Gap Inc. Announces Strategic Initiatives to Increase Productivity and Profitability of Namesake Brand
Fleet Optimization to Better Reflect How Customers Shop; Headquarter Workforce Reduction to Speed Decision Making
SAN FRANCISCO – June 15, 2015 – Gap Inc. (NYSE: GPS) today announced a series of strategic actions to position Gap brand for improved business performance and build for the future. Following a thorough evaluation of its business and operations, Gap plans to right-size its specialty store fleet and streamline its headquarter workforce, primarily in North America, as part of the comprehensive effort to deliver more consistent and compelling product collections and engage customers across all channels.
“Returning Gap brand to growth has been the top priority since my appointment four months ago – and Jeff and his team bring a sense of urgency to this work,” said Art Peck, Gap Inc. chief executive officer. “Customers are rapidly changing how they shop today, and these moves will help get Gap back to where we know it deserves to be in the eyes of consumers.”
In order to drive productivity improvements and showcase the brand in the most successful locations, Gap will close about 175 specialty stores in North America over the next few years, with about 140 closures occurring this fiscal year. These changes will not impact Gap Outlet and Gap Factory Stores. In parallel with these moves, the brand will close a limited number of European stores during this period.
Following the fleet optimization effort, the brand will continue to serve North American customers through about 800 Gap stores – comprised of 500 Gap specialty locations and 300 Gap outlet stores – as well as its dynamic online channels, better reflecting the way today’s customers shop across specialty, outlet and online. The brand will continue to have a robust global presence in more than 50 countries and with about 1,600 company-operated and franchise locations globally.
“Our customers and employees want Gap to win,” said Jeff Kirwan, global president for Gap. “We’re focused on offering consistent, on-brand product collections and enhancing the customer experience across all of our channels, including a smaller, more vibrant fleet of stores."
Since Kirwan was appointed to lead Gap in December 2014, he’s rebuilt the leadership team and implemented an aggressive agenda designed to strengthen the brand and successfully compete on the global stage. The team is driving towards a clear, on-brand product aesthetic framework focused on optimistic and elevated American style, while also rebuilding the brand’s product operating model to increase speed, predictability and responsiveness, and enable greater competitiveness.
To speed decision making and responsiveness, Kirwan also announced decisions meant to align Gap’s organization in support of its new product operating model. This will result in the reduction of the brand’s headquarter workforce, primarily in North America, by approximately 250 roles during fiscal year 2015.
Kirwan added, “These decisions are very difficult, knowing they will affect a number of our valued employees, but we are confident they are necessary to help create a winning future for our employees, our customers and our shareholders.”
The company estimates an annualized sales loss of approximately $300 million associated with the store closures. Additionally, the company estimates one-time costs primarily associated with these actions to be in the range of approximately $140 million to $160 million, of which about $55 million to $75 million is non-cash. These costs are expected to be recognized primarily in the second quarter of fiscal year 2015 and include lease buyouts, asset impairments primarily related to the Gap fleet, inventory and fabric write-offs, and employee related costs associated with organizational changes.
The company estimates annualized savings from these actions to be approximately $25 million, beginning in 2016.
Excluding the estimated pre-tax costs of $140 million to $160 million referenced above, or approximately $0.21 to $0.24 per diluted share, the company is reaffirming its guidance for fiscal year 2015 to be in the range of $2.75 to $2.80. This guidance is provided to enhance visibility into the company’s expectations regarding its ongoing business excluding the Gap brand optimization effort.
Gap Inc. Investor Meeting
The company will outline its business priorities at an investor meeting on Tuesday, June 16 at its headquarters in San Francisco. A live webcast of the presentations will take place from approximately 9:00 a.m. to 12:00 p.m. Pacific Time and will be accessible on Gap Inc.’s Financial News and Events page at www.gapinc.com/investors. In addition, audio of this meeting can be accessed by calling 1-855-5000-GPS or 855-500-0477 for domestic callers and 913-643-0954 for international callers. The conference passcode is 9911599. A replay of the event will be available on www.gapinc.com.
This press release contains 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:
- improving business performance;
- driving productivity improvements;
- number of future Gap brand stores, and number of Gap brand store closures;
- rebuilding Gap brand’s product operating model;
- workforce reductions;
- financial impact of store closures and workforce reductions, including sales impact, annualized savings, and the amount, type, and timing of expected one-time costs; and
- earnings per share for fiscal year 2015.
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:
- the risk that the company or its franchisees will be unsuccessful in gauging apparel trends and changing consumer preferences;
- the risk that changes in global economic conditions or consumer spending patterns could adversely impact the company’s results of operations;
- the highly competitive nature of the company’s business in the United States and internationally;
- the risk that if the company is unable to manage its inventory effectively, its gross margins will be adversely affected;
- the risks to the company’s business, including its costs and supply chain, associated with global sourcing and manufacturing;
- the risks to the company’s reputation or operations associated with importing merchandise from foreign countries, including failure of the company’s vendors to adhere to its Code of Vendor Conduct;
- the risk that trade matters could increase the cost or reduce the supply of apparel available to the company and adversely affect its business, financial condition, and results of operations;
- the risk that the company’s franchisees’ operation of franchise stores is not directly within the company’s control and could impair the value of its brands;
- the risk that the company will be unsuccessful in renewing, modifying, or terminating leases for existing store locations effectively;
- the risk that the company is 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 the company’s security measures, which could have an adverse effect on the company’s results of operations and reputation;
- the risk that the failure to attract and retain key personnel, or effectively manage succession, could have an adverse impact on the company’s results of operations;
- the risk that the company’s investments in omni-channel shopping initiatives may not deliver the results the company anticipates;
- the risk that comparable sales and margins will experience fluctuations;
- the risk that updates or changes to the company’s information technology (“IT”) systems may disrupt its operations;
- the risk that natural disasters, public health crises, political crises, or other catastrophic events could adversely affect the company’s operations and financial results, or those of its franchisees or vendors;
- the risk that changes in the regulatory or administrative landscape could adversely affect the company’s financial condition, strategies, and results of operations;
- the risk that the company does not repurchase some or all of the shares it anticipates purchasing pursuant to its repurchase program; and
- the risk that the company will not be successful in defending various proceedings, lawsuits, disputes, claims, and audits.
Additional information regarding factors that could cause results to differ can be found in the company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2015, as well as the company’s subsequent filings with the Securities and Exchange Commission.
These forward-looking statements are based on information as of June 15, 2015. The company assumes no obligation to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
About Gap Inc.
Gap Inc. is a leading global retailer offering clothing, accessories, and personal care products for men, women, and children under the Gap, Banana Republic, Old Navy, Athleta, and Intermix brands. Fiscal year 2014 net sales were $16.4 billion. Gap Inc. products are available for purchase in more than 90 countries worldwide through about 3,300 company-operated stores, over 400 franchise stores, and e-commerce sites. For more information, please visit www.gapinc.com.