gistfile1.txt

# Document 1

GAP INC. REPORTS THIRD QUARTER FISCAL 2022 RESULTS
SAN FRANCISCO – November 17, 2022 – Gap Inc. (NYSE: GPS), a portfolio of purpose-led, billion-dollar
lifestyle brands including Old Navy, Gap, Banana Republic, and Athleta, and the largest specialty apparel
company in the U.S., today reported financial results for its third quarter ended October 29, 2022.
“I have deep conviction that we have a portfolio of iconic brands that our customers love, increased
confidence in our platform to drive leverage and economies of scale, and belief in the team’s ability to
deliver. We have sharpened our focus on execution to optimize profitability and cash flow, are bringing
more rigor to our operations, and balancing our assortments in response to what our customers are
telling us. While our efforts show early signs of improvement, we are clear that there is work to be done
to deliver what our customers, employees and shareholders expect from Gap Inc.” said Bob Martin,
Executive Chairman and Interim CEO, Gap Inc.
Third Quarter Fiscal 2022 - Financial Results
• Net sales of $4.04 billion, up 2% compared to last year. Comparable sales were up 1% yearover-year.
o Online sales increased 5% compared to last year and represented 39% of total net sales.
o Store sales increased 1% compared to last year. The company ended the quarter with
3,380 store locations in over 40 countries, of which 2,743 were company operated.
• Reported gross margin was 37.4%; adjusted gross margin, excluding $53 million in impairment
charges related to Yeezy Gap, was 38.7%, deleveraging 320 basis points versus last year.
o On a reported basis, merchandise margin declined 480 basis points versus last year;
adjusted for the impairment charge, merchandise margin declined 370 basis points.
Merchandise margins were negatively impacted by higher discounting and inflationary
commodity price increases and partially offset by lapping last year’s higher air freight
expense.
o Rent, occupancy, and depreciation (ROD) leveraged 10 basis points versus last year
primarily due to higher sales volume during the quarter; excluding a Yeezy Gap
impairment charge, ROD leveraged 50 basis points versus last year.
• Reported operating income was $186 million; reported operating margin of 4.6%. Reported
operating income and margin include a $83 million gain related to the sale of the company’s UK
distribution center and $53 million in impairment charges related to Yeezy Gap.
• Adjusted operating income was $156 million; adjusted operating margin of 3.9%. Adjusted
operating income and margin exclude the gain on sale and impairment charges.
• Reported net income of $282 million. Reported net income includes an income tax benefit of
$114 million related to the cumulative impact of a change in estimated annual tax rate as a
result of quarterly earnings variability.
• Adjusted net income of $260 million, excluding the gain on sale and impairment charges.
Adjusted net income includes an adjusted income tax benefit of $122 million.
• Reported diluted earnings per share of $0.77. Reported diluted earnings per share includes an
income tax benefit of approximately $0.31.
• Adjusted diluted earnings per share of $0.71, which excludes the gain on sale and the
impairment charges. Adjusted diluted earnings per share includes an adjusted income tax
benefit of approximately $0.33.
Third Quarter Fiscal 2022 – Balance Sheet and Cash Flow Highlights
• Ended the quarter with cash and cash equivalents of $679 million.
• Year-to-date net cash from operating activities was an outflow of $112 million. Year-to-date free
cash flow, defined as net cash from operating activities less purchases of property and
equipment, was an outflow of $689 million.
• Ending inventory of $3.04 billion was up 12% year-over-year which includes a 13-percentage
point benefit related to lapping last year’s higher in-transit inventory. This was offset by 9
percentage points of growth related to pack and hold inventory and about two-thirds of the
remaining increase attributable to elevated levels of slow-turning basics and remainder
seasonal.
• Year-to-date capital expenditures were $577 million.
• Paid third quarter dividend of $0.15 per share, totaling $55 million. Board of Directors approved
fourth quarter fiscal 2022 dividend of $0.15 per share.
• Repurchased 1.2 million shares for $12 million early in the third quarter.
Additional information regarding adjusted gross margin, adjusted operating income, adjusted operating
margin, adjusted net income, adjusted income taxes, adjusted diluted earnings per share, and free cash
flow, all of which are non-GAAP financial measures, is provided at the end of this press release along
with a reconciliation of these measures from the most directly comparable GAAP financial measures for
the applicable period.
Third Quarter Fiscal 2022 – Global Brand Results
Old Navy:
• Net sales of $2.1 billion were up 2% compared to last year. Sales growth was driven by
improved size and assortment balance and product acceptance offset by softness in kids and
baby category and demand from the lower-income consumer.
• Comparable sales were down 1%.
Gap:
• Net sales of $1.04 billion were flat compared to last year. Performance was driven by
improvement in category mix balance and assortment balance offset by softness in the kids and
baby category.
• Global comparable sales were up 4%. North America comparable sales were flat.
Banana Republic:
• Net sales of $517 million were up 8% compared to last year. The brand has maintained its focus
on delivering quality product through a differentiated experience. It continued to capitalize on
the current shift in consumer trends while realizing ongoing benefits since last year’s brand
relaunch.
• Comparable sales were up 10%.
Athleta:
• Net sales of $340 million were up 6% compared to last year. While the brand continues to make
progress in driving awareness and establishing authority in the women’s active and wellness
category, it continued to experience softness related to the shift in consumer preference from
athleisure to occasion and work-based categories consistent with the broader athleisure market.
• Comparable sales were flat.
Fiscal Year 2022 Outlook
“While our third quarter results underscore the initial progress we are making toward rebalancing our
assortments and reducing inventories, we continue to take a prudent approach in light of the uncertain
consumer and increasingly promotional environment as we look to the remainder of fiscal 2022”, said
Katrina O’Connell, Executive Vice President and Chief Financial Officer, Gap Inc. “In the near-term, we
remain focused on the actions necessary to reduce inventory, rebalance our assortments to better meet
changing consumer needs, aggressively manage and reevaluate our investments, and fortify our balance
sheet. While we have work to do, we believe we are taking the right steps in order to position Gap Inc.
for sustainable, profitable growth and to deliver value for our shareholders over the long term.”
The company is providing the following commentary related to its outlook.
Sales:
• While the company is making progress balancing its assortments, it continues to take a prudent
approach in light of the uncertain consumer and increasingly promotional environment as it
relates to its sales outlook for the remainder of fiscal 2022. The company anticipates that total
company net sales could be down mid-single digits year-over-year in the fourth quarter of fiscal
2022.
Gross Margin and Inventory:
• As previously communicated, the company anticipates that air freight expense will continue to
normalize and as it anniversaries approximately $245 million of incremental air freight
investment in the fourth quarter of last year, the company expects roughly 540 basis points of
margin leverage in the fourth quarter of fiscal 2022 compared to the fourth quarter of fiscal
2021. The air freight leverage is expected to be offset by approximately 200 basis points of
continued inflationary cost deleverage. ROD as a percentage of sales is expected to be flat
compared to last year.
• While the company is taking actions to balance its assortment and right size inventory, the
company has seen the most significant variability in its discount rate. Further limiting near-term
discount rate visibility is the uncertain consumer environment and increasingly promotional
environment. Gross margin in both the second and third quarters of fiscal 2022 was impacted by
approximately 370 basis points of deleverage stemming primarily from higher discounting.
• The company continues to target total inventories below prior year levels by the end of fiscal
2022 as a result of its inventory actions, reduction of receipts, and anniversary of higher intransit levels last year. By Spring, the company expects to begin to capitalize on its responsive
levers, providing the flexibility to better align inventory levels with demand trends.
SG&A:
• During the third quarter, the company took initial action to reduce operating expenses, resulting
in approximately $250 million in annualized savings, of which an immaterial amount will be a
benefit in the fourth quarter due to timing and severance offsets in addition to anticipated
headwinds in the fourth quarter related to higher seasonal labor costs relative to last year.
• While the company’s operating expense reduction actions are expected to benefit fiscal 2023,
the savings are expected to be offset by more normalized incentive compensation and
continued higher wage pressure next year.
Tax:
• The cumulative tax benefit recorded year-to-date in fiscal 2022 is not expected to have an
impact on the full year, as it is expected to be fully offset with tax expense in the fourth quarter
of fiscal 2022.
Capital Expenditures:
• The company continues to expect capital expenditures of approximately $650 million in fiscal
2022.
Other:
• As part of its 350-store closure plan, the company has closed a net total of 29 Gap and Banana
Republic stores in North America year-to-date and expects to close approximately 30 more in
the fourth quarter of fiscal 2022. The company is on track to open about 30 net new Athleta
stores in fiscal year 2022. The company now expects to open approximately 10 net new Old
Navy stores in fiscal year 2022; this excludes the 24 Old Navy Mexico stores which were
transferred to a franchisee in the third quarter of this year.
• As previously communicated, the company has completed its goal of offsetting dilution in fiscal
2022 and does not anticipate further share repurchases for the remainder of the year.
Webcast and Conference Call Information
Cammeron McLaughlin, Head of Investor Relations at Gap Inc., will host a conference call to review the
company’s third quarter fiscal 2022 results beginning at approximately 2:00 p.m. Pacific Time today.
Ms. McLaughlin will be joined by Interim Chief Executive Officer Bob Martin and Chief Financial Officer
Katrina O’Connell.
A live webcast of the conference call will be available online at investors.gapinc.com. A replay of the
webcast will be available at the same location.

# Document 2

Q3	Fiscal	2022	Earnings	Commentary
The	financial	measures	discussed	below	include	both	GAAP	and	adjusted	non-GAAP	financial	measures.	Please	see	the	section	
captioned	"Reconciliation	of	Non-GAAP	Financial	Measures"	included	in	the	accompanying	financial	tables,	which	include	
more	detail	on	the	GAAP	financial	measures	that	are	most	directly	comparable	to	the	non-GAAP	financial	measures,	and	the	
related	reconciliation	between	these	financial	measures.
This	earnings	commentary	should	be	read	in	conjunction	with	the	Company's	quarterly	report	on	Form	10-Q	filed	with	the	
Securities	and	Exchange	Commission	("SEC")	on,	or	about,	December	8,	2022	and	the	Company's	annual	report	on	Form	10-K	
filed	with	the	SEC	on	March	29,	2022.	These	reports	are	available	at	www.sec.gov.
The	below	narrative	compares	the	third	quarter	of	fiscal	2022	to	the	third	quarter	of	fiscal	2021,	unless	otherwise	noted.
Sales
• Total	net	revenue increased	28%	to	$1.9	billion,	primarily	due	to	increased	company-operated	store	net	revenue,	
including	from	increased	comparable	store	sales	and	new	company-operated	stores,	as	well	as	due	to	increased	direct	to	
consumer	net	revenue.	Other	net	revenue	also	increased.	Net	revenue	increased	26%	in	North	America,	and	increased	
41%	internationally.	Total	comparable	sales	increased	22%,	or	25%	on	a	constant	dollar	basis.	Net	revenue	increased	by	
a	three-year	compound	annual	growth	rate	("CAGR")	of	27%.
• Company-operated	store	revenue	totaled	$903.1	million,	or	48.6%	of	total	net	revenue,	compared	to	$707.2	million,	or	
48.8%	of	total	net	revenue,	in	Q3 2021.	Comparable	store	sales	increased	14%,	or	17%	on	a	constant	dollar	basis,	
primarily	due	to	increased	store	traffic	and	increased	dollar	value	per	transaction,	partially	offset	by	a	decrease	in	
conversion	rates.	Company-operated	store	revenue	increased	16%	on	a	three-year	CAGR	basis.
• E-commerce	revenue	totaled	$767.4	million,	or	41.3%	of	total	net	revenue,	compared	to	$586.5	million,	or	40.4%	of	
total	net	revenue,	in	Q3 2021.	E-commerce	net	revenue	increased	31%,	or	34%	on	a	constant	dollar	basis,	primarily	due	
to	increased	traffic,	partially	offset	by	a	decrease	in	conversion	rates	and	lower	dollar	value	per	transaction.	E-commerce	
revenue	increased	46%	on	a	three-year	CAGR	basis.
• Other	revenue,	which	includes	net	revenue	from	outlets,	temporary	locations,	lululemon	Studio,	sales	to	wholesale	
accounts,	license	and	supply	arrangements,	and	recommerce,	totaled	$186.5	million,	or	10.0%	of	total	net	revenue,	
compared	to	$156.7	million,	or	10.8%	of	total	net	revenue,	in	Q3 2021.	
Store	Count
• New	stores:	We	opened	12	net	new	company-operated	stores	in	Asia	Pacific,	seven	in	North	America,	and	four	in	
Europe	in	Q3 2022.
• Total	company-operated	stores:	At	the	end	of	Q3 2022,	we	had	623	total	company-operated	stores	compared	to	552	at	
the	end	of	Q3 2021.
Gross	Profit
• Gross	profit	was	$1.0	billion,	or	55.9%	of	net	revenue,	compared	to	$829.4	million,	or	57.2%	of	net	revenue,	in	Q3 2021.	
Gross	margin	decreased	130	basis	points	compared	to	Q3 2021.
1
The	decrease	in	gross	margin	was	primarily	the	result	of:
– an	unfavorable	impact	of	foreign	currency	exchange	rates	of	60	basis	points;
– a	net	decrease	in	product	margin	of	40	basis	points,	primarily	due	to	higher	markdowns	as	well	as	higher	damages,	
shrink	and	a	reduction	in	inventory	provisions	in	the	prior	year.	This	was	partially	offset	by	lower	air	freight	costs	
from	rate	reductions	and	reduced	usage;	and
– deleverage	of	30	basis	points	on	fixed	costs,	primarily	due	to	an	increase	in	costs	related	to	our	product	departments	
and	distribution	centers,	partially	offset	by	leverage	on	occupancy	and	depreciation	costs.
Selling,	General	and	Administrative	Expenses	
• SG&A expenses	were	$684.2	million,	or	36.8%	of	net	revenue,	compared	to	$545.1	million,	or	37.6%	of	net	revenue,	in	
Q3 2021.	The	leverage	of	80	basis	points	was	driven	by	70	basis	points	of	net	leverage	from	our	operating	channels	
primarily	driven	by	company-operated	stores	and	other,	60	basis	points	leverage	on	our	head	office	costs,	and	20	basis	
points	leverage	from	foreign	exchange	translation.	This	was	partially	offset	by	70	basis	points	deleverage	from	
depreciation	and	amortization.
Operating	Income
• Operating	income	was	$352.4	million,	or	19.0%	of	net	revenue,	compared	to	$257.9	million,	or	17.8%	of	net	revenue,	in	
Q3 2021.	Adjusted	operating	income,	which	excludes	acquisition-related	expenses,	was	$282.1	million	or	19.4%	in	Q3
2021.
Income	Tax	Expense
• Income	tax	expense	was	$97.3	million	compared	to	$70.2	million	in	Q3 2021	and	the	effective	tax	rate	was	27.6%,	
compared	to	27.2%	in	Q3 2021.	The	adjusted	effective	tax	rate	was 25.1%	in	Q3 2021.		
Net	Income
• Net	income	was	$255.5	million,	or	$2.00	per	diluted	share,	compared	to	$1.44	per	diluted	share	in	Q3 2021.	Adjusted	
diluted	earnings	per	share	were	$1.62	in	Q3 2021.
Share	Count
• Our	diluted	share	count	for	the	quarter	was	127.8	million	compared	to	130.2	million	in	Q3 2021.
• In	Q3 2022,	we	repurchased	54.6	thousand	shares	at	an	average	price	of	$311.21	per	share	for	a	total	cost	of	$17.0	
million.
Capital	Expenditures
• Capital	expenditures	were	$175.6	million	in	Q3 2022	compared	to	$122.5	million	in	Q3 2021.	The	Q3 2022	capital	
expenditures	were	primarily	related	to	investments	that	support	our	business	growth,	including	technology	investments	
and	our	multi-year	distribution	center	project,	as	well	as	store	capital	for	new	locations,	relocations,	and	renovations.
Balance	Sheet	Highlights
• Cash	and	cash	equivalents	were	$352.6	million	at	the	end	of	Q3 2022	and	the	available	capacity	under	our	committed	
revolving	credit	facility	was	$394.8	million.	
• Inventories	increased	85%	to	$1.7	billion	at	the	end	of	Q3 2022	compared	to	Q3 2021.	
2

(1) Total	comparable	sales	includes	comparable	store	sales	and	direct	to	consumer	net	revenue.	
(2) Comparable	store	sales	reflects	net	revenue	from	company-operated	stores	that	have	been	open	for	at	least	12	full	fiscal	months,	or	open	for	at	least	
12	full	fiscal	months	after	being	significantly	expanded.	Comparable	store	sales	exclude	sales	from	stores	which	have	been	temporarily	relocated	for	
renovations	or	have	been	temporarily	closed.
Adjusted	financial	measures
The	following	table	reconciles	adjusted	financial	measures	with	the	most	directly	comparable	measures	calculated	in	
accordance	with	GAAP.	The	adjustments	relate	to	the	acquisition	of	MIRROR,	including	accelerated	compensation	expense	
related	to	the	transition	of	the	former	MIRROR	Chief	Executive	Officer	to	a	temporary	advisory	role	with	the	Company,	and	its	
related	tax	effects.	Please	refer	to	Note	3.	Acquisition-Related	Expenses	included	in	Item	1	of	Part	I	of	our	Report	on	Form	10-
Q	to	be	filed	with	the	SEC	on	or	about	December	8,	2022	for	further	information	on	these	adjustments.	There	were	no	
acquisition-related	expenses	in	the	third	quarter	of	2022.	
Q3 2021
Income	from	
Operations
Operating	
Margin
Income	Tax	
Expense
Effective	Tax	
Rate Net	Income
Diluted	
Earnings	Per	
Share
GAAP	results $	 257,947	 	17.8	% $	 70,174	 	27.2	% $	 187,788	 $	 1.44	
Transaction	and	integration	costs 	 328	 	—	 	 328	 	 —	
Acquisition-related	compensation 	 23,799	 	1.6	 	 23,799	 	 0.18	
Tax	effect	of	the	above 	 611	 	(2.1)	 	 (611)	 	 —	
Adjusted	results	(non-GAAP) $	 282,074	 	19.4	% $	 70,785	 	25.1	% $	 211,304	 $	 1.62	
4

# Question

Give a numerical comparison of these two reports, deriving new interesting numbers as part of the comparison.