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.
目前有 no 與2024年11月2日或2023年10月28日結束的13周和39周相關的重複級別3測量的材料購買、銷售、發行或結算。
9
以重複發生方式計量的金融資產和金融負債以及現金等價物如下所示：
金額（千元）
（以百萬計的美元）
2024年11月2日
報價價格在 活躍市場的 Identical Assets (一級)
顯著的另一半 可觀察 Inputs (二級)
重要 不可觀察 Inputs (三級)
資產：
現金等價物
$
8
$
1
$
7
$
—
短期投資
250
130
120
—
衍生金融工具
19
—
19
—
延遲薪酬計劃資產
38
38
—
—
其他資產
4
—
—
4
總計
$
319
$
169
$
146
$
4
負債：
衍生金融工具
$
1
$
—
$
1
$
—
金額（千元）
（以百萬計的美元）
2024年2月3日
報價價格在 活躍市場上的： Identical Assets (一級)
Significant Other 可觀察 Inputs (二級)
重要 不可觀察 Inputs (三級)
資產：
現金等價物
$
1
$
—
$
1
$
—
衍生金融工具
7
—
7
—
延遲薪酬計劃資產
31
31
—
—
其他資產
4
—
—
4
總計
$
43
$
31
$
8
$
4
負債：
衍生金融工具
$
8
$
—
$
8
$
—
使用報告日期的公允價值衡量
（以百萬計的美元）
2023年10月28日
報價價格在 活躍市場的 Identical Assets (一級)
顯著的另一半 可觀察 Inputs (二級)
重要 不可觀察 Inputs (三級)
資產：
現金等價物
$
1
$
—
$
1
$
—
衍生金融工具
34
—
34
—
延遲薪酬計劃資產
31
31
—
—
其他資產
4
—
—
4
總計
$
70
$
31
$
35
$
4
負債：
衍生金融工具
$
—
$
—
$
—
$
—
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.
在2019年2月，公司董事會（"董事會"）批准了一項$1.0 十億分享回購授權（"2019年2月回購計劃"）。共回購了 no 在截至2024年11月2日和2023年10月28日的13和39周內回購的股票，排除用於抵扣與股票單位歸屬相關的員工稅款的股票。在2019年2月回購計劃中截至2024年11月2日，剩餘$476 百萬。所有回購的普通股將立即註銷。
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.
•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.
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
X
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
X
104
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)
X
_____________________________
†Indicates management contract or compensatory plan or arrangement.
24
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