The Gap, Inc.

Good afternoon, ladies and gentlemen. I would like to welcome everyone to the Gap, Inc. Fourth 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 fourth 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. All of which are available on GapInc.com. These forward-looking statements are based on information as of today, March 6, 2025, 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 today on the call are Chief Executive Officer Richard Dixon and Chief Financial Officer Katrina O'Connell. With that, I'll turn over the call to Richard.

Good afternoon and thank you for joining us today. I'm excited to share with you our strong fourth quarter results, which rounded out an exceptional year for Gap Inc. We continued to perform while we transformed, delivering another quarter that exceeded financial expectations and underscored the meaningful progress we're driving across our strategic priorities. Operational and financial rigor is the fabric of how we work and has delivered solid metrics that Katrina and I will discuss during this call. This discipline has enabled us to execute effectively against our brand reinvigoration playbook and at the same time strengthen our platform by building and sharpening our operational capabilities with highlights on supply chain and technology. And we continue to energize our culture, empower our global teams, and attract great talent. I do want to begin by taking a moment to thank our global team for their partnership and collaboration this past year. Their relentless dedication to our transformation has been instrumental in driving the progress that we've made. Let me share some highlights on the progress we achieved in 2024. Gap Inc. delivered positive comps in all four quarters, with all four of our brands comping flat to positive for the year, demonstrating consistency and strength across the portfolio. Gap Inc. gained market share for the eighth consecutive quarter, reflecting that our brands are resonating with consumers. We achieved one of the highest gross margins in the last 20 years, a clear result of our focus on financial and operational rigor. We increased operating income by more than $500 million and operating margin by 330 basis points versus last year's adjusted rate, while we continue to drive efficiencies in our cost structure. And we delivered a full-year EPS of $2.20, the highest since 2018, demonstrating our earnings power as we drive towards becoming a high-performing company that generates sustainable and profitable growth. Looking ahead, we have more work to do, but we are building on a much stronger foundation. 2025 represents an exciting step in our ongoing transformation as we begin to transition our focus from fixing the fundamentals to continuous improvement through innovation and pave the way for momentum in the years ahead. Since this is our year-end call, our remarks today will be a little longer than usual as we have a lot to cover. I'll begin by providing an update on our fourth quarter performance and progress in the context of our 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 our first strategic priority, financial and operational rigor. Gap Inc. comparable sales were up 3% in the quarter, with Comps at Old Navy, our largest brand, also up 3%. This is the brand's eighth consecutive quarter of market share gains, reinforcing its leadership position as the number one specialty apparel brand and retailer in the U.S. Gap comps accelerated to 7%, the fifth consecutive quarter of positive comps, and the brand delivered its seventh consecutive quarter of market share gains. Banana Republic comps were up 4% and gained share as a result of our focus on re-establishing this premium brand in our portfolio. Athleta had a more challenging quarter with comps down 2% while maintaining market share with more work to do as we continue to reset the brand. We delivered SG&A in line with our expectations and expanded operating margin 120 basis points versus last year. EPS was 54 cents up 10% versus the fourth quarter of last year. We ended the year with strong cash balances of approximately 2.6 billion and generated 1 billion in free cash flow in fiscal 2024. Turning to our next strategic priority, we remain focused on driving relevance and revenue by executing on our brand reinvigoration playbook. Each brand is at a different point in the process and I am encouraged by the improvements we've driven across the portfolio. Let's start with Old Navy. In 2024, Old Navy delivered one of the highest annual net sales in the brand's history and was the number one specialty apparel brand and retailer in the U.S., We've been connecting our customers with products they want through compelling storytelling and executing with clarity in pricing and in-store navigation. The brand is gaining more relevance as demonstrated by our digital dialogue, notably our strong social and influencer engagement. As a result, we finished the year strong with a 3% comp in the quarter and the eighth consecutive quarter of market share gains. Our strategic pursuit in both Denim and Active this year led to a consistent drumbeat of innovation and newness across these key categories. We have been putting insights into action with product innovation, leveraging our scale and expertise, and executing with excellence, and the results are showing up on the scoreboard. Old Navy leaned into denim with an expanded offering, a dynamic in-store and online experience supported by a fall campaign expressing our evolving brand identity work. In the fourth quarter, we increased share in denim driven by our on-trend assortment in wide and loose fits as well as barrel. On our third quarter earnings call, we spoke about the exciting opportunity that we see for Old Navy to become the destination for the family as the value player in the active category. During the year, the brand grew to be the number five player in the category and the only brand among the top five to gain share. and we are not stopping there. In the fourth quarter, Dynamic Fleece and Powersoft were great examples of innovation that drove Old Navy's strength in the active category, and we are bringing more innovation, style, and value in 2025 with our recently launched Studio Smooth Collection. This new fabrication brings exceptional comfort and value to consumers and marks another step forward in our expansion within the active category. Old Navy's merchandising narratives and style are presenting better, and our in-store and online communication has improved with more clarity around pricing and more compelling marketing promoting great value. This evolution of the customer experience has resulted in higher NPS scores for both stores and online. With the foundational elements we've established, we are a stronger Old Navy than we were a year ago and are positioned well for 2025. In the year ahead, Old Navy will be focused on ongoing innovation in key categories, driving big ideas with storytelling while mobilizing an enhanced customer experience. Recognizing the work achieved and the metrics delivered shows the powerful position Old Navy holds in our portfolio and in our industry, and we continue to believe there is significant growth potential ahead for the brand. now let's turn to gap gap is back in the cultural conversation this brand was built on strong product narratives with brilliant marketing expressed through big ideas and over the past year each of these were reignited the team has been executing the brand reinvigoration playbook with excellence and it's showing up in the results Gap's comp accelerated to 7% in the quarter, marking the fifth consecutive quarter of positive comps and the highest quarterly comp in three years. In the fourth quarter, the brand also achieved the seventh consecutive quarter of share gains as the brand continued to resonate with consumers. This strong performance was fueled by innovation, product newness, and compelling marketing with a social-first approach. The momentum in women's continued in the fourth quarter. Men's also performed well, and we began to see improvement in kids and baby. Our focus on big ideas resonated with strength in key categories like fleece, denim, and sweaters, driven by the performance of cash soft, our innovative fabric, all of which were amplified by our Give Your Gift holiday campaign. The brand campaigns and collaborations are attracting a new generation to Gap while reinforcing the brand to those who loved us for years. In 2024, we expanded our customer base and we saw increased engagement with the brand as a result of our trend-right product and culturally relevant messaging. And we're building on that momentum in 2025 with our latest fashion-tainment moment released last week featuring Parker Posey dancing to Meta's Mama's Eyes, a celebration of the confidence that comes from feeling comfortable in your clothes and in your own skin, which is resonating and bridging the generation gap all over again. Our legacy inspires us to pursue the significant potential this brand has. And with consistent execution of our playbook, we are excited about the brand's growth potential in the years ahead. 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. The brand successfully implemented fundamental fixes throughout the year, leaning into classics, more precise assortments, focusing on fit, and rebuilding trust. And we're beginning to see signs of stabilization with the early results showing up in the fourth quarter. Comps were up 4% with market share gains. Women's drove the acceleration at the brand, with better fundamentals across pricing, product, and design, which translated incredibly well, most notably for holiday occasion dressing. The brand continued to build on the strength in the men's division and leaned into classics with a stronger cashmere point of view, which resonated with consumers. The work the Banana Republic team has done to improve women's and strategically redeploy marketing to more culturally relevant storytelling is starting to deliver results. I'm confident Banana Republic is positioned well for continued progress in 2025 and beyond. Shifting to Athleta. In 2024, Athleta stabilized revenue, delivering a flat comp and improvements across several key metrics. The brand re-entered the cultural wellness and sports conversation through major activations that engaged key brand partners like Simone Biles and Katie Ledecky on the world stage in Paris, and most recently Lexi Hull and Kate Martin. In addition, we meaningfully increase the number of new and reactivated customers. I'm encouraged by Athleta's ability to maintain its rank as the number three brand in the women's active category this year and the only brand in the top three to gain share. Despite this progress, the year was not without challenges and volatility. This was reflected in the fourth quarter when the brand delivered a negative 2% comp, missing our expectations. Despite a strong start to the holiday season, Athleta struggled to keep up its core loyal customers' engagement during the peak holiday shopping moments. In 2025, we will be strengthening our product and ensuring newness to excite our core customer base while continuing to inspire new customers. Athleta has made progress in a number of areas this past year. However, we are still in the process of resetting the brand, which in the near term may result in choppy quarterly performance. We have more work to do to implement our reinvigoration playbook and realize the brand's full potential. Our ambitions for Athleta remain high. Moving to our third strategic priority, strengthening the platform. Today, Gap Inc.' 's platform creates significant value with the benefit of scale across our global supply chain, supporting a fleet of more than 3,500 stores, a technology platform that enables one of the largest e-comm businesses in the US, as well as an active customer file of over 55 million. I was impressed with the resilience and the agility of our supply chain as we successfully navigated a number of disruptions during the year. This will serve us well as we continue to navigate a highly dynamic environment, top of mind being tariffs, which Katrina will address in her remarks. In 2024, we began to cultivate a digital-first organization and mindset, building and sharpening our operating capabilities to improve effectiveness and efficiency, and in turn, drive increased cost leverage and demand creation. Sven Gergetz, our chief technology officer, who joined us last summer, began pursuing plans to leverage technology to enable both our business performance and our transformation. This included standing up an office of AI, focused on driving AI innovation across our strategic priorities over time, with early use cases primarily related to employee enablement. In 2025, we will be developing AI monetization opportunities relative to the consumer experience, product-to-market, as well as organizational productivity. Now having organized the various ways we can use AI to enable value creation, we're prepared to mobilize against this framework with intention. Our financial and operational rigor is allowing us to find efficiencies and cost savings that we plan to reallocate to invest in new platform capabilities to support the ongoing success of our brands. As our focus shifts towards continuous improvement in 2025, we will be optimizing for growth by cutting low-value projects to fuel high-value opportunities. We see significant organic growth potential through smart and targeted investments in areas like design, consumer insights, and store operations that deepen the execution of our playbook and seed new avenues for future growth. Reflecting on our fourth priority, I'm proud of how our teams have stepped out of their comfort zones to embrace new ways of working. Getting comfortable with the uncomfortable creates resilience, and the resilience of this organization is showing up as we continue to perform while we transform. A great strategy can only go so far without a culture that is united and mobilized behind it. And the energy of our people is impressive, and it's fueling creativity and driving executional excellence. Transformations of this scale take time, and we've been deliberate about taking a phased approach. In 2024, we were focused on fixing the fundamentals and made significant progress. As we look ahead, we are beginning to focus on continuous improvement through innovation to pave the way for momentum in the years ahead. We are stronger today and have consistently proven our ability to navigate a highly dynamic macro environment while delivering results. Gap Inc. has a powerful portfolio of brands that matter, and we're proving that they can matter more. Our playbook is working and showing up in comp growth and share gains, and we are well positioned for organic growth over time. We continue to unlock efficiencies in the business and deploy savings into high potential growth opportunities. Our financial and operational rigor is driving operating margin expansion and generating significant cash flow, allowing us to invest in the business while returning cash to shareholders through dividends and share repurchases. I'm pleased with what we've been able to accomplish so far, but our aspirations are high and we have more work to do. We remain focused on controlling the controllables and successfully executing our strategic priorities, continuing to be market share winners in any environment. I'll now turn the call to Katrina for a closer look at our financials.