SAN FRANCISCO - May 19, 2016 - (BUSINESS WIRE) - Gap Inc. (NYSE: GPS) today reported first quarter fiscal year 2016 results and provided an update on the strategies outlined on May 9, 2016 to better position the company for improved business performance and to build for the future.
Gap Inc.’s first quarter fiscal year 2016 diluted earnings per share were $0.32. Total company net sales were $3.44 billion for the first quarter of fiscal year 2016 and comparable sales were down 5 percent.
“As the pace of change across the apparel industry increases, now is the time to accelerate our transformation by scaling our product and operating capabilities across our global portfolio,” said Art Peck, chief executive officer, Gap Inc. “By taking every opportunity to exploit our strategic advantages, our brands will be able to more fully harness the power of the enterprise to better serve their customers across channels and geographies.”
As part of Gap Inc.’s continued commitment to better position the company for long-term growth, the company has announced the following measures to better align talent and financial resources against its most important priorities:
The company estimates that together these measures will result in annualized pre-tax savings of about $275 million and operating margin improvement of nearly 2 percentage points. The company estimates an annualized sales loss of about $250 million associated with the store closures and expects to recognize restructuring costs in fiscal 2016 of about $300 million pre-tax, about $100 million of which is non-cash, from the store closures and streamlining measures.
Gap Inc.’s comparable sales for the first quarter of fiscal year 2016 were down 5 percent versus a 4 percent decrease last year. Comparable sales by global brand for the first quarter were as follows:
On a reported basis, net sales for the first quarter of fiscal year 2016 were $3.44 billion compared with $3.66 billion for the first quarter of fiscal year 2015. The translation of foreign currencies into U.S. dollars negatively impacted the company’s reported net sales for the first quarter of fiscal year 2016 by about $20 million. 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 following table details the company’s first quarter fiscal year 2016 net sales:
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(1) U.S. includes the United States, Puerto Rico, and Guam.
(2) Includes Athleta and Intermix.
(3) Includes Athleta, Intermix, and Piperlime.
The company is not reaffirming its earnings per share guidance for fiscal year 2016. The company noted that the current First Call consensus earnings per share estimate of $1.92 falls within a reasonable range of potential outcomes, excluding restructuring impacts from its store closure and streamlining measures. However, the company also noted that trends in the apparel retail environment would need to improve from the first quarter of fiscal year 2016 in order to achieve this estimate.
The company’s diluted earnings per share for the first quarter of fiscal year 2016 were $0.32. The company noted that foreign currency fluctuations negatively impacted earnings per share for the first quarter of fiscal year 2016 by an estimated $0.02, or about 4 percentage points of earnings per share growth.
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’s operating margin for the first quarter of fiscal year 2016 was 6.5 percent.
First quarter fiscal year 2016 operating expenses were $987 million compared with $996 million last year. Marketing expenses for the first quarter of fiscal year 2016 were $127 million, down $9 million compared with last year.
The effective tax rate was 37.7 percent for the first quarter of fiscal year 2016. Due to certain non-cash tax impacts related to the restructuring charges, the company now expects its fiscal year 2016 effective tax rate to be about 40 percent.
Total inventory dollars were down 3 percent at the end of the first quarter of fiscal year 2016, in-line with the company’s previous guidance. At the end of the second quarter of fiscal year 2016, the company expects total inventory dollars to be down in the low single digits year over year.
The company ended the first quarter of fiscal year 2016 with $1.3 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 about $30 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.
The company paid a dividend of $0.23 per share during the first quarter of fiscal year 2016. In addition, on May 18, 2016, the company announced that its Board of Directors authorized a second quarter dividend of $0.23 per share. The company ended the quarter with 398 million shares outstanding.
First quarter fiscal year 2016 capital expenditures were $139 million. For fiscal year 2016, the company now expects capital spending to be approximately $525 million, $125 million less than its previous guidance, with a continued focus on mobile and supply chain capabilities.
The company now expects depreciation and amortization expense, net of amortization of lease incentives, to be about $550 million for fiscal year 2016.
The company ended the first quarter of fiscal year 2016 with 3,727 store locations in 52 countries, of which 3,276 were company-operated.
During the first quarter of fiscal year 2016, the company opened 18 and closed 17 company-operated stores. Square footage of company-operated stores was down 1.3 percent compared with the first quarter of fiscal year 2015.
The company now expects net closures of about 50 company-operated stores in fiscal year 2016. As a result, the company now expects square footage to be down about 2 percent for fiscal year 2016 when compared with fiscal year 2015.
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 first quarter fiscal year 2016 results during a conference call and webcast from approximately 1:30 p.m. to 2:15 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: 214046). International callers may dial 913-643-0954. The webcast can be accessed at www.gapinc.com.
The company will report May sales on June 2, 2016.
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 30, 2016, as well as the company’s subsequent filings with the Securities and Exchange Commission.
These forward-looking statements are based on information as of May 19, 2016. 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 2015 net sales were $15.8 billion. Gap Inc. products are available for purchase in more than 90 countries worldwide through about 3,300 company-operated stores, about 450 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
Jennifer Poppers
Gap Inc.
Media Relations
415-427-1729
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.