The Gap, Inc.

Good afternoon, ladies and gentlemen. I would like to welcome everyone to the Gap Inc. 3rd Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. For those analysts who wish to participate in the question and answer session after the presentation, you may now press star 1 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.

Good afternoon, everyone. Welcome to Gap, Inc.' 's third 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 factors 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, November 21, 2024, and we assume no obligation to publicly update or revise our forward-looking statements. Our latest earnings press 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 are Chief Executive Officer Richard Dixon and Chief Financial Officer Katrina O'Connell. With that, I'll turn it over to Richard.

Good afternoon and thank you for joining us. In the third quarter, Gap Inc. continued to perform while we transform, delivering another quarter that exceeded financial expectations. We grew net sales for the fourth consecutive quarter, expanded gross margin, delivered our highest Q3 operating margin in seven years, and gained market share for the seventh consecutive quarter. Our third quarter results reinforce that the execution of our strategic priorities, notably the rigor and discipline we've implemented around our brand reinvigoration playbook, has made us stronger. This gives me confidence that our transformation is taking hold and that we are on our way to become a high-performing company and unlocking Gap Inc.' 's full potential. As usual on today's call, I'll provide an update on our third quarter performance and progress in the context of our four strategic priorities. 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. Gap Inc. net sales were up 2% in the third quarter and comps were up 1%. Old Navy posted a flat comp in the quarter with the seventh consecutive quarter of market share gains. Gap comps were up 3%, the fourth consecutive quarter of positive comps, and the brand delivered its sixth consecutive quarter of market share gains. Banana Republic comps were down 1% as we continue to see improvements around the fundamentals, and I am pleased to report that Athleta's comps turned positive in the quarter, up 5% as the reinvigoration of this brand begins to take hold. We expanded gross margin by 140 basis points with SG&A in line with our expectations, delivering operating income of $355 million and an operating margin of 9.3 percent. An increase of 270 basis points versus last year's reported operating margin. EPS was 72 cents, up 24 percent versus third quarter of last year. We are maintaining inventory discipline with Q3 levels down 2% year over year. And we ended this quarter with a strong cash balance of approximately $2.2 billion and generated $540 million in free cash flow year to date. Turning to our next strategic priority, we remain focused on driving relevance and revenue by executing on our brand reinvigoration playbook. Let's start with Old Navy. the brand performed well in the quarter, with continued market share gains despite facing weather-related headwinds. We had meaningful strength in our important men's and women's businesses, while our more weather-sensitive kids and baby business slowed mid-quarter due to unseasonably warm weather after a strong back-to-school performance. As soon as the weather cooled, we saw a pickup in sales, reinforcing our confidence in the brand for the holiday selling season. The brand is presenting its merchandising narratives and style better, and our customer is taking notice. Our in-store and online communication continues to improve with more clarity around pricing and more compelling marketing promoting great value. we see an exciting opportunity in active as consumers continue to migrate to more active lifestyles. Active is the number one category in the US apparel industry with a total size of $70 billion. Old Navy is already a top five player in this category, and we believe by further expanding our assortment, we can become the destination for the family as the mass value player in the category. We have already made progress through innovation, style, and value, and it's been resonating with double-digit growth in Q3 and consecutive growth over the last five quarters. We are intent on accelerating Old Navy's presence to win share in this important category, and I look forward to sharing more about our plans in this space soon. Turning to the fourth quarter, Old Navy will have dialed up holiday activation with enhanced store visuals, holiday shops, and an exciting campaign starring Jennifer Hudson set to her rendition of Winter Wonderland from her newly released holiday album. We'll also be taking a pronounced stance in Jingle Jammies, an Old Navy family favorite with expanded prints and patterns to celebrate the season. Now let's turn to Gap. Our focus on reigniting Gap's leadership in trend-right products and creative expression through big ideas and culturally relevant messaging is resonating. Q3 marked the fourth consecutive quarter of positive comps and the sixth consecutive quarter of market share gains. Our campaigns and collaborations are attracting a new generation to Gap, while at the same time reinforcing the brand to those who have loved us for years. In Q3 we successfully executed the get loose campaign, which was rooted in denim and featured choice of on opening the door to a new generation. The campaign was amplified by storytelling around the loose trend and achieved a share increase in denim with positive customer feedback on both the product and communications. We were also pleased with the positive response to our Mad Happy and Cult Gaia collaborations, which drove strong new customer acquisition and meaningful buying beyond the collabs. Gap is moving again. Between our relentless repetition of our campaign methodology, punctuated by our relevant collaborations, we've seen resonance with a broader customer base and an increased engagement with the brand. Our recent give your gift holiday campaign, which is one of our most innovative campaigns to date has received a great response with a creative expression that is signature gap. The campaign showcases people with extraordinary talent featuring cash soft, one of our best selling Nick collections cash soft is an innovative fabric that we have expanded into a wider assortment of styles and colors, including our iconic gap stripe. At this stage of the brand's reinvigoration, we are putting more energy behind the customer experience. More specifically, we are improving the digital dialogue and continuing to enhance and evaluate our store experience through service and aesthetics and are running several tests around the country, including at our Fifth Avenue Flatiron location in New York. Now moving on to Banana Republic. There's been a lot of progress at Banana Republic as we continue to focus on reestablishing the brand to thrive in the premium lifestyle space. In Q3, the men's business remained strong, with momentum building quarter over quarter as men's pants, knits, sweaters, and outerwear performed well. While we still have work to do in women's we did see pockets of strength in the quarter, including cashmere we are moving swiftly to both evolve the assortment architecture and improve fit. We see fit as one of our greatest opportunities and i've been working deliberately to make improvements, which is already resulting in fewer returns at the brand. are looking forward to holiday with improved in stock plans for key basics a more balanced price architecture in women's a more compelling dress assortment and a stronger cashmere point of view with more conviction in color and depth of product We've continued to shift Banana's media mix towards more social and influencer marketing, which is putting the brand back into the cultural conversation with our compelling social narrative. We're also optimizing and repositioning the store footprint with a focus on locations that are relevant to our customers and well positioned to reflect the new aesthetic. During the quarter, we rolled out the new aesthetic in two key markets, Century City in Los Angeles and Tyson's Corner in Northern Virginia. Both stores are already driving stronger performance and customer resonance. Shifting to Athleta. We've been eagerly anticipating the return to growth for Athleta. While the team has been working hard to improve the product, marketing, and stores, this quarter we reached an inflection point with a positive plus five comp and we're feeling increasingly confident in the trajectory of the brand. We are building our customer file and have implemented a new marketing methodology and media mix model, which is driving compelling social narratives and attracting new, higher-value customers. We still have work to do to increase traffic, but we're pleased our brand communication is beginning to resonate with customers in a more meaningful way. The momentum Athleta has had growing new followers on TikTok is noteworthy, with the brand becoming one of the platform's fastest-growing sportswear retailers since its launch in February. Turning to Q4, we're excited about our holiday collection, which we believe is the best representation of the Evolve brand to date. Staying on trend and relevant, we're declaring this as the season of sets, introducing more color drops and increasing newness to drive frequency and interest. We are also focused on improving the customer experience both online and in-store. So far, we've refreshed the product imagery on the website and remodeled 15% of the store fleet as we test an elevated experience for our customers. In summary, our brand reinvigoration playbook is comprehensive, and we've been deliberate about taking a phased approach in our execution. We've made great strides on product and marketing and are focused on continuous improvement as we expand our aperture to include enhancements to both the in-store and online experiences for our customers. While each of our brands is in a different stage of the reinvigoration journey, I'm encouraged to see them gaining traction as we continue to execute our playbook and drive toward becoming a high performing house of iconic American brands that shape culture. Moving on to our third strategic priority, we are deep in the work of strengthening our operating platform. During the quarter, the resilience of our supply chain was notable as we navigated the port strike, natural disasters, and the various associated challenges. Our scale, agility, and strong partnerships have allowed us to secure long-term freight contracts and make advancements in the diversification of our sourcing footprint over the last few years. Of note, China now represents less than 10% of our sourcing. We're also continuing our efforts to energize our culture and drive high performance across our teams. With the introduction of our new vision, mission, purpose, and values earlier this year, our global team is becoming more unified, with a clear standard for how we work. This new sense of clarity is empowering our people, driving a step change in our ability to attract world-class talent and partners, and has driven our ability to consistently perform while we transform. I'm proud of how our teams came together to navigate and deliver the third quarter. In the fourth quarter, we remain focused on executing with excellence. Our Q3 and quarter-to-date performance positions us well for the holiday selling season and gives us the confidence to raise our full-year outlook for sales, gross margin, and operating income growth. We look forward to finishing the year strong, creating a solid runway to unlocking Gapping's full potential. And now I'll turn the call to Katrina for a closer look at our financials.