SAN FRANCISCO - August 20, 2015 - (BUSINESS WIRE) - Gap Inc. (NYSE:GPS) today reported second quarter fiscal year 2015 results and reaffirmed its full-year earnings per share guidance to be in the range of $2.75 to $2.80, excluding the impact from strategic actions previously announced on June 15, 2015.
“I remain confident in our strategies to improve business performance and drive loyalty going forward,” said Art Peck, chief executive officer, Gap Inc. “Our evolving product operating model is laying the foundation to more consistently deliver on-trend product collections across our portfolio.”
On a reported basis, Gap Inc.’s second quarter of fiscal year 2015 diluted earnings per share were $0.52, including the negative impacts associated with foreign currency fluctuations, West Coast port delays, and the strategic actions.
Excluding the negative impact of about $0.12 from the strategic actions, the company’s adjusted diluted earnings per share were $0.64 for the second quarter of fiscal year 2015. Please see the reconciliation of adjusted diluted earnings per share, a non-GAAP financial measure, from the GAAP financial measure in the table at the end of this press release.
In addition, Gap Inc. distributed about $800 million to shareholders through share repurchases and dividends fiscal year-to-date, reinforcing the company’s commitment to returning excess cash to shareholders.
For the first half of fiscal year 2015, the company’s diluted earnings per share were $1.09. The company’s adjusted diluted earnings per share were $1.42, or an increase of approximately 12 percent compared with adjusted diluted earnings per share for the first half of fiscal year 2014, which excludes a $0.05 gain on asset sale. The company noted that its adjusted diluted earnings per share for the first half of fiscal year 2015 excludes the following negative impacts:
“We’re pleased to deliver earnings per share growth of about 12 percent on an adjusted basis for the first half of the year, while continuing to work through product challenges at two of our global brands,” said Sabrina Simmons, chief financial officer, Gap Inc.
Please see the reconciliation of adjusted diluted earnings per share, a non-GAAP financial measure, from the GAAP financial measure in the table at the end of this press release.
Gap Inc.’s comparable sales for the second quarter of fiscal year 2015 were down 2 percent versus flat last year. Comparable sales by global brand for the second quarter were as follows:
For the second quarter of fiscal year 2015, Gap Inc.’s net sales decreased 2 percent to $3.90 billion compared with $3.98 billion for the second quarter last year.
On a constant currency basis, net sales for the second quarter of fiscal year 2015 were about flat compared with last year. In calculating the net sales change on a constant currency basis, current year foreign exchange rates are applied to both current year and prior year net sales. This is done to enhance the visibility of underlying sales trends, excluding the impact of foreign currency exchange rate fluctuations.
The translation of net sales in foreign currencies into U.S. dollars negatively impacted the company’s reported sales for the second quarter of fiscal year 2015 by about $100 million, primarily due to the weakening Japanese yen and Canadian dollar.
The following table details the company’s second quarter 2015 net sales:
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(1) U.S. includes the United States, Puerto Rico, and Guam.
(2) Includes Athleta and Intermix.
(3) Includes Piperlime, Athleta, and Intermix.
On a reported basis, second quarter of fiscal year 2015 diluted earnings per share were $0.52, including the negative impacts associated with foreign currency fluctuations, West Coast port delays, and the strategic actions.
Excluding the negative impact of about $0.12 from the strategic actions, the company’s adjusted diluted earnings per share were $0.64 for the second quarter of fiscal year 2015. Please see the reconciliation of adjusted diluted earnings per share, a non-GAAP financial measure, from the GAAP financial measure in the table at the end of this press release.
The company also noted that the estimated impact from foreign currency fluctuations reduced the company’s diluted earnings per share growth rate in the second quarter of fiscal year 2015 by about $0.04 or about 5 percentage points.1
1 In calculating earnings per share excluding the impact of foreign exchange, the company estimates current gross margins using the appropriate prior year rates (including the impact of merchandise-related hedges), translates current period foreign earnings at prior year rates, and excludes the year-over-year earnings impact of balance sheet remeasurement and gains or losses from non-merchandise-related foreign currency hedges. This is done in order to enhance the visibility of business results excluding the direct impact of foreign currency exchange rate fluctuations.
The company reaffirmed its full-year earnings per share guidance to be in the range of $2.75 to $2.80 for fiscal year 2015, excluding the negative impact associated with the strategic actions. The company updated its estimate of the charges associated with the strategic actions to approximately $130 million to $140 million, from the previously announced range of $140 million to $160 million. This guidance is provided to enhance visibility into the company’s expectations regarding its ongoing business, excluding the strategic actions.
The company continues to expect operating margin, excluding the impact associated with the strategic actions, to be down about 1 percentage point in fiscal year 2015 compared with fiscal year 2014.
Second quarter operating expenses were $1.09 billion, compared with $1.00 billion in the second quarter of last year. Marketing expenses for the second quarter were $131 million, down $11 million from last year.
The effective tax rate was 38 percent for the second quarter of fiscal year 2015. The company continues to expect its full-year fiscal 2015 effective tax rate to be about 38 percent.
At the end of the second quarter of fiscal year 2015, inventory dollars per store were up about 1 percent on a year-over-year basis, in line with the company’s previously communicated guidance.
At the end of the third quarter of fiscal year 2015, the company expects year-over-year inventory dollars per store to be down slightly compared with last year.
The company ended the second quarter of fiscal year 2015 with $1.04 billion in cash and cash equivalents. Year-to-date free cash flow, defined as net cash provided by operating activities less purchases of property and equipment, was an inflow of $341 million. Please see the reconciliation of free cash flow, a non-GAAP financial measure, from the GAAP financial measure in the tables at the end of this press release.
During the quarter, Gap Inc. repurchased 10 million shares for about $375 million and ended the second quarter of fiscal year 2015 with 410 million shares outstanding.
Including the company’s dividend, shareholder distributions totaled about $800 million for the first half of fiscal year 2015, underscoring the company’s commitment to returning excess cash to shareholders.
The company paid a dividend of $0.23 per share during the second quarter of fiscal year 2015. In addition, on August 13, 2015, the company announced that its Board of Directors authorized a third quarter dividend of $0.23 per share.
Fiscal year-to-date capital expenditures were $301 million. For fiscal year 2015, the company continues to expect capital spending to be approximately $800 million.
The company continues to expect depreciation and amortization expense, net of amortization of lease incentives, to be about $525 million for fiscal year 2015.
The company ended the second quarter of fiscal year 2015 with 3,751 store locations in 51 countries, of which 3,309 were company-operated.
While the company continues to pursue its previously stated growth initiatives with a focus on Asia, global outlets and Athleta in the U.S., it now expects its overall store count and square footage to remain flat in fiscal year 2015, as compared to last year due to Gap brand store closures.
Store count, openings, closings, and square footage for our stores are as follows:
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Jack Calandra, senior vice president of Corporate Finance and Investor Relations at Gap Inc., will host a summary of the company’s second quarter fiscal year 2015 results during a conference call and webcast from approximately 2:00 p.m. to 2:45 p.m. Pacific Time today. Mr. Calandra will be joined by Art Peck, Gap Inc. chief executive officer, and Sabrina Simmons, Gap Inc. chief financial officer.
The conference call can be accessed by calling 1-855-5000-GPS or 1-855-500-0477 (participant passcode: 7779269). International callers may dial 913-643-0954. The webcast can be accessed at www.gapinc.com.
The company will report August sales on September 3, 2015.
This press release and related conference call and webcast contain forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements other than those that are purely historical are forward-looking statements. Words such as “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan,” “project,” and similar expressions also identify forward-looking statements. Forward-looking statements include statements regarding the following:
Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause the company’s actual results to differ materially from those in the forward-looking statements. These factors include, without limitation, the following:
Additional information regarding factors that could cause results to differ can be found in the company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2015, as well as the company’s subsequent filings with the Securities and Exchange Commission.
These forward-looking statements are based on information as of August 20, 2015. The company assumes no obligation to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
Gap Inc. is a leading global retailer offering clothing, accessories, and personal care products for men, women, and children under the Gap, Banana Republic, Old Navy, Athleta, and Intermix brands. Fiscal year 2014 net sales were $16.4 billion. Gap Inc. products are available for purchase in more than 90 countries worldwide through about 3,300 company-operated stores, over 400 franchise stores, and e-commerce sites. For more information, please visit www.gapinc.com.
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SOURCE Gap Inc.
Jack Calandra
Gap Inc.
Investor Relations
415-427-1726
Investor_relations@gap.com
Kari Shellhorn
Media Relations
415-427-1805
Press@gap.com
Gap Inc. is a leading global retailer offering clothing, accessories, and personal care products for men, women, and children under the Gap, Banana Republic, Old Navy, Athleta, and Intermix brands.