See Accompanying Notes to Condensed Consolidated Financial Statements
1
THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
13 Weeks Ended
39 Weeks Ended
($ and shares in millions except per share amounts)
November 2, 2024
October 28, 2023
November 2, 2024
October 28, 2023
Net sales
$
3,829
$
3,767
$
10,937
$
10,591
Cost of goods sold and occupancy expenses
2,194
2,211
6,322
6,488
Gross profit
1,635
1,556
4,615
4,103
Operating expenses
1,280
1,306
3,762
3,757
Operating income
355
250
853
346
Interest expense
23
28
68
66
Interest income
(29)
(28)
(80)
(58)
Income before income taxes
361
250
865
338
Income tax expense
87
32
227
21
Net income
$
274
$
218
$
638
$
317
Weighted-average number of shares - basic
377
371
376
369
Weighted-average number of shares - diluted
383
375
383
373
Earnings per share - basic
$
0.73
$
0.59
$
1.70
$
0.86
Earnings per share - diluted
$
0.72
$
0.58
$
1.67
$
0.85
See Accompanying Notes to Condensed Consolidated Financial Statements
2
THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
13 Weeks Ended
39 Weeks Ended
($ in millions)
November 2, 2024
October 28, 2023
November 2, 2024
October 28, 2023
Net income
$
274
$
218
$
638
$
317
Other comprehensive income (loss), net of tax
Foreign currency translation and other
(3)
5
—
1
Change in fair value of derivative financial instruments, net of tax expense of $1, $1, $6, $3
5
16
11
22
Reclassification adjustment for gains on derivative financial instruments, net of (tax expense) tax benefit of $(1), $1, $(6), $—
(3)
(7)
(4)
(13)
Other comprehensive income (loss), net of tax
(1)
14
7
10
Comprehensive income
$
273
$
232
$
645
$
327
See Accompanying Notes to Condensed Consolidated Financial Statements
3
THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
Common Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income
($ and shares in millions except per share amounts)
Shares
Amount
Total
Balance as of August 3, 2024
376
$
19
$
159
$
2,672
$
51
$
2,901
Net income for the 13 weeks ended November 2, 2024
274
274
Other comprehensive loss, net of tax
(1)
(1)
Issuance of common stock related to stock options and employee stock purchase plans
1
—
6
6
Issuance of common stock and withholding tax payments related to vesting of stock units
—
—
(15)
(15)
Share-based compensation, net of forfeitures
27
27
Common stock dividends declared and paid ($0.15 per share)
(57)
(57)
Balance as of November 2, 2024
377
$
19
$
177
$
2,889
$
50
$
3,135
Balance as of July 29, 2023
369
$
18
$
73
$
2,128
$
44
$
2,263
Net income for the 13 weeks ended October 28, 2023
218
218
Other comprehensive income, net of tax
14
14
Issuance of common stock related to stock options and employee stock purchase plans
1
—
5
5
Issuance of common stock and withholding tax payments related to vesting of stock units
1
—
(5)
(5)
Share-based compensation, net of forfeitures
20
20
Common stock dividends declared and paid ($0.15 per share)
(55)
(55)
Balance as of October 28, 2023
371
$
18
$
93
$
2,291
$
58
$
2,460
See Accompanying Notes to Condensed Consolidated Financial Statements
4
THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
Common Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income
($ and shares in millions except per share amounts)
Shares
Amount
Total
Balance as of February 3, 2024
372
$
19
$
113
$
2,420
$
43
$
2,595
Net income for the 39 weeks ended November 2, 2024
638
638
Other comprehensive income, net of tax
7
7
Issuance of common stock related to stock options and employee stock purchase plans
2
—
27
27
Issuance of common stock and withholding tax payments related to vesting of stock units
3
—
(48)
(48)
Share-based compensation, net of forfeitures
85
85
Common stock dividends declared and paid ($0.45 per share)
(169)
(169)
Balance as of November 2, 2024
377
$
19
$
177
$
2,889
$
50
$
3,135
Balance as of January 28, 2023
366
$
18
$
27
$
2,140
$
48
$
2,233
Net income for the 39 weeks ended October 28, 2023
317
317
Other comprehensive income, net of tax
10
10
Issuance of common stock related to stock options and employee stock purchase plans
2
—
18
18
Issuance of common stock and withholding tax payments related to vesting of stock units
3
—
(16)
(16)
Share-based compensation, net of forfeitures
64
64
Common stock dividends declared and paid ($0.45 per share)
(166)
(166)
Balance as of October 28, 2023
371
$
18
$
93
$
2,291
$
58
$
2,460
See Accompanying Notes to Condensed Consolidated Financial Statements
5
THE GAP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
39 Weeks Ended
($ in millions)
November 2, 2024
October 28, 2023
Cash flows from operating activities:
Net income
$
638
$
317
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
371
394
Share-based compensation
85
64
Non-cash and other items
(4)
41
Gain on sale of building
—
(47)
Deferred income taxes
17
(27)
Changes in operating assets and liabilities:
Merchandise inventory
(344)
(5)
Other current assets and other long-term assets
(35)
81
Accounts payable
156
133
Accrued expenses and other current liabilities
29
(11)
Income taxes payable, net of receivables and other tax-related items
50
50
Other long-term liabilities
(18)
(11)
Operating lease assets and liabilities, net
(75)
(147)
Net cash provided by operating activities
870
832
Cash flows from investing activities:
Purchases of property and equipment
(330)
(288)
Net proceeds from sale of building
—
76
Purchases of short-term investments
(343)
—
Proceeds from sales and maturities of short-term investments
97
—
Net proceeds from divestiture activity, net of cash paid
—
9
Net cash used for investing activities
(576)
(203)
Cash flows from financing activities:
Repayments of revolving credit facility
—
(350)
Proceeds from issuances under share-based compensation plans
27
18
Withholding tax payments related to vesting of stock units
(48)
(16)
Cash dividends paid
(169)
(166)
Other
(3)
(2)
Net cash used for financing activities
(193)
(516)
Effect of foreign exchange rate fluctuations on cash, cash equivalents, and restricted cash
(4)
(7)
Net increase in cash, cash equivalents, and restricted cash
97
106
Cash, cash equivalents, and restricted cash at beginning of period
1,901
1,273
Cash, cash equivalents, and restricted cash at end of period
$
1,998
$
1,379
Supplemental disclosure of cash flow information:
Cash paid for interest during the period
$
61
$
72
Cash paid for income taxes during the period, net of refunds
$
173
$
(1)
See Accompanying Notes to Condensed Consolidated Financial Statements
6
THE GAP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Accounting Policies
Basis of Presentation
In the opinion of The Gap, Inc. (the “Company,” “we,” and “our”) management, the accompanying unaudited Condensed Consolidated Financial Statements contain all normal and recurring adjustments (except as otherwise disclosed) considered necessary to present fairly our financial position, results of operations, comprehensive income, stockholders' equity, and cash flows as of November 2, 2024 and October 28, 2023 and for all periods presented. The Condensed Consolidated Balance Sheet as of February 3, 2024 has been derived from our audited financial statements.
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted from these interim financial statements, although the Company believes that the disclosures made are adequate to make the information not misleading. We suggest that you read these Condensed Consolidated Financial Statements in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Additionally, these estimates and assumptions may change as a result of the impact of global economic conditions such as the uncertainty regarding global inflationary pressures, acts of terrorism or war, global credit and banking markets, and the geopolitical landscape including new legislation and the potential impacts of recent elections. We will continue to consider the impact of the global economic conditions on the assumptions and estimates used when preparing these Condensed Consolidated Financial Statements including inventory valuation, income taxes and valuation allowances, sales return and bad debt allowances, deferred revenue, and the impairment of long-lived assets. If the global economic conditions change beyond what is currently estimated by management, such future changes may have an adverse impact on the Company's results of operations and financial position.
Restricted Cash
As of November 2, 2024, February 3, 2024, and October 28, 2023, restricted cash primarily included consideration that serves as collateral for our insurance obligations and certain other obligations occurring in the normal course of business. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within our Condensed Consolidated Balance Sheets to the total shown on our Condensed Consolidated Statements of Cash Flows:
($ in millions)
November 2, 2024
February 3, 2024
October 28, 2023
Cash and cash equivalents, per Condensed Consolidated Balance Sheets
$
1,969
$
1,873
$
1,351
Restricted cash included in other long-term assets
29
28
28
Total cash, cash equivalents, and restricted cash, per Condensed Consolidated Statements of Cash Flows
$
1,998
$
1,901
$
1,379
Accounting Pronouncements
Except as noted below, the Company has considered all recent accounting pronouncements and concluded that there are no recent accounting pronouncements that may have a material impact on our Condensed Consolidated Financial Statements and disclosures, based on current information.
Accounting Pronouncement Recently Adopted
ASU No. 2022-04, Disclosure of Supplier Finance Program Obligations
In September 2022, the Financial Accounting Standards Board ("FASB") issued accounting standards update ("ASU") No. 2022-04, Disclosure of Supplier Finance Program Obligations. The ASU is intended to enhance the transparency of the use of supplier finance programs by requiring additional disclosures about the program’s nature and potential magnitude, including a rollforward of the obligations and activity during the period. The ASU is effective retrospectively for fiscal years and interim periods within those years beginning after December 15, 2022, except for the amendment on rollforward information, which is effective prospectively for fiscal years beginning after December 15, 2023. The ASU does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations. We adopted the required guidance on January 29, 2023. See Note 12 of Notes to Condensed Consolidated Financial Statements for information regarding our supply chain finance program.
Accounting Pronouncements Not Yet Adopted
ASU No. 2023-07, Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures. The ASU is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The ASU is effective retrospectively for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. We are currently assessing the impact that this ASU will have on the Company's disclosures.
ASU No. 2023-09, Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures. The ASU is intended to improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation, as well as income taxes paid disaggregated by jurisdiction. The ASU is effective for annual periods beginning after December 15, 2024 and should be applied on a prospective basis, but retrospective application is permitted. We are currently assessing the impact that this ASU will have on the Company's disclosures.
ASU No. 2024-03, Disaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses. The ASU is intended to improve financial reporting by requiring disaggregated disclosure of certain costs and expenses. The ASU is effective for fiscal years beginning after December 15, 2026 and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The ASU may be applied on either a prospective or retrospective basis. We are currently assessing the impact that this ASU will have on the Company's disclosures.
Note 2. Revenue
We disaggregate our net sales by channel and also by brand and region. Net sales by region are allocated based on the location of the store where the customer paid for and received the merchandise; the distribution center or store from which the products were shipped; or the region of the franchise or licensing partner.
Net sales disaggregated by channel are as follows:
13 Weeks Ended
39 Weeks Ended
($ in millions)
November 2, 2024
October 28, 2023
November 2, 2024
October 28, 2023
Store and franchise sales
$
2,289
$
2,331
$
6,871
$
6,771
Online sales (1)
1,540
1,436
4,066
3,820
Total net sales
$
3,829
$
3,767
$
10,937
$
10,591
__________
(1)Online sales primarily include sales originating from our online channel including those that are picked up or shipped from stores and net sales from revenue-generating strategic initiatives.
7
Net sales disaggregated by brand and region are as follows:
($ in millions)
Old Navy Global
Gap Global
Banana Republic Global
Athleta Global
Other (2)
Total
13 Weeks Ended November 2, 2024
U.S. (1)
$
1,949
$
683
$
406
$
281
$
21
$
3,340
Canada
190
95
43
9
—
337
Other regions
11
121
20
—
—
152
Total
$
2,150
$
899
$
469
$
290
$
21
$
3,829
($ in millions)
Old Navy Global
Gap Global
Banana Republic Global
Athleta Global
Other (2)
Total
13 Weeks Ended October 28, 2023
U.S. (1)
$
1,917
$
664
$
398
$
267
$
15
$
3,261
Canada
193
96
42
10
—
341
Other regions
16
127
20
2
—
165
Total
$
2,126
$
887
$
460
$
279
$
15
$
3,767
($ in millions)
Old Navy Global
Gap Global
Banana Republic Global
Athleta Global
Other (2)
Total
39 Weeks Ended November 2, 2024
U.S. (1)
$
5,663
$
1,775
$
1,203
$
926
$
49
$
9,616
Canada
495
238
122
29
—
884
Other regions
31
341
63
2
—
437
Total
$
6,189
$
2,354
$
1,388
$
957
$
49
$
10,937
($ in millions)
Old Navy Global
Gap Global
Banana Republic Global
Athleta Global
Other (2)
Total
39 Weeks Ended October 28, 2023
U.S. (1)
$
5,353
$
1,702
$
1,187
$
903
$
29
$
9,174
Canada
503
233
122
33
—
891
Other regions
59
399
63
5
—
526
Total
$
5,915
$
2,334
$
1,372
$
941
$
29
$
10,591
__________
(1)U.S. includes the United States and Puerto Rico.
(2)Primarily consists of net sales from revenue-generating strategic initiatives.
We defer revenue when cash payments are received in advance of performance for unsatisfied obligations related to our gift cards, licensing agreements, outstanding loyalty points, and reimbursements of loyalty program discounts associated with our credit card agreement. For the 13 weeks ended November 2, 2024, the opening balance of deferred revenue for these obligations was $280 million, of which $95 million was recognized as revenue during the period. For the 39 weeks ended November 2, 2024, the opening balance of deferred revenue for these obligations was $337 million, of which $209 million was recognized as revenue during the period. The closing balance of deferred revenue for these obligations was $260 million as of November 2, 2024.
For the 13 weeks ended October 28, 2023, the opening balance of deferred revenue for these obligations was $327 million, of which $119 million was recognized as revenue during the period. For the 39 weeks ended October 28, 2023, the opening balance of deferred revenue for these obligations was $354 million, of which $227 million was recognized as revenue during the period. The closing balance of deferred revenue for these obligations was $315 million as of October 28, 2023.
In April 2021, the Company entered into agreements with Barclays and Mastercard relating to a long-term credit card program. The Company received an upfront payment of $60 million related to the agreements prior to the program launch in May 2022, which is being recognized as revenue over the term of the agreements. We also receive revenue sharing from our credit card agreement for private label and co-branded credit cards.
8
Note 3. Income Taxes
The effective income tax rate was 24.1 percent for the 13 weeks ended November 2, 2024, compared with 12.8 percent for the 13 weeks ended October 28, 2023. The increase is primarily due to changes in valuation allowances in the prior year.
The effective income tax rate was 26.2 percent for the 39 weeks ended November 2, 2024, compared with 6.2 percent for the 39 weeks ended October 28, 2023. The increase is primarily due to tax benefits recognized in the prior year from a U.S. transfer pricing settlement related to our sourcing activities, changes in valuation allowances in the prior year, current year increases to certain income tax reserves, and changes in the amount and mix of jurisdictional earnings, partially offset by a favorable impact from stock-based compensation.
Note 4. Debt and Credit Facilities
Long-term debt recorded on the Condensed Consolidated Balance Sheets consists of the following:
($ in millions)
November 2, 2024
February 3, 2024
October 28, 2023
2029 Notes
$
750
$
750
$
750
2031 Notes
750
750
750
Less: Unamortized debt issuance costs
(11)
(12)
(12)
Total long-term debt
$
1,489
$
1,488
$
1,488
The scheduled maturity of the Senior Notes is as follows:
Scheduled Maturity ($ in millions)
Principal
Interest Rate
Interest Payments
October 1, 2029 (1)
$
750
3.625
%
Semi-Annual
October 1, 2031 (2)
750
3.875
%
Semi-Annual
Total issuance
$
1,500
__________
(1)On or after October 1, 2024, includes an option to redeem the 2029 Notes, in whole or in part at any time, at stated redemption prices.
(2)Includes an option to redeem the 2031 Notes, in whole or in part at any time, subject to a make-whole premium, prior to October 1, 2026. On or after October 1, 2026, includes an option to redeem the 2031 Notes, in whole or in part at any time, at stated redemption prices.
We have $1.5 billion aggregate principal amount of 3.625 percent senior notes due 2029 (“2029 Notes”) and 3.875 percent senior notes due 2031 (“2031 Notes”) (the 2029 Notes and the 2031 Notes, collectively, the “Senior Notes”). As of November 2, 2024, the aggregate estimated fair value of the Senior Notes was $1.31 billion and was based on the quoted market prices for each of the Senior Notes (level 1 inputs) as of the last business day of the fiscal quarter. The aggregate principal amount of the Senior Notes is recorded in long-term debt on the Condensed Consolidated Balance Sheets, net of the unamortized debt issuance costs.
We also have a senior secured asset-based revolving credit agreement (the "ABL Facility"), which has a $2.2 billion borrowing capacity and generally bears interest at a per annum rate based on Secured Overnight Financing Rate ("SOFR") (subject to a zero floor) plus a margin, depending on borrowing base availability. The ABL Facility is scheduled to expire in July 2027. The ABL Facility is available for working capital, capital expenditures, and other general corporate purposes.
There were no borrowings under the ABL Facility as of November 2, 2024, February 3, 2024, or October 28, 2023.
We also have the ability to issue letters of credit on our ABL Facility. As of November 2, 2024, we had $47 million in standby letters of credit issued under the ABL Facility.
Note 5. Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis. The Company categorizes financial assets and liabilities recorded at fair value based upon a three-level hierarchy that considers the related valuation techniques.
There were no material purchases, sales, issuances, or settlements related to recurring level 3 measurements for the 13 and 39 weeks ended November 2, 2024 or October 28, 2023.
9
Financial assets and liabilities measured at fair value on a recurring basis and cash equivalents are as follows:
Fair Value Measurements at Reporting Date Using
($ in millions)
November 2, 2024
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents
$
8
$
1
$
7
$
—
Short-term investments
250
130
120
—
Derivative financial instruments
19
—
19
—
Deferred compensation plan assets
38
38
—
—
Other assets
4
—
—
4
Total
$
319
$
169
$
146
$
4
Liabilities:
Derivative financial instruments
$
1
$
—
$
1
$
—
Fair Value Measurements at Reporting Date Using
($ in millions)
February 3, 2024
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents
$
1
$
—
$
1
$
—
Derivative financial instruments
7
—
7
—
Deferred compensation plan assets
31
31
—
—
Other assets
4
—
—
4
Total
$
43
$
31
$
8
$
4
Liabilities:
Derivative financial instruments
$
8
$
—
$
8
$
—
Fair Value Measurements at Reporting Date Using
($ in millions)
October 28, 2023
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents
$
1
$
—
$
1
$
—
Derivative financial instruments
34
—
34
—
Deferred compensation plan assets
31
31
—
—
Other assets
4
—
—
4
Total
$
70
$
31
$
35
$
4
Liabilities:
Derivative financial instruments
$
—
$
—
$
—
$
—
We have highly liquid fixed and variable income investments classified as cash equivalents and short-term investments. All highly liquid investments with original maturities of three months or less at the time of purchase are classified as cash and cash equivalents on the Condensed Consolidated Balance Sheets. Our cash equivalents are placed primarily in debt securities which are recorded at fair value using market prices for identical or similar assets and time deposits which are recorded at amortized cost. We also have highly liquid investments with original maturities of greater than three months and less than two years that are classified as short-term investments on the Condensed Consolidated Balance Sheet. These debt securities are also recorded at fair value using market prices for identical or similar assets.
There were no material realized or unrealized gains or losses or impairment charges related to short-term investments during the 13 and 39 weeks ended November 2, 2024.
Derivative financial instruments primarily include foreign exchange forward contracts. See Note 6 of Notes to Condensed Consolidated Financial Statements for information regarding currencies hedged against the U.S. dollar.
10
We maintain the Gap, Inc. Deferred Compensation Plan (“DCP”), which allows eligible employees to defer base compensation and bonus up to a maximum percentage, and non-employee directors to defer receipt of a portion of their Board fees. Plan investments are directed by participants and are recorded at market value and designated for the DCP. The fair value of the Company’s DCP assets is determined based on quoted market prices, and the assets are recorded in other long-term assets on the Condensed Consolidated Balance Sheets.
Nonfinancial Assets
We review the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The fair value of the long-lived assets is determined using level 3 inputs and based on discounted future cash flows of the asset or asset group using a discount rate commensurate with the risk. The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for our retail stores is at the store level.
There were no material impairment charges recorded for long-lived assets during the 13 and 39 weeks ended November 2, 2024 or October 28, 2023.
We review the carrying amount of goodwill and other indefinite-lived intangible assets for impairment annually and whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount may not be recoverable.
There were no impairment charges recorded for goodwill or other indefinite-lived intangible assets for the 13 and 39 weeks ended November 2, 2024 or October 28, 2023.
Note 6. Derivative Financial Instruments
We operate in foreign countries, which exposes us to market risk associated with foreign currency exchange rate fluctuations. We use derivative financial instruments to manage our exposure to foreign currency exchange rate risk and do not enter into derivative financial contracts for trading purposes. Consistent with our risk management guidelines, we hedge a portion of our transactions related to merchandise purchases for foreign operations and certain intercompany transactions using foreign exchange forward contracts. These contracts are entered into with large, reputable financial institutions that are monitored for counterparty risk. The currencies hedged against changes in the U.S. dollar are the Canadian dollar, Japanese yen, British pound, New Taiwan dollar, and Euro. Cash flows from derivative financial instruments are classified as cash flows from operating activities on the Condensed Consolidated Statements of Cash Flows.
Derivative financial instruments are recorded at fair value on the Condensed Consolidated Balance Sheets as other current assets, other long-term assets, accrued expenses and other current liabilities, or other long-term liabilities.
Cash Flow Hedges
We designate foreign exchange forward contracts used to hedge forecasted merchandise purchases and related costs denominated in U.S. dollars made by our international subsidiaries whose functional currencies are their local currencies as cash flow hedges. The foreign exchange forward contracts entered into to hedge forecasted merchandise purchases and related costs generally have terms of up to 24 months. The effective portion of the gain or loss on the derivative financial instruments is reported as a component of other comprehensive income (loss) and is recognized into net income during the period in which the underlying transaction impacts the Condensed Consolidated Statements of Operations.
Other Derivatives Not Designated as Hedging Instruments
We use foreign exchange forward contracts to hedge our market risk exposure associated with foreign currency exchange rate fluctuations for certain intercompany balances denominated in currencies other than the functional currency of the entity with the intercompany balance. The gain or loss on the derivative financial instruments that represent economic hedges, as well as the remeasurement impact of the underlying intercompany balances, is recorded in operating expenses on the Condensed Consolidated Statements of Operations in the same period and generally offset each other.
11
Outstanding Notional Amounts
We had foreign exchange forward contracts outstanding in the following notional amounts:
($ in millions)
November 2, 2024
February 3, 2024
October 28, 2023
Derivatives designated as cash flow hedges
$
458
$
381
$
357
Derivatives not designated as hedging instruments
427
568
526
Total
$
885
$
949
$
883
Quantitative Disclosures about Derivative Financial Instruments
The fair values of foreign exchange forward contracts are as follows:
($ in millions)
November 2, 2024
February 3, 2024
October 28, 2023
Derivatives designated as cash flow hedges:
Other current assets
$
10
$
6
$
13
Other long-term assets
1
—
2
Accrued expenses and other current liabilities
—
2
—
Derivatives not designated as hedging instruments:
Other current assets
8
1
19
Accrued expenses and other current liabilities
1
6
—
Total derivatives in an asset position
$
19
$
7
$
34
Total derivatives in a liability position
$
1
$
8
$
—
The majority of the unrealized gains and losses from designated cash flow hedges as of November 2, 2024 will be recognized in income within the next 12 months at the then-current values, which may differ from the fair values as of November 2, 2024 shown above.
Our foreign exchange forward contracts are subject to master netting arrangements with each of our counterparties and such arrangements are enforceable in the event of default or early termination of the contract. We do not elect to offset the fair values of our derivative financial instruments on the Condensed Consolidated Balance Sheets, and as such, the fair values shown above represent gross amounts. The amounts subject to enforceable master netting arrangements were not material for all periods presented.
See Note 5 of Notes to Condensed Consolidated Financial Statements for disclosures on the fair value measurements of our derivative financial instruments.
The pre-tax amounts recognized in net income related to derivative instruments are as follows:
Location and Amount of Gain Recognized in Net Income
13 Weeks Ended November 2, 2024
13 Weeks Ended October 28, 2023
($ in millions)
Cost of goods sold and occupancy expenses
Operating expenses
Cost of goods sold and occupancy expenses
Operating expenses
Total amount of expense line items presented in the Condensed Consolidated Statements of Operations in which the effects of derivatives are recorded
$
2,194
$
1,280
$
2,211
$
1,306
Gain recognized in net income
Derivatives designated as cash flow hedges
(4)
—
(6)
—
Derivatives not designated as hedging instruments
—
(4)
—
(27)
Total gain recognized in net income
$
(4)
$
(4)
$
(6)
$
(27)
12
Location and Amount of Gain Recognized in Net Income
39 Weeks Ended November 2, 2024
39 Weeks Ended October 28, 2023
($ in millions)
Cost of goods sold and occupancy expense
Operating expenses
Cost of goods sold and occupancy expense
Operating expenses
Total amount of expense line items presented in the Condensed Consolidated Statements of Operations in which the effects of derivatives are recorded
$
6,322
$
3,762
$
6,488
$
3,757
Gain recognized in net income
Derivatives designated as cash flow hedges
(10)
—
(13)
—
Derivatives not designated as hedging instruments
—
(17)
—
(25)
Total gain recognized in net income
$
(10)
$
(17)
$
(13)
$
(25)
Note 7. Share Repurchases
In February 2019, the Company's Board of Directors (the "Board") approved a $1.0 billion share repurchase authorization (the "February 2019 repurchase program"). There were no shares repurchased, excluding shares withheld to settle employee tax withholding payments related to the vesting of stock units, during the 13 and 39 weeks ended November 2, 2024 and October 28, 2023. The February 2019 repurchase program had $476 million remaining as of November 2, 2024. All common stock repurchased is immediately retired.
Note 8. Earnings Per Share
Weighted-average number of shares used for earnings per share is as follows:
13 Weeks Ended
39 Weeks Ended
(shares in millions)
November 2, 2024
October 28, 2023
November 2, 2024
October 28, 2023
Weighted-average number of shares - basic
377
371
376
369
Common stock equivalents
6
4
7
4
Weighted-average number of shares - diluted
383
375
383
373
The anti-dilutive shares related to stock options and other stock awards excluded from the computation of weighted-average number of shares – diluted were 2 million and 5 million for the 13 weeks ended November 2, 2024 and October 28, 2023, respectively, and 3 million and 6 million for the 39 weeks ended November 2, 2024 and October 28, 2023, respectively, as their inclusion would have an anti-dilutive effect on earnings per share.
13
Note 9. Commitments and Contingencies
We are a party to a variety of contractual agreements under which we may be obligated to indemnify the other party for certain matters. These contracts primarily relate to our commercial contracts, operating leases, trademarks, intellectual property, financial agreements, and various other agreements. Under these contracts, we may provide certain routine indemnifications relating to representations and warranties (e.g., ownership of assets, environmental or tax indemnifications), or personal injury matters. The terms of these indemnifications range in duration and may not be explicitly defined. Generally, the maximum obligation under such indemnifications is not explicitly stated, and as a result, the overall amount of these obligations cannot be reasonably estimated. Historically, we have not made significant payments for these indemnifications. We believe that if we were to incur a loss in any of these matters, the loss would not have a material effect on our Condensed Consolidated Financial Statements taken as a whole.
As a multinational company, we are subject to various proceedings, lawsuits, disputes, and claims ("Actions") arising in the ordinary course of our business. Many of these Actions raise complex factual and legal issues and are subject to uncertainties. As of November 2, 2024, Actions filed against us included commercial, intellectual property, customer, employment, securities, and data privacy claims, including class action lawsuits. The plaintiffs in some Actions seek unspecified damages or injunctive relief, or both. Actions are in various procedural stages and some are covered in part by insurance. As of November 2, 2024, February 3, 2024, and October 28, 2023, we recorded a liability for an estimated loss if the outcome of an Action is expected to result in a loss that is considered probable and reasonably estimable. The liability recorded was not material for any individual Action or in total for all periods presented. Subsequent to November 2, 2024, and through the filing date of this Quarterly Report on Form 10-Q, no information has become available that indicates a change is required that would be material to our Condensed Consolidated Financial Statements taken as a whole.
We cannot predict with assurance the outcome of Actions brought against us. However, we do not believe that the outcome of any current Action would have a material effect on our Condensed Consolidated Financial Statements taken as a whole.
Note 10. Segment Information
We identify our operating segments according to how our business activities are managed and evaluated. As of November 2, 2024, our operating segments included: Old Navy Global, Gap Global, Banana Republic Global, and Athleta Global. Each of our brands serves customer demand through our store and franchise channel and our online channel, leveraging our omni-channel capabilities that allow customers to shop seamlessly across all of our brands. We have determined that each of our operating segments share similar economic and other qualitative characteristics, and therefore the results of our operating segments are aggregated into one reportable segment as of November 2, 2024. We continually monitor and review our segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact our reportable segments.
See Note 2 of Notes to Condensed Consolidated Financial Statements for disaggregation of revenue by channel and by brand and region.
Note 11. Divestitures
On November 7, 2022, we signed agreements to transition our Gap China and Gap Taiwan ("Gap Greater China") operations to a third party, Baozun Inc. ("Baozun"), to operate Gap Greater China stores and the in-market website as a franchise partner, subject to regulatory approvals and closing conditions. On January 31, 2023, the Gap China transaction closed with Baozun. The impact upon divestiture was not material to our results of operations for the 39 weeks ended October 28, 2023. The Gap Taiwan operations will continue to operate as usual until regulatory approvals and closing conditions are met.
Note 12. Supply Chain Finance Program
Our voluntary supply chain finance ("SCF") program provides certain suppliers with the opportunity to sell their receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. We are not a party to the agreements between our suppliers and the financial institutions and our payment terms are not impacted by whether a supplier participates in the SCF program.
The Company's outstanding obligations under the SCF program were $350 million, $373 million, and $344 million as of November 2, 2024, February 3, 2024, and October 28, 2023, respectively, and were included in accounts payable on the Condensed Consolidated Balance Sheets.
14
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
OUR BUSINESS
We are a collection of lifestyle brands offering apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. We have Company-operated stores in the United States, Canada, Japan, and Taiwan. Our products are available to customers online through Company-owned websites and through third-party arrangements. We also have franchise agreements to operate Old Navy, Gap, Banana Republic, and Athleta throughout Asia, Europe, Latin America, the Middle East, and Africa. Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names. In addition to operating in the specialty, outlet, online, and franchise channels, we use our omni-channel capabilities to bridge the digital world and physical stores to further enhance our shopping experience for our customers. Our omni-channel services, including buy online pick-up in store, order-in-store, find-in-store, and ship-from-store, as well as enhanced mobile-enabled experiences, are tailored uniquely across our collection of brands. Most of the products sold under our brand names are designed by us and manufactured by independent sources.
OVERVIEW
Financial results for the third quarter of fiscal 2024 are as follows:
•Net sales for the third quarter of fiscal 2024 increased 2 percent compared with the third quarter of fiscal 2023.
•Store and franchise sales for the third quarter of fiscal 2024 decreased 2 percent compared with the third quarter of fiscal 2023 and online sales for the third quarter of fiscal 2024 increased 7 percent compared with the third quarter of fiscal 2023.
•Gross profit for the third quarter of fiscal 2024 was $1.64 billion compared with $1.56 billion for the third quarter of fiscal 2023. Gross margin for the third quarter of fiscal 2024 was 42.7 percent compared with 41.3 percent for the third quarter of fiscal 2023.
•Operating income for the third quarter of fiscal 2024 was $355 million compared with $250 million for the third quarter of fiscal 2023.
•The effective income tax rate for the third quarter of fiscal 2024 was 24.1 percent compared with 12.8 percent for the third quarter of fiscal 2023.
•Net income for the third quarter of fiscal 2024 was $274 million compared with $218 million for the third quarter of fiscal 2023.
•Diluted earnings per share was $0.72 for the third quarter of fiscal 2024 compared with $0.58 for the third quarter of fiscal 2023.
•Merchandise inventory as of the third quarter of fiscal 2024 decreased 2 percent compared with the third quarter of fiscal 2023.
We are focused on the following strategic priorities in the near term:
•maintaining and building upon financial and operational rigor, through an optimized cost structure and disciplined inventory management;
•reinvigorating our brands to drive relevance and an engaging omni-channel experience;
•strengthening and evolving our operating platform with a digital-first mindset to drive scale and efficiency;
•energizing our culture by attracting and retaining strong talent; and
•continuing to integrate social and environmental sustainability into business practices to support long-term growth.
15
RESULTS OF OPERATIONS
Net Sales
See Note 2 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for net sales disaggregation.
Comparable Sales ("Comp Sales")
Fiscal 2024 consists of 52 weeks versus 53 weeks in fiscal 2023. Due to the 53rd week in fiscal 2023, in order to maintain consistency, Comp Sales for the third quarter of fiscal 2024 and the first three quarters of fiscal 2024 are compared to the 13 and 39 weeks ended November 4, 2023.
Comp Sales include the results of Company-operated stores and sales through our online channel. The calculation of Comp Sales excludes the results of the franchise and licensing business.
A store is included in the Comp Sales calculations when it has been open and operated by the Company for at least one year and the selling square footage has not changed by 15 percent or more within the past year. A store is included in the Comp Sales calculations on the first day it has comparable prior year sales. Stores in which the selling square footage has changed by 15 percent or more as a result of a remodel, expansion, or reduction are excluded from the Comp Sales calculations until the first day they have comparable prior year sales.
A store is considered non-comparable ("Non-comp") when it has been open and operated by the Company for less than one year or has changed its selling square footage by 15 percent or more within the past year.
A store is considered "Closed" if it is temporarily closed for three or more full consecutive days or it is permanently closed. When a temporarily closed store reopens, the store will be placed in the Comp/Non-comp status it was in prior to its closure. If a store was in Closed status for three or more days in the prior year, the store will be in Non-comp status for the same days the following year.
Current year foreign exchange rates are applied to both current year and prior year Comp Sales to achieve a consistent basis for comparison.
The percentage change in Comp Sales by global brand and for The Gap, Inc., as compared with the preceding year, is as follows:
13 Weeks Ended
39 Weeks Ended
November 2, 2024
October 28, 2023
November 2, 2024
October 28, 2023
Old Navy Global
—
%
1
%
3
%
(2)
%
Gap Global
3
%
(1)
%
3
%
—
%
Banana Republic Global
(1)
%
(8)
%
—
%
(8)
%
Athleta Global
5
%
(19)
%
1
%
(13)
%
The Gap, Inc.
1
%
(2)
%
2
%
(3)
%
16
Store count, openings, closings, and square footage for our stores are as follows:
February 3, 2024
39 Weeks Ended November 2, 2024
November 2, 2024
Number of Store Locations
Number of Stores Opened
Number of Stores Closed
Number of Store Locations
Square Footage (in millions)
Old Navy North America
1,243
19
7
1,255
19.9
Gap North America
472
3
14
461
4.9
Gap Asia
134
—
9
125
1.1
Banana Republic North America
400
3
10
393
3.3
Banana Republic Asia
43
2
5
40
0.1
Athleta North America
270
2
2
270
1.1
Company-operated stores total
2,562
29
47
2,544
30.4
Franchise
998
121
60
1,059
N/A
Total
3,560
150
107
3,603
30.4
Increase (decrease) over prior year
2.0
%
(1.6)
%
January 28, 2023
39 Weeks Ended October 28, 2023
October 28, 2023
Number of Store Locations
Number of Stores Opened
Number of Stores Closed
Number of Store Locations
Square Footage (in millions)
Old Navy North America
1,238
24
11
1,251
19.9
Gap North America
493
1
14
480
5.1
Gap Asia (1)
232
1
7
137
1.2
Banana Republic North America
419
2
13
408
3.4
Banana Republic Asia
46
4
2
48
0.2
Athleta North America
257
24
7
274
1.1
Company-operated stores total
2,685
56
54
2,598
30.9
Franchise (1)
667
219
85
935
N/A
Total
3,352
275
139
3,533
30.9
Increase (decrease) over prior year
4.5
%
(4.6)
%
__________
(1)The 89 Gap China stores that were transitioned to Baozun during the period are not included as store closures or openings for Company-operated and Franchise store activity. The ending balance for Gap Asia excludes Gap China stores and the ending balance for Franchise includes Gap China locations transitioned during the period.
Outlet and factory stores are reflected in each of the respective brands.
17
Net Sales
Our net sales increased $62 million, or 2 percent, during the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023, driven primarily by an increase in online sales. Our net sales increased $346 million, or 3 percent, during the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023, driven primarily by an increase in Comp Sales.
Cost of Goods Sold and Occupancy Expenses
13 Weeks Ended
39 Weeks Ended
($ in millions)
November 2, 2024
October 28, 2023
November 2, 2024
October 28, 2023
Cost of goods sold and occupancy expenses
$
2,194
$
2,211
$
6,322
$
6,488
Gross profit
$
1,635
$
1,556
$
4,615
$
4,103
Cost of goods sold and occupancy expenses as a percentage of net sales
57.3
%
58.7
%
57.8
%
61.3
%
Gross margin
42.7
%
41.3
%
42.2
%
38.7
%
Cost of goods sold and occupancy expenses decreased 1.4 percentage points as a percentage of net sales in the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023.
•Cost of goods sold decreased 0.9 percentage points as a percentage of net sales in the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023, primarily driven by disciplined inventory management. The impact of commodity costs was relatively flat for the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023.
•Occupancy expenses decreased 0.5 percentage points as a percentage of net sales in the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023, primarily driven by an increase in online sales without a corresponding increase in occupancy expenses.
Cost of goods sold and occupancy expenses decreased 3.5 percentage points as a percentage of net sales in the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023.
•Cost of goods sold decreased 2.8 percentage points as a percentage of net sales in the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023, primarily driven by lower commodity costs and improved promotional activity.
•Occupancy expenses decreased 0.7 percentage points as a percentage of net sales in the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023, primarily driven by an increase in net sales without a corresponding increase in occupancy expenses.
Operating Expenses
13 Weeks Ended
39 Weeks Ended
($ in millions)
November 2, 2024
October 28, 2023
November 2, 2024
October 28, 2023
Operating expenses
$
1,280
$
1,306
$
3,762
$
3,757
Operating expenses as a percentage of net sales
33.4
%
34.7
%
34.4
%
35.5
%
Operating margin
9.3
%
6.6
%
7.8
%
3.3
%
Operating expenses decreased $26 million, or 1.3 percentage points as a percentage of net sales during the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023, primarily due to a decrease in advertising expenses.
Operating expenses increased $5 million, but decreased 1.1 percentage points as a percentage of net sales during the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023, due to an increase in net sales as well as the following:
•an increase in performance-based compensation; and
•a gain on sale of building of $47 million that occurred during the first quarter of fiscal 2023; partially offset by
•restructuring expenses of $89 million incurred during the first three quarters of fiscal 2023 as a result of actions taken to simplify and optimize our operating model and structure; and
•a decrease in advertising expenses.
18
Interest Expense
13 Weeks Ended
39 Weeks Ended
($ in millions)
November 2, 2024
October 28, 2023
November 2, 2024
October 28, 2023
Interest expense
$
23
$
28
$
68
$
66
Interest expense primarily includes interest on outstanding borrowings and obligations mainly related to our Senior Notes and tax-related interest expense.
Interest Income
13 Weeks Ended
39 Weeks Ended
($ in millions)
November 2, 2024
October 28, 2023
November 2, 2024
October 28, 2023
Interest income
$
(29)
$
(28)
$
(80)
$
(58)
Interest income increased slightly during the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023, primarily due to higher cash balances, partially offset by a decrease in tax-related interest income. Interest income increased $22 million during the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023, primarily due to higher cash balances and higher interest rates during the first half of fiscal 2024, partially offset by a decrease in tax-related interest income.
Income Taxes
13 Weeks Ended
39 Weeks Ended
($ in millions)
November 2, 2024
October 28, 2023
November 2, 2024
October 28, 2023
Income tax expense
$
87
$
32
$
227
$
21
Effective tax rate
24.1
%
12.8
%
26.2
%
6.2
%
The increase in the effective tax rate for the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023 is primarily due to changes in valuation allowances in the prior year.
The increase in the effective tax rate for the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023 is primarily due to tax benefits recognized in the prior year from a U.S. transfer pricing settlement related to our sourcing activities, changes in valuation allowances in the prior year, current year increases to certain income tax reserves, and changes in the amount and mix of jurisdictional earnings, partially offset by a favorable impact from stock-based compensation.
The Organization for Economic Co-operation and Development ("OECD") has introduced a new global minimum corporate tax of 15%, commonly referred to as Pillar Two. The rules, as they currently stand, did not have a material impact on the effective tax rate for the third quarter of fiscal 2024 or for the first three quarters of fiscal 2024 and are not expected to have a material impact on our fiscal 2024 effective tax rate. We will continue to monitor U.S. and global legislative action related to Pillar Two for potential impacts.
19
LIQUIDITY AND CAPITAL RESOURCES
In addition to our cash flows from operating activities, our primary sources of liquidity include cash and cash equivalents, short-term investments, our Senior Notes, and our ABL Facility. As of November 2, 2024, we had cash and cash equivalents of $1.97 billion and short-term investments of $250 million. We hold our cash, cash equivalents, and short-term investments across a diversified set of reputable financial institutions and monitor the credit standing of those financial institutions. In addition, we have issued $1.5 billion aggregate principal amount of our Senior Notes, and are also able to supplement near-term liquidity, if necessary, with our ABL Facility or other available market instruments. There were no borrowings under the ABL Facility as of November 2, 2024. See Note 4 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on the Senior Notes and ABL Facility.
Our largest source of operating cash flows is cash collections from the sale of our merchandise. Our primary uses of cash include merchandise inventory purchases, lease and occupancy costs, personnel-related expenses, purchases of property and equipment, shipping costs, and payment of taxes. The seasonality of our operations, in addition to the impact of global economic conditions such as the uncertainty surrounding global inflationary pressures, acts of terrorism or war, global credit and banking markets, and the geopolitical landscape including new legislation and the potential impacts of recent elections, may lead to significant fluctuations in certain asset and liability accounts as well as cash inflows and outflows between fiscal year-end and subsequent interim periods.
Our voluntary SCF program provides certain suppliers with the opportunity to sell their receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. We are not a party to the agreements between our suppliers and the financial institutions and our payment terms are not impacted by whether a supplier participates in the SCF program. See Note 12 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on the Company's SCF program.
We believe our existing balances of cash, cash equivalents, and short-term investments, along with our cash flows from operations, and instruments mentioned above, provide sufficient funds for our business operations as well as capital expenditures, dividends, and other liquidity requirements associated with our business operations over the next 12 months and beyond.
Cash Flows from Operating Activities
Net cash provided by operating activities increased $38 million during the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023, primarily due to the following:
Net Income
•an increase in net income;
Non-cash item
•an increase of $47 million due to a gain that occurred during the first three quarters of fiscal 2023 resulting from the sale of a building;
Change in operating assets and liabilities
•a decrease of $339 million related to merchandise inventory due to the seasonal increase in inventory during the first three quarters of fiscal 2024 compared with no increase in the first three quarters of fiscal 2023 due to an elevated opening balance of inventory.
Cash Flows from Investing Activities
Net cash used for investing activities increased $373 million during the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023, primarily due to the following:
•$246 million of net purchases of short-term investments during the first three quarters of fiscal 2024; and
•$76 million in net proceeds from the sale of a building during the first three quarters of fiscal 2023.
Cash Flows from Financing Activities
Net cash used for financing activities decreased $323 million during the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023, primarily due to $350 million for repayments of revolving credit facility borrowings during the first three quarters of fiscal 2023.
20
Free Cash Flow
Free cash flow is a non-GAAP financial measure. We believe free cash flow is an important metric because it represents a measure of how much cash a company has available for discretionary and non-discretionary items after the deduction of capital expenditures. We require regular capital expenditures including technology improvements as well as building and maintaining our stores and distribution centers. We use this metric internally, as we believe our sustained ability to generate free cash flow is an important driver of value creation. However, this non-GAAP financial measure is not intended to supersede or replace our GAAP results.
The following table reconciles free cash flow, a non-GAAP financial measure, from a GAAP financial measure.
39 Weeks Ended
($ in millions)
November 2, 2024
October 28, 2023
Net cash provided by operating activities
$
870
$
832
Less: Purchases of property and equipment
(330)
(288)
Free cash flow
$
540
$
544
Dividend Policy
In determining whether and at what level to declare a dividend, we consider a number of factors including sustainability, operating performance, liquidity, and market conditions.
We paid a dividend of $0.15 per share during the third quarter of fiscal 2024. In November 2024, the Board authorized a dividend of $0.15 per share for the fourth quarter of fiscal 2024.
Share Repurchases
Certain information about the Company’s share repurchases is set forth in Note 7 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Summary Disclosures about Contractual Cash Obligations and Commercial Commitments
There have been no material changes to our contractual obligations and commercial commitments as disclosed in our Annual Report on Form 10-K as of February 3, 2024, other than those which occur in the normal course of business. See Note 9 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on commitments and contingencies.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024. See Note 1 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on accounting policies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our market risk profile as of February 3, 2024 is disclosed in our Annual Report on Form 10-K and has not significantly changed other than as noted below.
As of November 2, 2024, we had $250 million in short-term investments and $8 million in cash equivalents which were recorded on the Condensed Consolidated Balance Sheet. Changes in interest rates impact the fair value of our investments and the interest income derived from our investments.
See Notes 4, 5, and 6 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on our debt and credit facilities, investments, and derivative financial instruments.
21
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting that occurred during the Company’s third quarter of fiscal 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
22
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
As a multinational company, we are subject to various proceedings, lawsuits, disputes, and claims ("Actions") arising in the ordinary course of our business. Many of these Actions raise complex factual and legal issues and are subject to uncertainties. Actions filed against us from time to time include commercial, intellectual property, customer, employment, securities, and data privacy claims, including class action lawsuits. The plaintiffs in some Actions seek unspecified damages or injunctive relief, or both. Actions are in various procedural stages, and some are covered in part by insurance.
We cannot predict with assurance the outcome of Actions brought against us. Accordingly, developments, settlements, or resolutions may occur and impact operations in the quarter of such development, settlement, or resolution. However, we do not believe that the outcome of any current Action would have a material effect on our financial results.
Item 1A. Risk Factors.
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended February 3, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In February 2019, the Board approved a $1.0 billion share repurchase authorization, which has no expiration date. There were no shares repurchased, excluding shares withheld to settle employee tax withholding payments related to the vesting of stock units, during the 13 weeks ended November 2, 2024. The February 2019 repurchase program had $476 million remaining as of November 2, 2024.
Item 5. Other Information.
During the 13 weeks ended November 2, 2024, none of our directors or Section 16 officers adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as those terms are defined in Item 408(a) of Regulation S-K, except as follows:
On September 19, 2024, Mark Breitbard, President and CEO of Gap brand, adopted a trading plan intended to satisfy the affirmative defense of Rule 10b5-1(c) to sell up to 964,990 shares of Gap Inc. common stock (all pursuant to unexercised stock options granted from 2017 to 2022). Unless otherwise terminated pursuant to its terms, the plan will terminate on December 31, 2025, or when all shares under the plan are sold.
On September 11, 2024, Julie Gruber, Chief Legal and Compliance Officer and Corporate Secretary, modified a trading plan previously adopted on August 29, 2023, intended to satisfy the affirmative defense of Rule 10b5-1(c). Previously, the plan provided for the sale of up to 417,892 shares of Gap Inc. common stock (including 161,804 shares pursuant to unexercised stock options granted from 2014 to 2022). 196,565 shares were sold under the plan before the modification date. As modified, up to 492,578 shares of Gap Inc. common stock may be sold under the plan (including 326,368 shares pursuant to unexercised stock options granted from 2015 to 2020). This figure does not include shares already sold under the plan. Unless otherwise terminated pursuant to its terms, the modified plan will still terminate on September 2, 2025, or when all shares under the plan are sold.
On September 4, 2024, Chris Blakeslee, President and CEO of Athleta, adopted a trading plan intended to satisfy the affirmative defense of Rule 10b5-1(c) to sell up to 103,246 shares of Gap Inc. common stock. Unless otherwise terminated pursuant to its terms, the plan will terminate on August 29, 2025, or when all shares under the plan are sold.
On September 3, 2024, Katrina O'Connell, Chief Financial Officer, adopted a trading plan intended to satisfy the affirmative defense of Rule 10b5-1(c) to sell up to 550,543 shares of Gap Inc. common stock (including 221,216 shares pursuant to unexercised stock options granted from 2015 to 2022). Unless otherwise terminated pursuant to its terms, the plan will terminate on September 3, 2025, or when all shares under the plan are sold.
Certification of the Chief Executive Officer of The Gap, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Financial Officer of The Gap, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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101
The following materials from The Gap, Inc.’s Quarterly Report on Form 10-Q for the quarter ended November 2, 2024, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Stockholders' Equity; (v) the Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements
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104
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)
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†Indicates management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THE GAP, INC.
Date:
November 26, 2024
By
/s/ Richard Dickson
Richard Dickson
President and Chief Executive Officer
(Principal Executive Officer)
Date:
November 26, 2024
By
/s/ Katrina O'Connell
Katrina O'Connell
Executive Vice President and Chief Financial Officer