☑
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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94-1697231
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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Title of each class
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Trading Symbol
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Name of each exchange on which registered
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Common Stock, $0.05 par value
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GPS
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The New York Stock Exchange
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•
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the potential impact of COVID-19 on the assumptions and estimates used when preparing the quarterly financial statements, and on our results of operations, financial position, and liquidity;
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•
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the potential impact if economic conditions caused by COVID-19 were to worsen beyond what is currently estimated by management;
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•
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the impact of recent accounting pronouncements;
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•
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recognition of revenue deferrals as revenue;
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•
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compliance with applicable financial covenants under the 2023 Notes, 2025 Notes, 2027 Notes, and the ABL Facility;
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•
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unrealized gains and losses from designated cash flow hedges;
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•
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total gross unrecognized tax benefits;
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•
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the impact of losses due to indemnification obligations;
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•
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the outcome of proceedings, lawsuits, disputes, and claims, including the impact of such actions on our financial results;
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•
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the ability of our new capital structure to provide sufficient liquidity to continue to navigate the COVID-19 pandemic;
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•
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the ability to supplement near-term liquidity, if necessary, with our $1.8675 billion asset-based revolving credit facility or other available market instruments;
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•
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current cash balances and cash flows from our operations and from issuance of the 2023 Notes, 2025 Notes, 2027 Notes being sufficient to support our business operations;
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•
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the impact of the seasonality of our operations;
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•
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offering product that is consistently brand-appropriate and on-trend with high customer acceptance;
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•
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growing and operating our global online business;
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•
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realigning inventory with customer demand;
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•
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increasing focus on improving operational discipline and efficiency by streamlining operations and processes and leveraging scale;
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•
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managing inventory to support a healthy merchandise margin;
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•
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the expectation that we will reach additional agreements with our landlords regarding suspended rent payments for our temporarily closed stores in the next several months;
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•
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rationalizing the Gap and Banana Republic brands, with emphasis on the specialty fleet globally, to create a healthier business;
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•
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continuing to integrate social and environmental sustainability into business practices;
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•
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increased interest expense on future borrowings caused by any future reductions in our credit ratings; and
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•
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the impact of changes in internal control over financial reporting.
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•
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the overall global economic environment and risks associated with the COVID-19 pandemic;
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•
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the risk that we or our franchisees will be unsuccessful in gauging apparel trends and changing consumer preferences;
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•
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the highly competitive nature of our business in the United States and internationally;
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•
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the risk that changes in global economic conditions or consumer spending patterns could adversely impact our results of operations;
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•
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engaging in or seeking to engage in strategic transactions that are subject to various risks and uncertainties;
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•
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the risk that failure to maintain, enhance and protect our brand image could have an adverse effect on our results of operations;
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•
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the risk that the failure to manage key executive succession and retention and to continue to attract qualified personnel could have an adverse impact on our results of operations;
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•
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the risk that our investments in customer, digital, and omni-channel shopping initiatives may not deliver the results we anticipate;
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•
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the risk that if we are unable to manage our inventory effectively, our gross margins will be adversely affected;
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•
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the risks to our business, including our costs and supply chain, associated with global sourcing and manufacturing;
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•
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the risk that we are subject to data or other security breaches that may result in increased costs, violations of law, significant legal and financial exposure, and a loss of confidence in our security measures, which could have an adverse effect on our results of operations and our reputation;
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•
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the risk that a failure of, or updates or changes to, our information technology ("IT") systems may disrupt our operations;
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•
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the risks to our efforts to expand internationally, including our ability to operate in regions where we have less experience;
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•
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the risk that we or our franchisees will be unsuccessful in identifying, negotiating, and securing new store locations and renewing, modifying, or terminating leases for existing store locations effectively;
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•
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the risks to our reputation or operations associated with importing merchandise from foreign countries, including failure of our vendors to adhere to our Code of Vendor Conduct;
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•
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the risk that our franchisees’ operation of franchise stores is not directly within our control and could impair the value of our brands;
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•
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the risk that trade matters could increase the cost or reduce the supply of apparel available to us and adversely affect our business, financial condition, and results of operations;
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•
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the risk that foreign currency exchange rate fluctuations could adversely impact our financial results;
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•
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the risk that comparable sales and margins will experience fluctuations;
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•
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the risk that changes in our credit profile or deterioration in market conditions may limit our access to the capital markets and adversely impact our financial position or our business initiatives;
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•
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the risk that changes in the regulatory or administrative landscape could adversely affect our financial condition and results of operations;
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•
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the risk that natural disasters, public health crises (similar to and including the ongoing COVID-19 pandemic), political crises, negative global climate patterns, or other catastrophic events could adversely affect our operations and financial results, or those of our franchisees or vendors;
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•
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the risk that reductions in income and cash flow from our credit card arrangement related to our private label and co-branded credit cards could adversely affect our operating results and cash flows;
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•
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the risk that the adoption of new accounting pronouncements will impact future results;
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•
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the risk that we do not repurchase some or all of the shares we anticipate purchasing pursuant to our repurchase program; and
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•
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the risk that we will not be successful in defending various proceedings, lawsuits, disputes, and claims.
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Page
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Item 1.
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Item 2.
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Item 3.
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Item 4.
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Item 1.
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Item 1A.
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Item 2.
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Item 6.
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Item 1.
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Financial Statements.
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($ and shares in millions except par value)
|
August 1,
2020 |
|
February 1,
2020 |
|
August 3,
2019 |
||||||
ASSETS
|
|
|
|
|
|
||||||
Current assets:
|
|
|
|
|
|
||||||
Cash and cash equivalents
|
$
|
2,188
|
|
|
$
|
1,364
|
|
|
$
|
1,177
|
|
Short-term investments
|
25
|
|
|
290
|
|
|
294
|
|
|||
Merchandise inventory
|
2,242
|
|
|
2,156
|
|
|
2,326
|
|
|||
Other current assets
|
882
|
|
|
706
|
|
|
770
|
|
|||
Total current assets
|
5,337
|
|
|
4,516
|
|
|
4,567
|
|
|||
Property and equipment, net of accumulated depreciation of $5,933, $5,839 and $5,926
|
2,895
|
|
|
3,122
|
|
|
3,141
|
|
|||
Operating lease assets
|
4,689
|
|
|
5,402
|
|
|
5,807
|
|
|||
Other long-term assets
|
795
|
|
|
639
|
|
|
528
|
|
|||
Total assets
|
$
|
13,716
|
|
|
$
|
13,679
|
|
|
$
|
14,043
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
||||||
Current liabilities:
|
|
|
|
|
|
||||||
Accounts payable
|
$
|
1,629
|
|
|
$
|
1,174
|
|
|
$
|
1,246
|
|
Accrued expenses and other current liabilities
|
1,124
|
|
|
1,067
|
|
|
908
|
|
|||
Current portion of operating lease liabilities
|
856
|
|
|
920
|
|
|
946
|
|
|||
Income taxes payable
|
40
|
|
|
48
|
|
|
34
|
|
|||
Total current liabilities
|
3,649
|
|
|
3,209
|
|
|
3,134
|
|
|||
Long-term liabilities:
|
|
|
|
|
|
||||||
Long-term debt
|
2,212
|
|
|
1,249
|
|
|
1,249
|
|
|||
Long-term operating lease liabilities
|
5,179
|
|
|
5,508
|
|
|
5,644
|
|
|||
Lease incentives and other long-term liabilities
|
423
|
|
|
397
|
|
|
391
|
|
|||
Total long-term liabilities
|
7,814
|
|
|
7,154
|
|
|
7,284
|
|
|||
Commitments and contingencies (see Note 9)
|
|
|
|
|
|
||||||
Stockholders’ equity:
|
|
|
|
|
|
||||||
Common stock $0.05 par value
|
|
|
|
|
|
||||||
Authorized 2,300 shares for all periods presented; Issued and Outstanding 374, 371, and 376 shares
|
19
|
|
|
19
|
|
|
19
|
|
|||
Additional paid-in capital
|
39
|
|
|
—
|
|
|
—
|
|
|||
Retained earnings
|
2,173
|
|
|
3,257
|
|
|
3,551
|
|
|||
Accumulated other comprehensive income
|
22
|
|
|
40
|
|
|
55
|
|
|||
Total stockholders’ equity
|
2,253
|
|
|
3,316
|
|
|
3,625
|
|
|||
Total liabilities and stockholders’ equity
|
$
|
13,716
|
|
|
$
|
13,679
|
|
|
$
|
14,043
|
|
|
13 Weeks Ended
|
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26 Weeks Ended
|
||||||||||||
($ and shares in millions except per share amounts)
|
August 1,
2020 |
|
August 3,
2019 |
|
August 1,
2020 |
|
August 3,
2019 |
||||||||
Net sales
|
$
|
3,275
|
|
|
$
|
4,005
|
|
|
$
|
5,382
|
|
|
$
|
7,711
|
|
Cost of goods sold and occupancy expenses
|
2,126
|
|
|
2,449
|
|
|
3,965
|
|
|
4,811
|
|
||||
Gross profit
|
1,149
|
|
|
1,556
|
|
|
1,417
|
|
|
2,900
|
|
||||
Operating expenses
|
1,076
|
|
|
1,274
|
|
|
2,588
|
|
|
2,302
|
|
||||
Operating income (loss)
|
73
|
|
|
282
|
|
|
(1,171
|
)
|
|
598
|
|
||||
Loss on extinguishment of debt
|
58
|
|
|
—
|
|
|
58
|
|
|
—
|
|
||||
Interest expense
|
58
|
|
|
19
|
|
|
77
|
|
|
39
|
|
||||
Interest income
|
(2
|
)
|
|
(8
|
)
|
|
(6
|
)
|
|
(14
|
)
|
||||
Income (loss) before income taxes
|
(41
|
)
|
|
271
|
|
|
(1,300
|
)
|
|
573
|
|
||||
Income taxes
|
21
|
|
|
103
|
|
|
(306
|
)
|
|
178
|
|
||||
Net income (loss)
|
$
|
(62
|
)
|
|
$
|
168
|
|
|
$
|
(994
|
)
|
|
$
|
395
|
|
Weighted-average number of shares - basic
|
374
|
|
|
378
|
|
|
373
|
|
|
378
|
|
||||
Weighted-average number of shares - diluted
|
374
|
|
|
379
|
|
|
373
|
|
|
380
|
|
||||
Earnings (loss) per share - basic
|
$
|
(0.17
|
)
|
|
$
|
0.44
|
|
|
$
|
(2.66
|
)
|
|
$
|
1.04
|
|
Earnings (loss) per share - diluted
|
$
|
(0.17
|
)
|
|
$
|
0.44
|
|
|
$
|
(2.66
|
)
|
|
$
|
1.04
|
|
|
13 Weeks Ended
|
|
26 Weeks Ended
|
||||||||||||
($ in millions)
|
August 1,
2020 |
|
August 3,
2019 |
|
August 1,
2020 |
|
August 3,
2019 |
||||||||
Net income (loss)
|
$
|
(62
|
)
|
|
$
|
168
|
|
|
$
|
(994
|
)
|
|
$
|
395
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation
|
(10
|
)
|
|
—
|
|
|
(19
|
)
|
|
(1
|
)
|
||||
Change in fair value of derivative financial instruments, net of tax (tax benefit) of $(1), $1, $1, and $5
|
(8
|
)
|
|
1
|
|
|
11
|
|
|
10
|
|
||||
Reclassification adjustment for gains on derivative financial instruments, net of tax of $(1), $(3), $(1), and $(5)
|
(6
|
)
|
|
(3
|
)
|
|
(10
|
)
|
|
(7
|
)
|
||||
Other comprehensive income (loss), net of tax
|
(24
|
)
|
|
(2
|
)
|
|
(18
|
)
|
|
2
|
|
||||
Comprehensive income (loss)
|
$
|
(86
|
)
|
|
$
|
166
|
|
|
$
|
(1,012
|
)
|
|
$
|
397
|
|
|
|
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 May 2, 2020
|
|
373
|
|
|
$
|
19
|
|
|
$
|
17
|
|
|
$
|
2,235
|
|
|
$
|
46
|
|
|
$
|
2,317
|
|
Net loss for the thirteen weeks ended August 1, 2020
|
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
(62
|
)
|
|||||||||
Other comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
(10
|
)
|
|||||||||
Change in fair value of derivative financial instruments
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
(8
|
)
|
|||||||||
Amounts reclassified from accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
(6
|
)
|
|||||||||
Issuance of common stock related to stock options and employee stock purchase plans
|
|
—
|
|
|
—
|
|
|
6
|
|
|
|
|
|
|
6
|
|
|||||||
Issuance of common stock and withholding tax payments related to vesting of stock units
|
|
1
|
|
|
—
|
|
|
(1
|
)
|
|
|
|
|
|
(1
|
)
|
|||||||
Share-based compensation, net of forfeitures
|
|
|
|
|
|
17
|
|
|
|
|
|
|
17
|
|
|||||||||
Common stock dividends (1)
|
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|||||||||
Balance as of August 1, 2020
|
|
374
|
|
|
$
|
19
|
|
|
$
|
39
|
|
|
$
|
2,173
|
|
|
$
|
22
|
|
|
$
|
2,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance as of May 4, 2019
|
|
378
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
3,495
|
|
|
$
|
57
|
|
|
$
|
3,571
|
|
Net income for the thirteen weeks ended August 3, 2019
|
|
|
|
|
|
|
|
168
|
|
|
|
|
168
|
|
|||||||||
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|||||||||
Change in fair value of derivative financial instruments
|
|
|
|
|
|
|
|
|
|
1
|
|
|
1
|
|
|||||||||
Amounts reclassified from accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
(3
|
)
|
|||||||||
Repurchases and retirement of common stock
|
|
(3
|
)
|
|
—
|
|
|
(29
|
)
|
|
(21
|
)
|
|
|
|
(50
|
)
|
||||||
Issuance of common stock related to stock options and employee stock purchase plans
|
|
—
|
|
|
—
|
|
|
7
|
|
|
|
|
|
|
7
|
|
|||||||
Issuance of common stock and withholding tax payments related to vesting of stock units
|
|
1
|
|
|
—
|
|
|
(1
|
)
|
|
|
|
|
|
(1
|
)
|
|||||||
Share-based compensation, net of forfeitures
|
|
|
|
|
|
23
|
|
|
|
|
|
|
23
|
|
|||||||||
Common stock dividends declared and paid ($0.2425 per share)
|
|
|
|
|
|
|
|
(91
|
)
|
|
|
|
(91
|
)
|
|||||||||
Balance as of August 3, 2019
|
|
376
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
3,551
|
|
|
$
|
55
|
|
|
$
|
3,625
|
|
|
|
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 1, 2020
|
|
371
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
3,257
|
|
|
$
|
40
|
|
|
$
|
3,316
|
|
Net loss for the twenty-six weeks ended August 1, 2020
|
|
|
|
|
|
|
|
(994
|
)
|
|
|
|
(994
|
)
|
|||||||||
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
(19
|
)
|
|||||||||
Change in fair value of derivative financial instruments
|
|
|
|
|
|
|
|
|
|
11
|
|
|
11
|
|
|||||||||
Amounts reclassified from accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
(10
|
)
|
|||||||||
Issuance of common stock related to stock options and employee stock purchase plans
|
|
1
|
|
|
—
|
|
|
12
|
|
|
|
|
|
|
12
|
|
|||||||
Issuance of common stock and withholding tax payments related to vesting of stock units
|
|
2
|
|
|
—
|
|
|
(8
|
)
|
|
|
|
|
|
(8
|
)
|
|||||||
Share-based compensation, net of forfeitures
|
|
|
|
|
|
35
|
|
|
|
|
|
|
35
|
|
|||||||||
Common stock dividends ($0.2425 per share) (1)
|
|
|
|
|
|
|
|
(90
|
)
|
|
|
|
(90
|
)
|
|||||||||
Balance as of August 1, 2020
|
|
374
|
|
|
$
|
19
|
|
|
$
|
39
|
|
|
$
|
2,173
|
|
|
$
|
22
|
|
|
$
|
2,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance as of February 2, 2019
|
|
378
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
3,481
|
|
|
$
|
53
|
|
|
$
|
3,553
|
|
Cumulative effect of a change in accounting principle related to leases
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
(86
|
)
|
|||||||||
Net income for the twenty-six weeks ended August 3, 2019
|
|
|
|
|
|
|
|
395
|
|
|
|
|
395
|
|
|||||||||
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
(1
|
)
|
|||||||||
Change in fair value of derivative financial instruments
|
|
|
|
|
|
|
|
|
|
10
|
|
|
10
|
|
|||||||||
Amounts reclassified from accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
(7
|
)
|
|||||||||
Repurchases and retirement of common stock
|
|
(5
|
)
|
|
—
|
|
|
(44
|
)
|
|
(56
|
)
|
|
|
|
(100
|
)
|
||||||
Issuance of common stock related to stock options and employee stock purchase plans
|
|
1
|
|
|
—
|
|
|
17
|
|
|
|
|
|
|
17
|
|
|||||||
Issuance of common stock and withholding tax payments related to vesting of stock units
|
|
2
|
|
|
—
|
|
|
(20
|
)
|
|
|
|
|
|
(20
|
)
|
|||||||
Share-based compensation, net of forfeitures
|
|
|
|
|
|
47
|
|
|
|
|
|
|
47
|
|
|||||||||
Common stock dividends declared and paid ($0.485 per share)
|
|
|
|
|
|
|
|
(183
|
)
|
|
|
|
(183
|
)
|
|||||||||
Balance as of August 3, 2019
|
|
376
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
3,551
|
|
|
$
|
55
|
|
|
$
|
3,625
|
|
|
26 Weeks Ended
|
||||||
($ in millions)
|
August 1,
2020 |
|
August 3,
2019 |
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income (loss)
|
$
|
(994
|
)
|
|
$
|
395
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
256
|
|
|
277
|
|
||
Share-based compensation
|
35
|
|
|
47
|
|
||
Impairment of operating lease assets
|
361
|
|
|
—
|
|
||
Impairment of store assets
|
127
|
|
|
3
|
|
||
Loss on extinguishment of debt
|
58
|
|
|
—
|
|
||
Amortization of debt issuance costs
|
4
|
|
|
1
|
|
||
Non-cash and other items
|
—
|
|
|
6
|
|
||
Gain on sale of building
|
—
|
|
|
(191
|
)
|
||
Deferred income taxes
|
(125
|
)
|
|
46
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Merchandise inventory
|
(91
|
)
|
|
(166
|
)
|
||
Other current assets and other long-term assets
|
134
|
|
|
29
|
|
||
Accounts payable
|
467
|
|
|
147
|
|
||
Accrued expenses and other current liabilities
|
(40
|
)
|
|
(14
|
)
|
||
Income taxes payable, net of receivables and other tax-related items
|
(232
|
)
|
|
43
|
|
||
Lease incentives and other long-term liabilities
|
1
|
|
|
24
|
|
||
Operating lease assets and liabilities, net
|
(48
|
)
|
|
(64
|
)
|
||
Net cash provided by (used for) operating activities
|
(87
|
)
|
|
583
|
|
||
Cash flows from investing activities:
|
|
|
|
||||
Purchases of property and equipment
|
(208
|
)
|
|
(324
|
)
|
||
Purchase of building
|
—
|
|
|
(343
|
)
|
||
Proceeds from sale of building
|
—
|
|
|
220
|
|
||
Purchases of short-term investments
|
(59
|
)
|
|
(150
|
)
|
||
Proceeds from sales and maturities of short-term investments
|
325
|
|
|
146
|
|
||
Purchase of Janie and Jack
|
—
|
|
|
(69
|
)
|
||
Other
|
2
|
|
|
—
|
|
||
Net cash provided by (used for) investing activities
|
60
|
|
|
(520
|
)
|
||
Cash flows from financing activities:
|
|
|
|
||||
Proceeds from revolving credit facility
|
500
|
|
|
—
|
|
||
Payments for revolving credit facility
|
(500
|
)
|
|
—
|
|
||
Proceeds from issuance of long-term debt
|
2,250
|
|
|
—
|
|
||
Payments to extinguish debt
|
(1,307
|
)
|
|
—
|
|
||
Payments for debt issuance costs
|
(61
|
)
|
|
—
|
|
||
Proceeds from issuances under share-based compensation plans
|
12
|
|
|
17
|
|
||
Withholding tax payments related to vesting of stock units
|
(8
|
)
|
|
(20
|
)
|
||
Repurchases of common stock
|
—
|
|
|
(100
|
)
|
||
Cash dividends paid
|
—
|
|
|
(183
|
)
|
||
Net cash provided by (used for) financing activities
|
886
|
|
|
(286
|
)
|
||
Effect of foreign exchange rate fluctuations on cash, cash equivalents, and restricted cash
|
1
|
|
|
(2
|
)
|
||
Net increase (decrease) in cash, cash equivalents, and restricted cash
|
860
|
|
|
(225
|
)
|
||
Cash, cash equivalents, and restricted cash at beginning of period
|
1,381
|
|
|
1,420
|
|
||
Cash, cash equivalents, and restricted cash at end of period
|
$
|
2,241
|
|
|
$
|
1,195
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
||||
Cash paid for interest during the period
|
$
|
39
|
|
|
$
|
38
|
|
Cash paid for income taxes during the period, net of refunds
|
$
|
53
|
|
|
$
|
90
|
|
($ in millions)
|
August 1,
2020 |
|
February 1,
2020 |
|
August 3,
2019 |
||||||
Cash and cash equivalents, per Condensed Consolidated Balance Sheets
|
$
|
2,188
|
|
|
$
|
1,364
|
|
|
$
|
1,177
|
|
Restricted cash included in other current assets
|
33
|
|
|
—
|
|
|
—
|
|
|||
Restricted cash included in other long-term assets
|
20
|
|
|
17
|
|
|
18
|
|
|||
Total cash, cash equivalents, and restricted cash, per Condensed Consolidated Statements of Cash Flows
|
$
|
2,241
|
|
|
$
|
1,381
|
|
|
$
|
1,195
|
|
|
13 Weeks Ended
|
|
26 Weeks Ended
|
||||||||||||
($ in millions)
|
August 1, 2020
|
|
August 3, 2019
|
|
August 1, 2020
|
|
August 3, 2019
|
||||||||
Store sales (1)
|
$
|
1,642
|
|
|
$
|
3,166
|
|
|
$
|
2,750
|
|
|
$
|
5,989
|
|
Online sales (2)
|
1,633
|
|
|
839
|
|
|
2,632
|
|
|
1,722
|
|
||||
Total net sales
|
$
|
3,275
|
|
|
$
|
4,005
|
|
|
$
|
5,382
|
|
|
$
|
7,711
|
|
(1)
|
Store sales primarily include sales made at our Company-operated stores and franchise sales. Fiscal 2020 store sales were negatively impacted by COVID-19. See Note 1 of Notes to Condensed Consolidated Financial Statements for further details.
|
(2)
|
Online sales primarily include sales made through our online channels including curbside pick-up, ship-from-store sales, buy online pick-up in store sales, and order-in-store sales. Additionally, beginning in the second quarter of fiscal 2020, sales from the B2B program are also included.
|
($ in millions)
|
August 1,
2020 |
|
February 1,
2020 |
|
August 3,
2019 |
||||||
2021 Notes
|
$
|
—
|
|
|
$
|
1,249
|
|
|
$
|
1,249
|
|
2023 Notes
|
500
|
|
|
—
|
|
|
—
|
|
|||
2025 Notes
|
750
|
|
|
—
|
|
|
—
|
|
|||
2027 Notes
|
1,000
|
|
|
—
|
|
|
—
|
|
|||
Less: Unamortized debt issuance costs
|
(38
|
)
|
|
—
|
|
|
—
|
|
|||
Total long-term debt
|
$
|
2,212
|
|
|
$
|
1,249
|
|
|
$
|
1,249
|
|
Scheduled Maturity ($ in millions)
|
Principal
|
|
Interest Rate
|
|
Interest Payments
|
|||
Senior Secured Notes (1)
|
|
|
|
|
|
|||
May 15, 2023
|
$
|
500
|
|
|
8.375
|
%
|
|
Semi-Annual
|
May 15, 2025
|
750
|
|
|
8.625
|
%
|
|
Semi-Annual
|
|
May 15, 2027
|
1,000
|
|
|
8.875
|
%
|
|
Semi-Annual
|
|
Total issuance
|
$
|
2,250
|
|
|
|
|
|
(1)
|
Includes an option to call the Notes in whole or in part at any time, subject to a make-whole premium.
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
||||||||||||
($ in millions)
|
August 1, 2020
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||
Assets:
|
|
|
|
|
|
|
|
||||||||
Cash equivalents
|
$
|
368
|
|
|
$
|
—
|
|
|
$
|
368
|
|
|
$
|
—
|
|
Short-term investments
|
25
|
|
|
—
|
|
|
25
|
|
|
—
|
|
||||
Derivative financial instruments
|
6
|
|
|
—
|
|
|
6
|
|
|
—
|
|
||||
Deferred compensation plan assets
|
46
|
|
|
46
|
|
|
—
|
|
|
—
|
|
||||
Other assets
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
||||
Total
|
$
|
447
|
|
|
$
|
46
|
|
|
$
|
399
|
|
|
$
|
2
|
|
Liabilities:
|
|
|
|
|
|
|
|
||||||||
Derivative financial instruments
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
||||||||||||
($ in millions)
|
February 1, 2020
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||
Assets:
|
|
|
|
|
|
|
|
||||||||
Cash equivalents
|
$
|
311
|
|
|
$
|
19
|
|
|
$
|
292
|
|
|
$
|
—
|
|
Short-term investments
|
290
|
|
|
117
|
|
|
173
|
|
|
—
|
|
||||
Derivative financial instruments
|
10
|
|
|
—
|
|
|
10
|
|
|
—
|
|
||||
Deferred compensation plan assets
|
51
|
|
|
51
|
|
|
—
|
|
|
—
|
|
||||
Other assets
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
||||
Total
|
$
|
664
|
|
|
$
|
187
|
|
|
$
|
475
|
|
|
$
|
2
|
|
Liabilities:
|
|
|
|
|
|
|
|
||||||||
Derivative financial instruments
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
||||||||||||
($ in millions)
|
August 3, 2019
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||
Assets:
|
|
|
|
|
|
|
|
||||||||
Cash equivalents
|
$
|
312
|
|
|
$
|
31
|
|
|
$
|
281
|
|
|
$
|
—
|
|
Short-term investments
|
294
|
|
|
131
|
|
|
163
|
|
|
—
|
|
||||
Derivative financial instruments
|
27
|
|
|
—
|
|
|
27
|
|
|
—
|
|
||||
Deferred compensation plan assets
|
51
|
|
|
51
|
|
|
—
|
|
|
—
|
|
||||
Other assets
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
||||
Total
|
$
|
686
|
|
|
$
|
213
|
|
|
$
|
471
|
|
|
$
|
2
|
|
Liabilities:
|
|
|
|
|
|
|
|
||||||||
Derivative financial instruments
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
9
|
|
|
$
|
—
|
|
($ in millions)
|
August 1,
2020 |
|
February 1,
2020 |
|
August 3,
2019 |
||||||
Derivatives designated as cash flow hedges
|
$
|
214
|
|
|
$
|
501
|
|
|
$
|
652
|
|
Derivatives not designated as hedging instruments
|
727
|
|
|
689
|
|
|
1,046
|
|
|||
Total
|
$
|
941
|
|
|
$
|
1,190
|
|
|
$
|
1,698
|
|
($ in millions)
|
August 1,
2020 |
|
February 1,
2020 |
|
August 3,
2019 |
||||||
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
||||||
Other current assets
|
$
|
3
|
|
|
$
|
6
|
|
|
$
|
15
|
|
Other long-term assets
|
—
|
|
|
—
|
|
|
1
|
|
|||
Accrued expenses and other current liabilities
|
1
|
|
|
2
|
|
|
1
|
|
|||
Lease incentives and other long-term liabilities
|
—
|
|
|
—
|
|
|
1
|
|
|||
|
|
|
|
|
|
||||||
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
||||||
Other current assets
|
3
|
|
|
4
|
|
|
11
|
|
|||
Accrued expenses and other current liabilities
|
18
|
|
|
8
|
|
|
7
|
|
|||
|
|
|
|
|
|
||||||
Total derivatives in an asset position
|
$
|
6
|
|
|
$
|
10
|
|
|
$
|
27
|
|
Total derivatives in a liability position
|
$
|
19
|
|
|
$
|
10
|
|
|
$
|
9
|
|
|
13 Weeks Ended
|
|
26 Weeks Ended
|
||||||||||||
($ in millions)
|
August 1,
2020 |
|
August 3,
2019 |
|
August 1,
2020 |
|
August 3,
2019 |
||||||||
Gain (loss) recognized in other comprehensive income
|
$
|
(9
|
)
|
|
$
|
2
|
|
|
$
|
12
|
|
|
$
|
15
|
|
|
Location and Amount of (Gain) Loss Recognized in Net Income (Loss)
|
||||||||||||||
|
13 Weeks Ended
August 1, 2020 |
|
13 Weeks Ended
August 3, 2019 |
||||||||||||
($ 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
|
$
|
2,126
|
|
|
$
|
1,076
|
|
|
$
|
2,449
|
|
|
$
|
1,274
|
|
|
|
|
|
|
|
|
|
||||||||
(Gain) loss recognized in net income (loss)
|
|
|
|
|
|
|
|
||||||||
Derivatives designated as cash flow hedges
|
(7
|
)
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
||||
Derivatives not designated as hedging instruments
|
—
|
|
|
32
|
|
|
—
|
|
|
(3
|
)
|
||||
Total (gain) loss recognized in net income (loss)
|
$
|
(7
|
)
|
|
$
|
32
|
|
|
$
|
(6
|
)
|
|
$
|
(3
|
)
|
|
Location and Amount of Gain Recognized in Net Income (Loss)
|
||||||||||||||
|
26 Weeks Ended
August 1, 2020 |
|
26 Weeks Ended
August 3, 2019 |
||||||||||||
($ 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
|
$
|
3,965
|
|
|
$
|
2,588
|
|
|
$
|
4,811
|
|
|
$
|
2,302
|
|
|
|
|
|
|
|
|
|
||||||||
Gain recognized in net income (loss)
|
|
|
|
|
|
|
|
||||||||
Derivatives designated as cash flow hedges
|
(11
|
)
|
|
—
|
|
|
(12
|
)
|
|
—
|
|
||||
Derivatives not designated as hedging instruments
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
(12
|
)
|
||||
Total gain recognized in net income (loss)
|
$
|
(11
|
)
|
|
$
|
(11
|
)
|
|
$
|
(12
|
)
|
|
$
|
(12
|
)
|
|
13 Weeks Ended
|
|
26 Weeks Ended
|
||||||||||||
($ and shares in millions except average per share cost)
|
August 1,
2020 |
|
August 3,
2019 |
|
August 1,
2020 |
|
August 3,
2019 |
||||||||
Number of shares repurchased (1)
|
—
|
|
|
2.7
|
|
|
—
|
|
|
4.6
|
|
||||
Total cost
|
$
|
—
|
|
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
100
|
|
Average per share cost including commissions
|
$
|
—
|
|
|
$
|
18.41
|
|
|
$
|
—
|
|
|
$
|
21.54
|
|
(1)
|
Excludes shares withheld to settle employee statutory tax withholding related to the vesting of stock units.
|
|
13 Weeks Ended
|
|
26 Weeks Ended
|
||||||||
(shares in millions)
|
August 1,
2020 |
|
August 3,
2019 |
|
August 1,
2020 |
|
August 3,
2019 |
||||
Weighted-average number of shares - basic
|
374
|
|
|
378
|
|
|
373
|
|
|
378
|
|
Common stock equivalents (1)
|
—
|
|
|
1
|
|
|
—
|
|
|
2
|
|
Weighted-average number of shares - diluted
|
374
|
|
|
379
|
|
|
373
|
|
|
380
|
|
(1)
|
For the thirteen and twenty-six weeks ended August 1, 2020, the dilutive impact of outstanding options and awards was excluded from dilutive shares as a result of the Company’s net loss for the respective periods.
|
($ in millions)
|
|
Old Navy Global
|
|
Gap Global
|
|
Banana Republic Global
|
|
Other (3)
|
|
Total
|
||||||||||
13 Weeks Ended August 1, 2020
|
|
|
|
|
|
|||||||||||||||
U.S. (1)
|
|
$
|
1,726
|
|
|
$
|
473
|
|
|
$
|
236
|
|
|
$
|
328
|
|
|
$
|
2,763
|
|
Canada
|
|
145
|
|
|
63
|
|
|
27
|
|
|
—
|
|
|
235
|
|
|||||
Europe
|
|
—
|
|
|
70
|
|
|
2
|
|
|
—
|
|
|
72
|
|
|||||
Asia
|
|
2
|
|
|
158
|
|
|
14
|
|
|
—
|
|
|
174
|
|
|||||
Other regions
|
|
8
|
|
|
19
|
|
|
4
|
|
|
—
|
|
|
31
|
|
|||||
Total
|
|
$
|
1,881
|
|
|
$
|
783
|
|
|
$
|
283
|
|
|
$
|
328
|
|
|
$
|
3,275
|
|
($ in millions)
|
|
Old Navy Global
|
|
Gap Global
|
|
Banana Republic Global (2)
|
|
Other (4)
|
|
Total
|
||||||||||
13 Weeks Ended August 3, 2019
|
|
|
|
|
|
|||||||||||||||
U.S. (1)
|
|
$
|
1,794
|
|
|
$
|
645
|
|
|
$
|
530
|
|
|
$
|
331
|
|
|
$
|
3,300
|
|
Canada
|
|
148
|
|
|
85
|
|
|
53
|
|
|
—
|
|
|
286
|
|
|||||
Europe
|
|
—
|
|
|
131
|
|
|
4
|
|
|
—
|
|
|
135
|
|
|||||
Asia
|
|
11
|
|
|
201
|
|
|
23
|
|
|
—
|
|
|
235
|
|
|||||
Other regions
|
|
19
|
|
|
24
|
|
|
6
|
|
|
—
|
|
|
49
|
|
|||||
Total
|
|
$
|
1,972
|
|
|
$
|
1,086
|
|
|
$
|
616
|
|
|
$
|
331
|
|
|
$
|
4,005
|
|
($ in millions)
|
|
Old Navy Global
|
|
Gap Global
|
|
Banana Republic Global
|
|
Other (3)
|
|
Total
|
||||||||||
26 Weeks Ended August 1, 2020
|
|
|
|
|
|
|||||||||||||||
U.S. (1)
|
|
$
|
2,675
|
|
|
$
|
784
|
|
|
$
|
481
|
|
|
$
|
584
|
|
|
$
|
4,524
|
|
Canada
|
|
222
|
|
|
97
|
|
|
51
|
|
|
—
|
|
|
370
|
|
|||||
Europe
|
|
—
|
|
|
124
|
|
|
5
|
|
|
—
|
|
|
129
|
|
|||||
Asia
|
|
3
|
|
|
266
|
|
|
26
|
|
|
—
|
|
|
295
|
|
|||||
Other regions
|
|
19
|
|
|
36
|
|
|
9
|
|
|
—
|
|
|
64
|
|
|||||
Total
|
|
$
|
2,919
|
|
|
$
|
1,307
|
|
|
$
|
572
|
|
|
$
|
584
|
|
|
$
|
5,382
|
|
($ in millions)
|
|
Old Navy Global
|
|
Gap Global
|
|
Banana Republic Global (2)
|
|
Other (4)
|
|
Total
|
||||||||||
26 Weeks Ended August 3, 2019
|
|
|
|
|
|
|||||||||||||||
U.S. (1)
|
|
$
|
3,435
|
|
|
$
|
1,253
|
|
|
$
|
1,017
|
|
|
$
|
617
|
|
|
$
|
6,322
|
|
Canada
|
|
276
|
|
|
154
|
|
|
100
|
|
|
1
|
|
|
531
|
|
|||||
Europe
|
|
—
|
|
|
252
|
|
|
7
|
|
|
—
|
|
|
259
|
|
|||||
Asia
|
|
21
|
|
|
434
|
|
|
49
|
|
|
—
|
|
|
504
|
|
|||||
Other regions
|
|
39
|
|
|
45
|
|
|
11
|
|
|
—
|
|
|
95
|
|
|||||
Total
|
|
$
|
3,771
|
|
|
$
|
2,138
|
|
|
$
|
1,184
|
|
|
$
|
618
|
|
|
$
|
7,711
|
|
(1)
|
U.S. includes the United States, Puerto Rico, and Guam.
|
(2)
|
Banana Republic Global fiscal year 2019 net sales include the Janie and Jack brand beginning March 4, 2019.
|
(3)
|
Primarily consists of net sales for the Athleta, Intermix, and Hill City brands. Beginning in fiscal year 2020, Janie and Jack net sales are also included. Net sales for Athleta for the thirteen and twenty-six weeks ended August 1, 2020 were $267 million and $472 million, respectively.
|
(4)
|
Primarily consists of net sales for the Athleta, Intermix, and Hill City brands as well as a portion of income related to our credit card agreement. Net sales for Athleta for the thirteen and twenty-six weeks ended August 3, 2019 were $252 million and $475 million, respectively.
|
Item 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations.
|
•
|
offering product that is consistently brand-appropriate and on-trend with high customer acceptance and appropriate value perception;
|
•
|
growing and operating our global online business;
|
•
|
realigning inventory with customer demand;
|
•
|
attracting and retaining strong talent in our businesses and functions;
|
•
|
increasing the focus on improving operational discipline and efficiency by streamlining operations and processes throughout the organization and leveraging our scale;
|
•
|
managing inventory to support a healthy merchandise margin;
|
•
|
rationalizing the Gap and Banana Republic brands, with emphasis on the specialty fleet globally, to create a healthier business; and
|
•
|
continuing to integrate social and environmental sustainability into business practices to support long-term growth.
|
•
|
Net sales for the second quarter of fiscal 2020 decreased 18 percent compared with the second quarter of fiscal 2019.
|
•
|
Online sales for the second quarter of fiscal 2020 increased 95 percent compared with the second quarter of fiscal 2019 and store sales for the second quarter of fiscal 2020 decreased 48 percent compared with the second quarter of fiscal 2019.
|
•
|
Gross profit for the second quarter of fiscal 2020 was $1.15 billion compared with $1.56 billion for the second quarter of fiscal 2019. Gross margin for the second quarter of fiscal 2020 was 35.1 percent compared with 38.9 percent for the second quarter of fiscal 2019.
|
•
|
Operating income for the second quarter of fiscal 2020 was $73 million compared with $282 million for the second quarter of fiscal 2019.
|
•
|
The effective income tax rate for the second quarter of fiscal 2020 was negative 51.2 percent, compared with 38.0 percent for the second quarter of fiscal 2019.
|
•
|
Net loss for the second quarter of fiscal 2020 was $(62) million compared with net income of $168 million for the second quarter of fiscal 2019.
|
•
|
Diluted loss per share was $(0.17) for the second quarter of fiscal 2020 compared with diluted earnings per share of $0.44 for the second quarter of fiscal 2019.
|
(1)
|
Comp Sales for the thirteen weeks ended August 1, 2020 reflect an increase in online sales, see Net Sales discussion for further details.
|
|
February 1, 2020
|
|
26 Weeks Ended August 1, 2020
|
|
August 1, 2020
|
|||||||||
|
Number of
Store Locations
|
|
Number of
Stores Opened
|
|
Number of
Stores Closed (1)
|
|
Number of
Store Locations
|
|
Square Footage
(in millions)
|
|||||
Old Navy North America
|
1,207
|
|
|
14
|
|
|
8
|
|
|
1,213
|
|
|
19.5
|
|
Old Navy Asia
|
17
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
—
|
|
Gap North America
|
675
|
|
|
2
|
|
|
66
|
|
|
611
|
|
|
6.5
|
|
Gap Asia
|
358
|
|
|
10
|
|
|
10
|
|
|
358
|
|
|
3.2
|
|
Gap Europe
|
137
|
|
|
3
|
|
|
11
|
|
|
129
|
|
|
1.1
|
|
Banana Republic North America
|
541
|
|
|
2
|
|
|
45
|
|
|
498
|
|
|
4.2
|
|
Banana Republic Asia
|
48
|
|
|
4
|
|
|
5
|
|
|
47
|
|
|
0.2
|
|
Athleta North America
|
190
|
|
|
8
|
|
|
2
|
|
|
196
|
|
|
0.8
|
|
Intermix North America
|
33
|
|
|
—
|
|
|
1
|
|
|
32
|
|
|
0.1
|
|
Janie and Jack North America
|
139
|
|
|
—
|
|
|
8
|
|
|
131
|
|
|
0.2
|
|
Company-operated stores total
|
3,345
|
|
|
43
|
|
|
173
|
|
|
3,215
|
|
|
35.8
|
|
Franchise
|
574
|
|
|
35
|
|
|
10
|
|
|
599
|
|
|
N/A
|
|
Total
|
3,919
|
|
|
78
|
|
|
183
|
|
|
3,814
|
|
|
35.8
|
|
Decrease over prior year
|
|
|
|
|
|
|
(1.6
|
)%
|
|
(3.5
|
)%
|
|||
|
|
|
|
|
|
|
|
|
|
|||||
|
February 2, 2019
|
|
26 Weeks Ended August 3, 2019
|
|
August 3, 2019
|
|||||||||
|
Number of
Store Locations
|
|
Number of
Stores Opened
|
|
Number of
Stores Closed
|
|
Number of
Store Locations
|
|
Square Footage
(in millions)
|
|||||
Old Navy North America
|
1,139
|
|
|
28
|
|
|
1
|
|
|
1,166
|
|
|
19.0
|
|
Old Navy Asia
|
15
|
|
|
2
|
|
|
—
|
|
|
17
|
|
|
0.2
|
|
Gap North America
|
758
|
|
|
3
|
|
|
28
|
|
|
733
|
|
|
7.6
|
|
Gap Asia
|
332
|
|
|
29
|
|
|
19
|
|
|
342
|
|
|
3.1
|
|
Gap Europe
|
152
|
|
|
1
|
|
|
2
|
|
|
151
|
|
|
1.3
|
|
Banana Republic North America
|
556
|
|
|
5
|
|
|
7
|
|
|
554
|
|
|
4.7
|
|
Banana Republic Asia
|
45
|
|
|
3
|
|
|
1
|
|
|
47
|
|
|
0.2
|
|
Athleta North America
|
161
|
|
|
10
|
|
|
—
|
|
|
171
|
|
|
0.7
|
|
Intermix North America
|
36
|
|
|
—
|
|
|
1
|
|
|
35
|
|
|
0.1
|
|
Janie and Jack North America (2)
|
—
|
|
|
—
|
|
|
—
|
|
|
140
|
|
|
0.2
|
|
Company-operated stores total
|
3,194
|
|
|
81
|
|
|
59
|
|
|
3,356
|
|
|
37.1
|
|
Franchise
|
472
|
|
|
66
|
|
|
17
|
|
|
521
|
|
|
N/A
|
|
Total
|
3,666
|
|
|
147
|
|
|
76
|
|
|
3,877
|
|
|
37.1
|
|
Increase over prior year
|
|
|
|
|
|
|
6.9
|
%
|
|
1.4
|
%
|
(1)
|
This represents stores that have been permanently closed, not stores temporarily closed as a result of COVID-19.
|
(2)
|
On March 4, 2019, we acquired select assets of Gymboree Group, Inc. related to Janie and Jack. The 140 stores acquired were not included as store openings for fiscal 2019; however, they are included in the ending number of store locations as of August 3, 2019.
|
|
13 Weeks Ended
|
|
26 Weeks Ended
|
||||||||||||
($ in millions)
|
August 1,
2020 |
|
August 3,
2019 |
|
August 1,
2020 |
|
August 3,
2019 |
||||||||
Cost of goods sold and occupancy expenses
|
$
|
2,126
|
|
|
$
|
2,449
|
|
|
$
|
3,965
|
|
|
$
|
4,811
|
|
Gross profit
|
$
|
1,149
|
|
|
$
|
1,556
|
|
|
$
|
1,417
|
|
|
$
|
2,900
|
|
Cost of goods sold and occupancy expenses as a percentage of net sales
|
64.9
|
%
|
|
61.1
|
%
|
|
73.7
|
%
|
|
62.4
|
%
|
||||
Gross margin
|
35.1
|
%
|
|
38.9
|
%
|
|
26.3
|
%
|
|
37.6
|
%
|
•
|
Cost of goods sold increased 2.7 percentage points as a percentage of net sales in the second quarter of fiscal 2020 compared with the second quarter of fiscal 2019, primarily driven by higher online shipping costs as a result of growth in online sales and higher costs associated with ship-from-store fulfillment; partially offset by lower promotional activity at Gap Global, Old Navy Global, and Athleta.
|
•
|
Occupancy expenses increased 1.1 percentage points as a percentage of net sales in the second quarter of fiscal 2020 compared with the second quarter of fiscal 2019 primarily driven by a decrease in store sales largely due to COVID-19 store closures with minimal decrease in fixed occupancy expenses, partially offset by an increase in online sales with minimal impact on fixed occupancy expenses.
|
•
|
Cost of goods sold increased 6.9 percentage points as a percentage of net sales in the first half of fiscal 2020 compared with the first half of fiscal 2019, primarily driven by higher online shipping costs as a result of growth in online sales as well as higher inventory impairment due to store closures and decreased retail traffic as a result of COVID-19.
|
•
|
Occupancy expenses increased 4.4 percentage points as a percentage of net sales in the first half of fiscal 2020 compared with the first half of fiscal 2019 primarily driven by a decrease in store sales largely due to COVID-19 store closures with minimal decrease in fixed occupancy expenses, partially offset by an increase in online sales with minimal impact on fixed occupancy expenses.
|
|
13 Weeks Ended
|
|
26 Weeks Ended
|
||||||||||||
($ in millions)
|
August 1,
2020 |
|
August 3,
2019 |
|
August 1,
2020 |
|
August 3,
2019 |
||||||||
Operating expenses
|
$
|
1,076
|
|
|
$
|
1,274
|
|
|
$
|
2,588
|
|
|
$
|
2,302
|
|
Operating expenses as a percentage of net sales
|
32.9
|
%
|
|
31.8
|
%
|
|
48.1
|
%
|
|
29.9
|
%
|
||||
Operating margin
|
2.2
|
%
|
|
7.0
|
%
|
|
(21.8
|
)%
|
|
7.8
|
%
|
•
|
a decrease in store payroll and benefits and other store operating expenses as a result of COVID-19 temporary store closures across all brands; and
|
•
|
separation-related and specialty fleet restructuring costs incurred in the second quarter of fiscal 2019.
|
•
|
impairment charges related to store assets and operating lease assets of $488 million incurred during the first half of fiscal 2020 primarily due to the impact of COVID-19;
|
•
|
a gain that occurred during the first quarter of fiscal 2019 related to the sale of a building; and
|
•
|
severance costs of $35 million related to a reduction in headquarters workforce; partially offset by
|
•
|
a decrease in store payroll and benefits and other store operating expenses as a result of COVID-19 temporary store closures across all brands; and
|
•
|
separation-related and specialty fleet restructuring costs incurred in the first half of fiscal 2019.
|
|
13 Weeks Ended
|
|
26 Weeks Ended
|
||||||||||||
($ in millions)
|
August 1,
2020 |
|
August 3,
2019 |
|
August 1,
2020 |
|
August 3,
2019 |
||||||||
Interest expense
|
$
|
58
|
|
|
$
|
19
|
|
|
$
|
77
|
|
|
$
|
39
|
|
|
13 Weeks Ended
|
|
26 Weeks Ended
|
||||||||||||
($ in millions)
|
August 1,
2020 |
|
August 3,
2019 |
|
August 1,
2020 |
|
August 3,
2019 |
||||||||
Income taxes
|
$
|
21
|
|
|
$
|
103
|
|
|
$
|
(306
|
)
|
|
$
|
178
|
|
Effective tax rate
|
(51.2
|
)%
|
|
38.0
|
%
|
|
23.5
|
%
|
|
31.1
|
%
|
($ in millions)
|
Source of Liquidity
|
|
Outstanding Indebtedness
|
|
Total Available Liquidity
|
||||||
Cash and cash equivalents (1)
|
$
|
2,188
|
|
|
$
|
—
|
|
|
$
|
2,188
|
|
Short-term investments (1)
|
25
|
|
|
—
|
|
|
25
|
|
|||
2023 Notes
|
500
|
|
|
500
|
|
|
—
|
|
|||
2025 Notes
|
750
|
|
|
750
|
|
|
—
|
|
|||
2027 Notes
|
1,000
|
|
|
1,000
|
|
|
—
|
|
|||
Total
|
$
|
4,463
|
|
|
$
|
2,250
|
|
|
$
|
2,213
|
|
(1)
|
As of August 1, 2020, the majority of our cash, cash equivalents, and short-term investments was held in the United States and is generally accessible without any limitations.
|
•
|
Net loss compared with net income in prior comparable period;
|
•
|
an increase of $485 million due to non-cash impairment charges of store assets and operating lease assets during the first half of fiscal 2020 compared with the first half of 2019; and
|
•
|
an increase of $191 million due to a gain that occurred during the first half of fiscal 2019 resulting from the sale of a building;
|
•
|
an increase of $320 million related to accounts payable primarily due to the suspension of rent for stores closed temporarily as a result of COVID-19; partially offset by
|
•
|
a decrease of $275 million related to income taxes payable, net of receivables and other tax-related items, resulting from a net income tax receivable primarily due to the taxable loss carryback estimated for the first half of fiscal 2020 as well as timing of tax-related payments.
|
•
|
$270 million higher net proceeds from available-for-sale securities during the first half of fiscal 2020 compared with the first half of fiscal 2019;
|
•
|
an increase of $123 million due to the net activity related to the purchase and sale of buildings during the first half of fiscal 2019; and
|
•
|
$116 million fewer purchases of property and equipment during the first half of fiscal 2020 compared with the first half of 2019.
|
•
|
$2,250 million proceeds received related to the issuance of long-term debt during the first half of fiscal 2020; and
|
•
|
an increase of $283 million due to the suspension of both cash dividends and share repurchases during the first half of fiscal 2020; partially offset by
|
•
|
$1,307 million payment for the extinguishment of debt during the first half of fiscal 2020.
|
|
26 Weeks Ended
|
||||||
($ in millions)
|
August 1,
2020 |
|
August 3,
2019 |
||||
Net cash provided by (used for) operating activities
|
$
|
(87
|
)
|
|
$
|
583
|
|
Less: Purchases of property and equipment (1)
|
(208
|
)
|
|
(324
|
)
|
||
Free cash flow
|
$
|
(295
|
)
|
|
$
|
259
|
|
(1)
|
Fiscal 2019 excludes the purchase of a building.
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk.
|
Scheduled Maturity ($ in millions)
|
Principal
|
|
Interest Rate
|
|
Interest Payments
|
|||
Senior Secured Notes (1)
|
|
|
|
|
|
|||
May 15, 2023
|
$
|
500
|
|
|
8.375
|
%
|
|
Semi-Annual
|
May 15, 2025
|
750
|
|
|
8.625
|
%
|
|
Semi-Annual
|
|
May 15, 2027
|
1,000
|
|
|
8.875
|
%
|
|
Semi-Annual
|
|
Total issuance
|
$
|
2,250
|
|
|
|
|
|
(1)
|
Includes an option to call the Notes in whole or in part at any time, subject to a make-whole premium.
|
Item 4.
|
Controls and Procedures.
|
Item 1.
|
Legal Proceedings.
|
Item 1A.
|
Risk Factors.
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
|
Total
Number of
Shares
Purchased (1)
|
|
Average
Price Paid
Per Share
Including
Commissions
|
|
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
|
|
Maximum
Number (or
approximate
dollar amount) of
Shares that May
Yet be Purchased
Under the Plans
or Programs
|
||||||
Month #1 (May 3 - May 30)
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
800
|
million
|
Month #2 (May 31 - July 4)
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
800
|
million
|
Month #3 (July 5 - August 1)
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
800
|
million
|
Total
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
|
(1)
|
Excludes shares withheld to settle employee statutory tax withholding related to the vesting of stock units.
|
Item 6.
|
Exhibits.
|
|
|
|
|
Incorporated by Reference
|
|
|
||||||
Exhibit No.
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
Filed/
Furnished
Herewith
|
3.1
|
|
Amended and Restated Certificate of Incorporation (P)
|
|
10-K
|
|
1-7562
|
|
3.1
|
|
April 26, 1993
|
|
|
|
Certificate of Amendment of Amended and Restated Certificate of Incorporation
|
|
10-K
|
|
1-7562
|
|
3.2
|
|
April 4, 2000
|
|
|
|
|
Amended and Restated Bylaws (effective March 23, 2020)
|
|
8-K
|
|
1-7562
|
|
3.1
|
|
March 5, 2020
|
|
|
|
|
Indenture, dated as of May 7, 2020, by and among the Registrant, the Guarantors party thereto and U.S. Bank National Association as trustee and as collateral agent
|
|
8-K
|
|
1-7562
|
|
4.1
|
|
May 8, 2020
|
|
|
|
4.2
|
|
Form of 8.375% Senior Secured Notes due 2023, included in Exhibit 4.1 as Exhibit A-1 to the Indenture
|
|
8-K
|
|
1-7562
|
|
4.2
|
|
May 8, 2020
|
|
|
4.3
|
|
Form of 8.625% Senior Secured Notes due 2025, included included in Exhibit 4.1 as Exhibit A-2 to the Indenture
|
|
8-K
|
|
1-7562
|
|
4.3
|
|
May 8, 2020
|
|
|
4.4
|
|
Form of 8.875% Senior Secured Notes due 2027, included included in Exhibit 4.1 as Exhibit A-3 to the Indenture
|
|
8-K
|
|
1-7562
|
|
4.4
|
|
May 8, 2020
|
|
|
10.1*
|
|
Third Amended and Restated Revolving Credit Agreement dated as of May 7, 2020
|
|
8-K
|
|
1-7562
|
|
10.1
|
|
May 8, 2020
|
|
|
10.2†
|
|
Agreement and Release dated June 12, 2020 by and between Teri List-Stoll and the Registrant
|
|
|
|
|
|
|
|
|
|
X
|
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer of The Gap, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002)
|
|
|
|
|
|
|
|
|
|
X
|
|
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of The Gap, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002)
|
|
|
|
|
|
|
|
|
|
X
|
|
|
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
|
|
|
|
|
|
|
|
|
|
X
|
|
|
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 August 1, 2020, formatted in 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 (Loss), (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
|
*
|
Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish a copy of any omitted schedule or exhibit to the U.S. Securities and Exchange Commission upon request.
|
†
|
Indicates management contract or compensatory plan or arrangement.
|
(P)
|
This Exhibit was originally filed in paper format. Accordingly, a hyperlink has not been provided.
|
|
|
THE GAP, INC.
|
|
|
|
|
|
Date:
|
August 31, 2020
|
By
|
/s/ Sonia Syngal
|
|
|
|
Sonia Syngal
|
|
|
|
Chief Executive Officer
|
|
|
|
|
Date:
|
August 31, 2020
|
By
|
/s/ Katrina O'Connell
|
|
|
|
Katrina O'Connell
|
|
|
|
Executive Vice President and Chief Financial Officer
|
1.
|
Gap and List-Stoll entered into an Agreement for Post-Termination Benefits (“Severance Agreement”), dated June 2, 2017, which provides certain specified severance compensation and benefits (“Severance”) in the event of List-Stoll’s termination. Company will terminate the employment of List-Stoll on June 15, 2020. List-Stoll’s Separation from Service, as that term is defined in the Severance Agreement, is June 15, 2020. Therefore, List-Stoll is eligible for Severance, as long as certain conditions in the Severance Agreement are met, including List-Stoll’s execution of the release below.
|
2.
|
In consideration of the promises that Gap makes in the Severance Agreement, List-Stoll agrees as follows:
|
a.
|
List-Stoll hereby acknowledges that under the terms of the Severance Agreement, she is not eligible for Severance if she accepts employment or a professional relationship with a competitor, as that term is defined in the Separation Agreement. Further, List-Stoll acknowledges that any compensation received from a non-competitor will reduce the amount of Severance List-Stoll receives. Therefore, List-Stoll agrees that she will timely inform Gap of any such employment or professional relationship with a competitor, or any compensation received from a non-competitor. Any failure to inform Gap of such employment or professional relationship will be deemed a breach of this Agreement and will result in the immediate cessation of any Severance and the return of any Severance that was received as a result of List-Stoll’s failure to inform.
|
b.
|
List-Stoll hereby releases and forever discharges Gap, its subsidiaries, affiliates, officers, directors, agents and employees, from any and all claims, liabilities and obligations, of every kind and nature, whether now known or unknown, suspected or unsuspected, which List-Stoll ever had, or now has, with the exception of claims that cannot be legally waived. This release includes all federal and state statutory claims, federal and state common law claims (including those for contract and tort), and claims under any federal or state anti-discrimination statute or ordinance, including but not limited to, Title VII of the Civil Rights Act of 1964 (as amended), the Age Discrimination in Employment Act, 42 U.S.C. sections 1981 and 1983, the Employee Retirement Income Security Act of 1974, the Americans with Disabilities Act, the California Constitution, the California Fair Employment and Housing Act, the California Unfair Competition Act (California Business and Professions Code section 17200 et seq.), the California Unruh Act, and the California Labor Code. Executive expressly waives the protection of Section 1542 of the Civil Code of the State of California, which states:
|
/s/ Teri List-Stoll
|
|
June 12, 2020
|
Teri List-Stoll
|
|
Date
|
|
|
|
/s/ Julie Gruber
|
|
June 12, 2020
|
Gap Inc.
|
|
Date
|
By: Julie Gruber, Executive Vice President
|
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of The Gap, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
|
(a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
August 31, 2020
|
|
|
|
|
/s/ Sonia Syngal
|
|
|
Sonia Syngal
|
|
|
Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of The Gap, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
|
(a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
August 31, 2020
|
|
|
|
|
/s/ Katrina O'Connell
|
|
|
Katrina O'Connell
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date:
|
August 31, 2020
|
|
|
|
|
/s/ Sonia Syngal
|
|
|
Sonia Syngal
|
|
|
Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date:
|
August 31, 2020
|
|
|
|
|
/s/ Katrina O'Connell
|
|
|
Katrina O'Connell
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
|