The Gap, Inc.

Good afternoon, ladies and gentlemen. I would like to welcome everyone to the GAAP, Inc. First Quarter 2025 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 GAAP Inc.' 's first quarter fiscal 2025 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 18, 2025, 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, May 29, 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 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 the call over to Richard.

Thank you, Whitney, and good afternoon, everyone. The first quarter was another great quarter, during which we delivered what we said we were gonna do, exceeding expectations across key financial metrics. We had positive comp sales for the fifth consecutive quarter, expanded both gross margin and operating margin, and gained market share for the ninth consecutive quarter. We are lapping the early stages of our transformation and our two largest brands Gap and Old Navy are winning in the marketplace and demonstrating the potential of our brand reinvigoration playbook. Old Navy and Gap saw growth across all income cohorts with Old Navy gaining share in both top and bottom cohorts and Gap gaining share in top and middle cohorts showing our strategic intent is working. During the quarter, we increased our year-over-year e-commerce penetration, with Gap Inc. ranking as the number one apparel e-commerce business in the US, reflecting our ability to meet customers where they are. We remain focused on controlling the controllables, driving continuous improvement, and pursuing exciting opportunities as we operate and build this company for long-term growth. Our strategic priorities are clear. Our intent is unwavering. And despite a dynamic environment, we're staying firmly on course, and it's showing in our results. Tariffs are understandably top of mind, so let me take a moment to share how we are approaching this topic. Based on what we know today, we are working to develop plans to mitigate as much of the anticipated tariff impact as possible, taking actions in the short term without compromising the long-term integrity of our strategy. We have been successfully diversifying our sourcing footprint for several years, demonstrating the agility and resilience of our supply chain. China, as an example, used to be one of the top sourcing countries for our product. In 2024, it represented less than 10% of our sourcing. And exiting 2025, we now expect it to be less than 3%. Most other countries represent less than 10%. Vietnam and Indonesia represented 27% and 19% of our sourcing last year, respectively, and our goal is for no country to account for more than 25% by the end of 2026. We are taking a collaborative approach with our global sourcing partners to maintain and build on the long-term relationships we have across our supply chain. Diversification also means nearshoring as well as domestic investment. We're planning to double our vendor sourcing of American grown cotton in 2026. With about 90% of our sales in the quarter in the US and an American workforce of over 65,000, investing in the US is an important priority for our business. Today, we are much better equipped to handle complex headwinds because we have a stronger financial foundation and we are operating with greater discipline, growing brand momentum, and improved platform capabilities. The first quarter was yet another proof point that our strategy is working, and I remain optimistic yet realistic about the opportunities ahead as we navigate a highly dynamic environment. On today's call, as usual, I'll provide an update on our first quarter performance and progress in the context of our four strategic priorities. Then, Katrina will walk you through our detailed financial results and our financial outlook, after which we will open the call for questions. Let's start with our first strategic priority, financial and operational rigor. Gap Inc. comparable sales were up 2% in the quarter. Comps at Old Navy, our largest brand, were up 3%. This is the brand's ninth 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 were up 5%, the sixth consecutive quarter of positive comps, and the brand delivered its eighth consecutive quarter of market share gains. Banana Republic comps were flat as we continued to focus on re-establishing this premium brand in our portfolio, and as we expected, Athleta comps have been challenging, down 8%, and we remain focused on resetting the brand for the long term. We expanded operating margin 140 basis points versus last year. EPS was $0.51, up 24% versus the first quarter of last year. And we ended the quarter with a strong cash balance of approximately $2.2 billion. The rigor and discipline we have put into managing the business is serving us well. Turning to our next strategic priority, driving relevance and revenue by executing on our brand reinvigoration playbook. Our portfolio consists of iconic, trusted brands, each in a different stage of the brand reinvigoration journey. Let's begin with Old Navy. Old Navy is off to a strong start, outperforming in the first quarter with a 3% comp and the ninth consecutive quarter of market share gains. This momentum underscores Old Navy's growing relevance with customers and the team's continued rigor of execution. We are bringing more innovation, style, and value in 2025, and the brand's category leadership drove its Q1 performance, led by Active and Denim, which are both strategic growth categories for the brand. During the quarter, we continue to advance our strategic pursuit to become the destination for the family as the value player in the Active category. Notably, Old Navy continued to gain share in Active as the number five player in the category. The launch of our Studio Smooth collection outperformed our expectations, delivering exceptional comfort and value to consumers and marking another step forward in our expansion in the category. And we're not stopping there. With our active product resonating, we're amping up the storytelling. Earlier this week, we launched the brand's first major active campaign in years, Old Navy, New Moves, which is getting great reception. The brand's Q1 performance was also fueled by the success of our Trenrite crafted denim collection with styles in loose and barrel fits, embroidery, and braided details. This is another great proof point that great style at great value wins across the family. During the quarter, Old Navy grew Cher in denim ranking number four in the category. In women's, we launched a new occasion dress collection supported by a marketing campaign that drove some of the highest reach and engagement on social media to date. An encouraging sign that our product and storytelling are landing with impact. The inspiration for the Occasion line was born from customer insights and then informed by Zach Posen's expertise in occasion wear, ultimately creating a versatile collection where standout style meets unbelievable value. Customers responded well to the collection's design and quality, reinforcing the strength of Old Navy's value with strong, full-price sell-through. Kids also had a great quarter, reinforcing our position as a top kids and baby brand in the US, with strengthened licensing and graphics. We are continuing to lean into this strategic category with the recent launch of our iconic Summer Americana collection for the family, bringing the brand's first partnership with Disney to life in key markets in June. We are intently focused on enhancing the customer experience at Old Navy, which is driving higher NPS scores for both stores and online. We're investing in technology that elevates the customer experience, and our phased rollout of AI-powered RFID is a great example of how we're bringing smarter operations and sharper service to our stores. We also recently announced plans for Old Navy's Next Generation flagship in New York's Herald Square, an iconic location for an iconic brand. Opening in 2026, the new store will be a modern expression of Old Navy, bringing our creativity to life through curated assortments and interactive moments designed to better engage customers. We enter the second quarter well-positioned with pricing clarity, consistent messaging, and leadership in key categories. As we lap last year's strongest quarterly comp in Q2, we do so with sharper execution, a focused playbook, and a brand that's meeting the customer where they are and where they're going. Now, let's turn to GAAP. Gap continues to execute our reinvigoration playbook with clarity and consistency, delivering a standout 5% comp in Q1. This marks the brand's sixth consecutive quarter of positive comps and its eighth consecutive quarter of market share gains, clear indications that Gap is resonating with consumers and gaining relevance. Momentum and women's continue to build quarter over quarter, fueling the brand's strong Q1 performance. We are building a consistent brand narrative that we are applying with relentless repetition. In Q1, this was exemplified through our exciting Feels Like Gap campaign that leveraged music by Meta with a timely feature of Parker Posey. We continue to advance our authority in denim in Q1. This is a foundational category for Gap that has been a key pillar of the brand's reinvigoration. We gained share in the category with on-trend styles like wide leg, barrel, relaxed silhouettes, and pull-ons, all of which are exciting our customers. Taking insights from our Flatiron store, we're now rolling out an enhanced denim experience to top locations, a great example of how we're turning insights into action. We also saw strength in key categories like fleece, sweaters, and sleepwear, essentials that are building deeper loyalty and driving brand affinity with our customer. The brand's strategy, including collaborations, is attracting a new generation to Gap while reinforcing the brand to those who have loved us for years. We are bridging the generation gap. Collaborations continue to drive relevance and revenue for the brand in the quarter, with Harlem's Fashion Row and Doan contributing to strong new customer response, increased engagement, and meaningful buying beyond the collabs. The Gap Studio collection designed by Zac Posen launched last month and is also bringing excitement and buzz to the brand. As Gap brand's highest expression of style, craftsmanship, and quality, Gap Studio showcases expert tailoring, intricate details, and a modern take on American style. Initial response has been positive with strong sell-through at full price, demonstrating the brand's elevated design direction and generating over 1.3 billion impressions so far. All of these collabs are showing strong attachment rates, with customers adding other GAP products to their basket. We are testing the brand's elasticity as we push the boundaries of our pricing power through some of these programs. The strength of the Gap brand is clear and reflects increasing brand relevance and growing connection with our customers. With its strong execution of our playbook, we believe Gap is well positioned to continue this momentum. At Banana Republic, we continue to focus on reestablishing the brand and we are encouraged by the ongoing progress. We delivered a flat comp for the quarter with fundamentals improving and new proof points emerging. The underlying health of the business is strengthening with a pricing architecture that is taking hold. Men's continue to perform well, driven by key items, and we are pleased by improving performance in women's, particularly in coats, skirts, and pants. Having made progress on fit and style, we are now focusing on greater alignment in design and merchandising across men's and women's, which we believe will cultivate broader appeal. The White Lotus collaboration was a standout, generating over 3 billion impressions and bringing new customers into the brand while staying true to the brand's aesthetic. This has been one of Banana Republic's most impactful collaborations yet. Banana's narrative-based storytelling is personifying the brand well through the lens of travel, adventure, and modern exploration. And the brand's marketing is becoming more efficient and effective as we continue to lean into our social-first influencer strategy. We continue to strengthen the foundation at Banana Republic, and with each quarter, we are seeing clearer signs of brand progress and customer engagement. Shifting to Athleta. As we shared last quarter, we are resetting the brand, and we know that we have more work to do. In Q1, we continued to work through the over-rotation we discussed last quarter towards new, more trend-forward customers. While we were successful in bringing new customers in the quarter, we still did not have enough compelling products to appeal to our existing customer base, and that showed in the brand's performance. As we said on our fourth quarter call, we expect this year to be choppy as we focus on fixing the fundamentals, and this is reflected in our outlook. Athleta is a purpose-driven, women-centric brand, rooted in the power of she, and has a valuable place in both our portfolio and the industry. We are investing in design talent, and as we build out the team, we are working to find the right balance across the assortment, delivering product that blends fashion, function, and brand relevance. But this will take time. There's more work to do, and we are committed to taking the necessary steps to reset the brand. Moving to our third strategic priority, strengthening the platform. As we shared on our last earnings call, we continue to prioritize technology investments as a key lever to drive efficiency, elevate the customer experience, and position us for long-term growth. We aspire to be a human-centered, digitally-enabled organization, and we're fortunate to be operating in close proximity to the Bay Area's world-class tech community. We are actively engaging with leading tech companies as we continue to modernize our organization with exciting opportunities to drive innovation across our business. And we look forward to sharing more as these initiatives progress. We're focused on building the right tools to power growth, advancing inventory management, digital product creation, AI enabled capabilities to power customer and employee experiences and strengthening our e-commerce engine with a sharper focus on customer insights and loyalty. Our rigor and the strength of our balance sheet allows us to go on offense, investing in the capabilities, infrastructure, and our brands that will fuel growth for years to come. Behind every great strategy is a strong culture. Gap Inc. is a 55-year-old company that has navigated its fair share of disruption, and at the heart of that endurance is our culture. It's one defined by creativity, resilience, and a deep sense of purpose. These are driving impactful outcomes for our business. Today, we are a much stronger company, not just operationally, but culturally. We're building a more united, focused, and energized organization, one that's rooted in values, driven by talent, and inspired by the belief that great brands can shape culture and connect deeply with consumers. We've made real progress on the fundamentals of the business, but what sets us apart is our people, their dedication, agility, and belief in what we're building together. That culture is our superpower, and it's what will carry us forward. We delivered the first quarter with the same clarity of purpose and operational discipline that's becoming a hallmark of how we run the business. The rigor we've embedded across the organization continues to serve us well. We have a powerful portfolio of brands that matter, and we're proving that they can matter even more. Our strong supply chain, resilient teams, and sharp focus on controlling the controllable has enabled us to manage expenses effectively and meet our bottom line objectives. Looking ahead, I'm confident in our path forward, not just because of the results that we've achieved, but because of the team that's delivering them. I want to thank our employees for their ongoing commitment and our partners for their continued collaboration. With a strong financial foundation and a more united culture, we believe we are well equipped to navigate this complex, dynamic environment. we are making steady progress executing our strategy, and we remain focused on building a high-performing company that drives shareholder value creation over the long term. I'll now turn the call to Katrina for a closer look at our financials.