital
expenditures, a non-GAAP financial measure, from the GAAP financial
measure in the tables at the end of this press release.

Real Estate: The company ended fiscal year 2017 with 3,594
store locations in 45 countries, of which 3,165 were company-operated.

2018 Outlook

The company noted that fiscal year 2018 is a 52-week year versus the
53-week fiscal year 2017.

Earnings per Share: For fiscal year 2018, the company
expects diluted earnings per share to be in the range of $2.55 to $2.70
and comparable sales for fiscal year 2018 are expected to be flat to up
slightly.

This guidance includes the estimated positive impact of approximately
$0.07 due to foreign currency fluctuations at current exchange rates.

Effective Tax Rate: For fiscal year 2018, the company
expects the effective tax rate to be about 26 percent, based on the
company's provisional estimates of the impacts of TCJA.

Cash Distribution: Underscoring the company's continued
commitment to providing an attractive cost return, in a separate press
release today, the company announced that its Board of Directors
approved plans to increase the company's annual dividend per share by
over 5 percent to $0.97 for fiscal year 2018 and that its board of
directors authorized a first quarter fiscal year 2018 dividend of
$0.2425 per share.

Additionally, the company intends to continue its share repurchase
program, currently expecting to repurchase approximately $100 million
per quarter.

Capital Expenditures: With the additional flexibility
provided by TCJA, the company expects capital spending to be
approximately $800 million for fiscal year 2018, with a continued focus
on transformative infrastructure investments to support its omni-channel
and digital strategies, such as information technology and supply chain.

Real Estate: In fiscal year 2018, the company expects to
open about 25 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 and Banana Republic.

Webcast and Conference Call Information

Tina Romani, Director of Investor Relations at Gap Inc., will host a
summary of the company's fourth quarter fiscal year 2017 results during
a conference call and webcast from approximately 2:00 p.m. to 3:00 p.m.
Pacific Time today. Ms. Romani will be joined by Art Peck, Gap Inc.
president and 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: 7581315). International callers
may dial 1-323-794-2078. The webcast can be accessed at www.gapinc.com.

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: the impact of the Tax Cuts and Jobs Act of 2017, including
changes to the fiscal year 2017 provisional estimates; earnings per
share; foreign exchange impact in fiscal year 2018; comparable sales for
fiscal year 2018; effective tax rate for fiscal year 2018 and its
impact; dividend plan for fiscal year 2018; capital expenditures for
fiscal year 2018, including transformative infrastructure investments;
store openings, net of closures and repositions, in fiscal year 2018;
share repurchases in the first quarter and in fiscal year 2018; the
impact of the new FASB revenue recognition standards; earnings per share
growth; use of proceeds from lower tax rate and savings from
productivity actions; promotional pressure at Gap brand; the spread
between comparable sales and sales growth in fiscal year 2018; and the
impact on fiscal year 2018 of the 53rd week in fiscal 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 risks, any of which could have an adverse effect on the
Company's financial condition, results of operations, and reputation:
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 its financial information; the risk that
the company or its franchisees will be unsuccessful in gauging apparel
trends and changing consumer preferences; the highly competitive nature
of the company's business in the United States and internationally; the
risk of failure to maintain, enhance and protect the company's brand
image; the risk of failure to attract and retain key personnel, or
effectively manage succession; the risk that trade matters could
increase the cost or reduce the supply of apparel available to the
company; the risk of changes in the regulatory or administrative
landscape; the risk that the company's investments in omni-channel
shopping initiatives may not deliver the results the company
anticipates; the risk if the company is unable to manage its inventory
effectively; 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; the risk of foreign currency exchange
rate fluctuations; the risks to the company's business, including its
costs and supply chain, associated with global sourcing and
manufacturing; the risk of changes in global economic conditions or
consumer spending patterns; 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
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
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 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; the risk that updates or changes to the company's
information technology systems may disrupt its operations; the risk of
natural disasters, public health crises, political crises, or other
catastrophic events; the risk of reductions in income and cash flow from
our marketing and servicing arrangement related to our private label and
co-branded credit cards; the risk that the adoption of new accounting
pronouncements will impact future results; 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 February 3, 2018, as well as the company's subsequent
filings with the Securities and Exchange Commission.

These forward-looking statements are based on information as of March 1,
2018. 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 Old
Navy, Gap, Banana Republic and Athleta brands. Fiscal year 2017 net
sales were $15.9 billion. Gap Inc. products are available for purchase
in more than 90 countries worldwide through company-operated stores,
franchise stores, and e-commerce sites. For more information, please
visit www.gapinc.com.

1 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 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 business results excluding the direct
impact of foreign currency exchange rate fluctuations.

 
The Gap, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
 

 

  February 3,   January 28,

($ in millions)

2018 2017
ASSETS
Current assets:
Cash and cash equivalents $ 1,783 $ 1,783
Merchandise inventory 1,997 1,830
Other current assets   788   702
Total current assets 4,568 4,315
Property and equipment, net 2,805 2,616
Other long-term assets   616   679
Total assets $ 7,989 $ 7,610
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ - $ 65
Accounts payable 1,181 1,243
Accrued expenses and other current liabilities 1,270 1,113
Income taxes payable   10   32
Total current liabilities   2,461   2,453
Long-term liabilities:
Long-term debt 1,249 1,248
Lease incentives and other long-term liabilities   1,135   1,005
Total long-term liabilities   2,384   2,253
Total stockholders' equity   3,144   2,904
Total liabilities and stockholders' equity $ 7,989 $ 7,610
 
The Gap, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
 
  14 Weeks Ended   13 Weeks Ended   53 Weeks Ended   52 Weeks Ended
($ and shares in millions except per share amounts)

February 3,
2018

January 28,
2017

February 3,
2018

January 28,
2017

Net sales $ 4,778 $ 4,429 $ 15,855 $ 15,516
Cost of goods sold and occupancy expenses   3,019   2,928   9,789   9,876
Gross profit 1,759 1,501 6,066 5,640
Operating expenses   1,363   1,200   4,587   4,449
Operating income 396 301 1,479 1,191
Interest, net   13   16   55   67
Income before income taxes 383 285 1,424 1,124
Income taxes   178   65   576   448
Net income $ 205 $ 220 $ 848 $ 676
 
Weighted-average number of shares - basic 389 399 393 399
Weighted-average number of shares - diluted 393 401 396 400
 
Earnings per share - basic $ 0.53 $ 0.55 $ 2.16 $ 1.69
Earnings per share - diluted $ 0.52 $ 0.55 $ 2.14 $ 1.69
 
The Gap, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
 
  53 Weeks Ended   52 Weeks Ended
($ in millions)

February 3,
2018

January 28,
2017

Cash flows from operating activities:
Net income $ 848 $ 676
Depreciation and amortization (a) 499 531
Change in merchandise inventory (142 ) 46
Other, net   175     466  
Net cash provided by operating activities   1,380     1,719  
 
Cash flows from investing activities:
Purchases of property and equipment (731 ) (524 )
Insurance proceeds related to loss on property and equipment 66 -
Other   (3 )   (5 )
Net cash used for investing activities   (668 )   (529 )
 
Cash flows from financing activities:
Payments of short-term debt (67 ) (400 )
Payments of long-term debt - (21 )
Proceeds from issuances under share-based compensation plans 30 29
Withholding tax payments related to vesting of stock units (18 ) (19 )
Repurchases of common stock (315 ) -
Excess tax benefit from exercise of stock options and vesting of
stock units
- 1
Cash dividends paid   (361 )   (367 )
Net cash used for financing activities   (731 )   (777 )
 
Effect of foreign exchange rate fluctuations on cash and cash
equivalents
  19     -  
Net increase in cash and cash equivalents - 413
Cash and cash equivalents at beginning of period   1,783     1,370  
Cash and cash equivalents at end of period $ 1,783   $ 1,783  
 
(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,
net of insurance proceeds related to loss on property and equipment,
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.
 
 

53 Weeks
Ended

 

52 Weeks
Ended

($ in millions)

February 3,
2018

January 28,
2017

Net cash provided by operating activities $ 1,380 $ 1,719
Less: Purchases of property and equipment (731 ) (524 )
Add: Insurance proceeds related to loss on property and equipment (a)   66     -  
Free cash flow $ 715   $ 1,195  
 
(a) Represents insurance proceeds related to loss on property and
equipment primarily from the fire that occurred on the company-owned
distribution center campus in Fishkill, New York on August 29, 2016.
 
The Gap, Inc.
NON-GAAP FINANCIAL MEASURES
UNAUDITED
 
ADJUSTED INCOME STATEMENT METRICS
 
The following adjusted income statement metrics are non-GAAP
financial measures. These measures are provided to enhance
visibility into the company's underlying results for the period
excluding the impact of the gain from insurance proceeds in the
second quarter of fiscal year 2017 and the following charges for
fiscal year 2016: restructuring costs, goodwill impairment charge,
and gain from insurance proceeds. 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 adjustments, 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 Gross Profit Gross Margin

 

Operating
Expenses

Operating Expenses as
a % of Net Sales (d)

Operating
Income

Operating Income as a
% of Net Sales (d)

GAAP metrics, as reported $ 1,501 33.9 % $ 1,200 27.1 % $ 301 6.8 %
Adjustments for impact of fiscal year 2016 restructuring costs (a) (8 ) (0.2 )% (26 ) (0.6 )% 18 0.4 %
Adjustments for goodwill impairment charge (b) - - (71 ) (1.6 )% 71 1.6 %
Adjustments for gain from insurance proceeds (c)   -   -     73   1.6 %   (73 ) (1.6 )%
Non-GAAP metrics $ 1,493   33.7 % $ 1,176   26.6 % $ 317   7.2 %
 
 
($ in millions)
53 Weeks Ended February 3, 2018 Gross Profit Gross Margin

Operating
Expenses

Operating Expenses as
a % of Net Sales (d)

Operating
Income

Operating Income as a
% of Net Sales (d)

GAAP metrics, as reported $ 6,066 38.3 % $ 4,587 28.9 % $ 1,479 9.3 %
Adjustments for gain from insurance proceeds (c)   -   -     64   0.4 %   (64 ) (0.4 )%
Non-GAAP metrics $ 6,066   38.3 % $ 4,651   29.3 % $ 1,415   8.9 %
 
 
($ in millions)
52 Weeks Ended January 28, 2017 Gross Profit Gross Margin

Operating
Expenses

Operating Expenses as
a % of Net Sales (d)

Operating
Income

Operating Income as a
% of Net Sales (d)

GAAP metrics, as reported $ 5,640 36.3 % $ 4,449 28.7 % $ 1,191 7.7 %
Adjustments for impact of fiscal year 2016 restructuring costs (a) - - (197 ) (1.3 )% 197 1.3 %
Adjustments for goodwill impairment charge (b) - - (71 ) (0.5 )% 71 0.5 %
Adjustments for gain from insurance proceeds (c)   -   -     73   0.5 %   (73 ) (0.5 )%
Non-GAAP metrics $ 5,640   36.3 % $ 4,254   27.4 % $ 1,386   8.9 %
______________________________
(a) Represents the restructuring costs related to fiscal year 2016
store closures and streamlining the company's operations incurred in
fiscal year 2016 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
and impact on percentage of net sales.
 
(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 and impact on
percentage of net sales.
 
(d) Operating expenses and operating income as a percentage of net
sales were computed individually for each line item; therefore, the
sum of the percentages may not equal the total.
 
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 gain
from insurance proceeds in the second quarter of fiscal year 2017
and federal tax reform in the fourth quarter of fiscal year 2017 and
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. 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.
 
 

14 Weeks
Ended

 

13 Weeks
Ended

 

53 Weeks
Ended

 

52 Weeks
Ended

($ in millions)

February 3,
2018

January 28,
2017

February 3,
2018

January 28,
2017

Net income, as reported $ 205 $ 220 $ 848 $ 676
Add: Fiscal year 2016 restructuring costs (a) - 18 - 197
Less: Tax benefit related to restructuring costs (b) - (6 ) - (76 )
Add: Incremental tax expenses related to fiscal year 2016
restructuring costs (c)
- 2 - 41
Add: Goodwill impairment charge (d) - 71 - 71
Less: Gain from insurance proceeds (e) - (73 ) (64 ) (73 )
Add: Tax expense related to gain from insurance proceeds (f) - 28 24 28
Less: Tax impact of a legal structure realignment (g) - (57 ) - (57 )
Add: Net provisional tax impact of federal tax reform (h)   34   -     34     -  
Adjusted net income $ 239 $ 203   $ 842   $ 807  
______________________________
(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) The amount of tax benefit associated with the fiscal year 2016
restructuring costs is calculated using the adjusted effective tax
rate.
 
(c) Represents the incremental tax expenses related to fiscal year
2016 restructuring costs.
 
(d) Represents the goodwill impairment charge related to Intermix,
which is not deductible for tax purposes.
 
(e) 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.
 
(f) 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.
 
(g) Represents the favorable income tax impact of a legal structure
realignment.
 
(h) Represents the net provisional tax impact of federal tax reform
of $57 million, net of a related $23 million benefit related to
legal entity structuring that was also impacted by federal tax
reform.
 
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 federal tax reform in the fourth
quarter of fiscal year 2017 and the following charges for the fourth
quarter of fiscal year 2016: restructuring costs, goodwill
impairment charge, gain from insurance proceeds, and the tax impact
of a legal structure realignment. 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.
   

14 Weeks
Ended

13 Weeks
Ended

February 3,
2018

January 28,
2017

Earnings per share - diluted $ 0.52 $ 0.55
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: Net provisional tax impact of federal tax reform (f)   0.09     -  
Diluted earnings per share adjusted for certain costs 0.61 $ 0.51  
 
Add: Estimated impact from foreign exchange (g)   0.02  
Diluted earnings per share adjusted for certain costs and foreign
exchange
$ 0.63  
 
 
Earnings per share growth adjusted for certain items 20 %
Foreign exchange impact on adjusted earnings per share growth   4 %
Earnings per share growth adjusted for certain items and foreign
exchange
  24 %
_____________________________
(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 net provisional tax impact of federal tax reform.
 
(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 is provided to enhance
visibility into the company's expected underlying results for the
period excluding the impact of the gain from insurance proceeds in
the second quarter of fiscal year 2017 and federal tax reform in the
fourth quarter of fiscal year 2017, and 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. 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.
   

53 Weeks
Ended

52 Weeks
Ended

February 3,
2018

January 28,
2017

Earnings per share - diluted $ 2.14 $ 1.69
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) (0.10 ) (0.11 )
Less: Tax impact of a legal structure realignment (e) - (0.15 )
Add: Net provisional tax impact of federal tax reform (f)   0.09     -  
Diluted earnings per share adjusted for certain costs 2.13 $ 2.02  
 
Add: Estimated impact from foreign exchange (g)   0.08  
Diluted earnings per share adjusted for certain costs and foreign
exchange
$ 2.21  
 
 
Earnings per share growth adjusted for certain items 5 %
Foreign exchange impact on adjusted earnings per share growth   4 %
Earnings per share growth adjusted for certain items and foreign
exchange
  9 %
______________________________
(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 net provisional tax impact of federal tax reform.
(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 CAPITAL EXPENDITURES
 
Adjusted capital expenditures is a non-GAAP financial measure.
Adjusted capital expenditures for fiscal year 2017 excludes costs
associated with rebuilding our Fishkill distribution center and
related supply chain spend, the majority of which were covered by
insurance proceeds. However, this non-GAAP financial measure is not
intended to supersede or replace the GAAP measure.
 
($ in millions)

53 Weeks Ending
February 3, 2018

Capital expenditures $ 731
Costs associated with rebuilding our Fishkill distribution center   (167 )
Adjusted capital expenditures $ 564  
 
The Gap, Inc.
NET SALES RESULTS
UNAUDITED
 
The following table details the company's fourth quarter and fiscal
year 2017 net sales (unaudited):
 
($ in millions)  

 

14 Weeks Ended February 3, 2018

Gap Global

 

Old Navy
Global

 

Banana
Republic Global

 

Other (2)

 

Total

 

Percentage of
Net Sales

U.S. (1) $ 928 $ 1,961 $ 621 $ 283 3,793 80 %
Canada 121 160 69 1 351 7 %
Europe 191 - 4 - 195 4 %
Asia 337 16 27 - 380 8 %
Other regions   29   24   6   -   59 1 %
Total $ 1,606 $ 2,161 $ 727 $ 284 $ 4,778 100 %
 
($ in millions)

 

 

 

 

 

 

13 Weeks Ended January 28, 2017

Gap Global

Old Navy
Global

Banana
Republic Global

Other (2)

Total

Percentage of
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)

 

 

 

 

 

 

53 Weeks Ended February 3, 2018

Gap Global

Old Navy
Global

Banana
Republic Global

Other (2)

Total

Percentage of
Net Sales

U.S. (1) $ 3,065 $ 6,570 $ 2,017 $ 916 $ 12,568 80 %
Canada 398 547 225 3 1,173 7 %
Europe 626 - 15 - 641 4 %
Asia 1,117 50 96 - 1,263 8 %
Other regions   112   71   27   -   210 1 %
Total $ 5,318 $ 7,238 $ 2,380 $ 919 $ 15,855 100 %
 
($ in millions)

 

 

 

 

 

 

52 Weeks Ended January 28, 2017

Gap Global

Old Navy
Global

Banana
Republic Global

Other (2)

Total

Percentage of
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 %
 
(1) U.S. includes the United States, Puerto Rico, and Guam.
(2) Includes Athleta, Intermix, and, beginning in the fourth quarter
of fiscal 2016, Weddington Way.
 
The Gap, Inc.
REAL ESTATE
 
Store count, openings, closings, and square footage for our stores
are as follows:
 
  14 Weeks Ended February 3, 2018

Store Locations
Beginning of Q4

 

Store Locations
Opened

 

Store Locations
Closed

 

Store Locations
End of Q4

 

Square Feet
(millions)

Gap North America 835 2 27 810 8.4
Gap Asia 309 28 24 313 3.0
Gap Europe 157 1 3 155 1.3
Old Navy North America 1,057 12 3 1,066 17.7
Old Navy Asia 13 1 - 14 0.2
Banana Republic North America 596 1 21 576 4.9
Banana Republic Asia 48 - 3 45 0.2
Athleta North America 140 8 - 148 0.6
Intermix North America 38 - - 38 0.1
Company-operated stores total 3,193 53 81 3,165 36.4
Franchise 446 3 20 429 N/A
Total 3,639 56 101 3,594 36.4

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