The Gap, Inc.

to enter the Q&A queue. As a reminder, please limit your questions to one per participant. If anyone should require assistance during the call, please press the star key followed by the zero key on your touchtone phone. I would now like to introduce your host, Whitney Notaro, head of investor relations.

Thank you and good afternoon, everyone. Welcome to GAAP Inc's second quarter fiscal 2024 earnings conference call. Before we begin, I'd like to remind you that the information made available on this conference call contains forward-looking statements that are subject to risks that could cause our actual results to be materially different. For information on factors that could cause our actual results to differ materially from any forward-looking statements, please refer to the cautionary statements contained in our latest earnings release. The risk factor is described in the company's annual report on Form 10-K filed with the Securities and Exchange Commission on March 19, 2024, and any subsequent filings with the Securities and Exchange Commission, all of which are available on gapinc.com. These forward-looking statements are based on information as of today, August 29, 2024, and we assume no obligation to publicly update or revise our forward-looking statements. Our latest earnings release and the accompanying materials available on gapinc.com also include descriptions and reconciliations of any financial measures not consistent with generally accepted accounting principles. Joining me on the call today, our Chief Executive Officer, Richard Dixon, and Chief Financial Officer, Katrina O'Connell. With that, I'll turn the call over to Richard.

Good afternoon, and thank you for joining us. Gap Inc. delivered another successful quarter that exceeded financial expectations, and we gained market share for the sixth consecutive quarter. In comparison to where we were only one year ago, we are in a stronger position across key metrics that matter, including net sales, margins, and our cash position. And we're making consistent progress in the reinvigoration of our brands. These results give me confidence that we are on our way to unlocking Gap Inc.' 's full potential. On today's call, I'll provide an update on our second quarter performance and progress in the context of our four strategic priorities, maintaining and delivering financial and operational rigor, the reinvigoration of our brands, strengthening our operating platform, and energizing our culture. Then Katrina will walk you through our detailed financial results and share our outlook before we open the call for questions. Let's start with financial and operational rigor. As we said in the first quarter, this is becoming the fabric of our work, which we will continue to reinforce through better processes and cultural accountability and a focus on effectiveness and efficiency. Gap Inc. net sales were up 5% in the second quarter and comps were up 3%, reflecting our continued focus on this important priority. Old Navy posted comps up 5%, representing four consecutive quarters of positive growth. Gap comps were up 3%, driven by five consecutive quarters of share gains. Banana Republic comps were flat as the brand continues to gain clarity on fixing the fundamentals. And as planned, Athleta's comps were down 4% as we lapped heavy discounting. We expanded gross margin by 500 basis points with SG&A largely in line with our expectations, delivering operating income of $293 million and an operating margin of 7.9%, an increase of 490 basis points versus last year's reported operating margin. EPS was 54 cents up from 32 cents of reported EPS in the second quarter of 2023. We are maintaining inventory discipline with Q2 levels down 5% year over year. And we ended the quarter with a strong cash balance of $2.1 billion and generated nearly $400 million in free cash flow. Turning to our next strategic priority, we remain focused on driving relevance and revenue by executing on our brand reinvigoration playbook, which I've referenced over the last few quarters. We are building stronger brand identities supported by trend right products amplified through more compelling storytelling with an innovative media mix that is translating to greater cultural relevance. We are working to provide our customers with a more engaging omnichannel experience and aim to execute with excellence. Each brand is at a different point in the process, and I'm encouraged by the improvements we are driving across the portfolio. I'll take you through how these elements are showing up at each one of our brands, starting with Old Navy. Over the past year, our operational rigor has enabled us to strengthen Old Navy's foundation and brand identity. We are winning in key categories with more clarity in pricing and in-store navigation, connecting our customers with products they want and compelling storytelling. As a result, we are driving market share gains and positive comps. Our TrendRight product is driving share growth in women's, which is important as she's the gateway to the family. Our strategic pursuit to lead in the active category is paying off with sizable market share gains, and we are leading again with dresses as we regain the number one position in the category, according to Cercana. We also see an opportunity to lean further into denim with an expanded offering, a dynamic in-store and online experience supported by a new campaign expressing our evolving brand identity work. Old Navy's marketing is becoming more relevant as evidenced by the impact of the summering campaign. This successful campaign featured Tracy Ellis Ross and Yara Shahidi, who exuded a carefree spirit of summer, dressed in on-brand, stylish offerings. It was a great indication of our new and exciting creative for Old Navy. We are a stronger Old Navy than we were a year ago, and we will continue to operate with this level of rigor as we execute our brand reinvigoration playbook. Now let's turn to GAAP. We are focused on reigniting Gap's leadership in trend-right products and creative expression through big ideas and culturally relevant messaging, returning to our roots as a pop culture brand. While we've achieved great progress with five consecutive quarters of share gains for the brand and seven consecutive quarters of share gains in women's, we continue to be relentlessly pursuing better. The response to our Linen Moves campaign has been fantastic as we've become a destination for linen. Our focus going forward is on repeating these types of creative expressions that leverage our heritage, rooted in music and dance, and declare a trend statement. We've continued to extend our methodology through the Get Loose campaign that we launched last week, featuring Troye Sivan and dance company CDK, declaring Gap as the destination for the baggy and oversized trend. Building on our momentum and share gains in kids, Gap recently launched one of the strongest back-to-school campaigns we believe we have had in years. We are taking a more innovative approach to kids as we embrace a new media mix model focusing on driving kid demand through mom-approved messaging. Collaborations continue to amplify GAP. We were pleased with the strength of our Doan collaboration that drove relevance and revenue, as well as frequency from loyal GAP customers. Our Mad Happy collaboration enabled us to broaden our reach to a new customer base and is generating notable buzz. Gap, our namesake brand, embodies symbolic cultural importance both internally and externally. We are excited to see the progress to date and believe we are well on our way to revitalizing this iconic American brand. Now let's turn to Banana Republic. Here we are focused on reestablishing this brand to thrive in the premium lifestyle space. We have more clarity around fixing the fundamentals with assortment architecture, pricing adjustments, and operational improvements. There is still significant work to be done, but we are continuing to perform while we transform Banana Republic into a stronger brand. At this stage, we are encouraged to see more stability across our men's business with improved depth of wardrobe and a more distinctive style. We are working to win in women's with better assortment planning, a focus on key items, and improved fit. Across men's and women's, our customers continue to see more trend-right products through our BR classics and finest fabrics. Our refreshed flagship Soho store opened in June and is an outstanding example of the brand's new expression, celebrating the brand's heritage with a modern point of view. And we are actively underway with the process to recruit the next leader for the brand. Shifting to Athleta, we are resetting the brand, which has significant growth potential and a distinct brand identity rooted in the power of she. On the world stage in Paris, where the power of SHE was prominently demonstrated, the cultural relevance of the ATHLETA brand was proudly represented. The athletes featured in our Anthem Collection marketing campaign, including gold medalists Simone Biles and Katie Ledecky, who partner with ATHLETA not only for the superior product, but for the celebration and empowerment of women that is core to our brand purpose. We are successfully broadening our customer base, seeing better sell-through at full price. Our marketing execution is gaining traction. Our inventory position is cleaner, and fashion products are resonating, driven by new merchandising. We are gaining more confidence and excitement around the team's work to unlock Athleta's incredible growth potential. As we move past headwinds in the first half, we expect the brand to return to positive comps for the remainder of the year. Moving to the third strategic priority, our operating platform. Last quarter, I spoke to you about opportunities to drive scale and efficiencies across our organization and to better support our brands through platform functions, including media and technology. In Q3, we have begun working with our new media agency partner, Omnicom, and are modernizing our capabilities. In addition to gaining leverage from this new partnership, we are excited about the opportunity for our media mix to become a growth engine for our brands over time. We are evolving from a promotional media mix focused on performance to a full funnel strategy in order to be more effective with our marketing spend. We are focused on becoming more consumer-led, using data and optimization to a higher degree, and implementing best practices in our execution. This is a game-changing endeavor. We are early in our execution but believe this will improve the economics of our marketing spend and change how we show up to our consumer. In terms of technology, during the quarter, we announced Sven Grzesz as Chief Technology Officer, recognizing the central and growing importance of digital in our business and for our customers. It's important that we move quickly to a way of thinking and working with technology embedded at our core to drive value, solve problems, and serve our customers. We are evaluating and assessing our infrastructure, talent, and capabilities as we focus on becoming a digital-first, high-performing apparel company. Now turning to our fourth strategic priority, energizing our culture. A great strategy can only go so far without a culture that is united and mobilized behind it. So I've been highly focused on this priority and intentional about visiting stores across the country to engage, listen, and learn from our store associates and the customers we serve, and to reinforce that every store matters and every person matters. In April, we introduced our new vision, mission, purpose, and values, which have begun to unify our culture and set a standard for how we work. We believe we have a shared responsibility to our customers, communities, and each other to work with purpose and center our values in everything we do. When expressed consistently, this is what will energize and define our culture, our company, our brand. Our people are the gateway to the relentless pursuit of becoming better. And this work is central to the path we're on to achieve our vision. Last August, in my first remarks to you as CEO, I told you that I was intent on leading an exciting new chapter for Gap Inc. One that celebrates our past as we pioneer an extraordinary future. the potential of our brand portfolio was clear to me, as was the need to reposition the company for sustainable, profitable growth. Since then, we've defined our strategic priorities, including our brand re-immigration playbook. We have introduced a new sense of clarity that is empowering our people, helping attract world-class talent and partners, and we have driven meaningful financial progress. To be clear, we have work to do, because transformation of this scale takes time. But we are on our way. As our teams rise to the occasion, our Q2 results are yet another proof point. And finally, I'd like to take a moment to recognize our global team for their dedication and hard work. They epitomize the very best of Gap Inc. as we continue our journey to unlock the full potential of this extraordinary portfolio. I'll now turn the call to Katrina for a closer look at our financials.