gps-20231028

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 28, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-7562

THE GAP, INC.

(Exact name of registrant as specified in its charter)


Delaware						94-1697231
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

Two Folsom Street

San Francisco, California 94105

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (415) 427-0100

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.05 par value

GPS

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The number of shares of the registrant’s common stock outstanding as of November 14, 2023 was 370,833,344.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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, but are not limited to, statements regarding the following:

•the potential impact of global economic conditions on the assumptions and estimates used when preparing the Condensed Consolidated Financial Statements;

•the impact of recent accounting pronouncements;

•the timing of revenue recognition of upfront payments related to our new credit card program agreements with Barclays and Mastercard;

•the timing of recognition in income of unrealized gains and losses from designated cash flow hedges;

•the impact of losses due to indemnification obligations on the Condensed Consolidated Financial Statements;

•the outcome of proceedings, lawsuits, disputes, and claims, including the impact of such actions on the Condensed Consolidated Financial Statements and our financial results;

•our arrangements with third parties to operate stores and websites selling apparel and related products under our brand names;

•our plans to rationalize the Gap and Banana Republic store fleet by reducing the number of Gap and Banana Republic stores in North America;

•managing inventory to facilitate margin recovery and optimizing our cost structure with operational and financial rigor;

•reinvigorating our brands to drive relevance and an engaging omni-channel experience;

•creating trend-right product assortments while driving creative excellence and delivering consistent product with storytelling that excites our customers;

•rationalizing the Gap and Banana Republic store fleet;

•attracting and retaining strong talent in our businesses and functions;

•continuing to integrate social and environmental sustainability into business practices to support long-term growth;

•our ability to supplement near-term liquidity, if necessary, with the ABL Facility or other available market instruments;

•the impact of seasonality and global economic conditions on certain asset and liability accounts as well as cash inflows and outflows;

•the ability of our cash flows from our operations, current balances of cash and cash equivalents, the Senior Notes and the ABL Facility, and other available market instruments to support our business operations and liquidity requirements;

•the importance of our sustained ability to generate free cash flow, which is a non-GAAP financial measure and is defined and discussed in more detail in Item 2 of Part 1 of this Form 10-Q below;

•our dividend policy, including the potential timing and amounts of future dividends;

•the impact of reductions in our credit ratings on our interest expense on future borrowings; and

•the impact of changes in internal control over financial reporting, including the impact of our restructuring plan on our internal control over financial reporting.

Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, without limitation, the following:

•the overall global economic and geopolitical environment and the impact on consumer spending patterns;

•the risk that we fail to maintain, enhance, and protect our brand image and reputation;

•the highly competitive nature of our business in the United States and internationally;

•the risk that we may be unable to manage or protect our inventory effectively and the resulting impact on our gross margins, sales, and results of operations;

•the risk that we fail to manage key executive succession and retention and to continue to attract and retain qualified personnel;

•the risk that we or our franchisees may be unsuccessful in gauging apparel trends and changing consumer preferences or responding with sufficient lead time;

•the risk that restructuring our business may not generate the intended benefits and projected cost savings to the extent or on the timeline as expected;

•the risk that inflationary pressures continue to negatively impact gross margins or that we are unable to pass along price increases;

•the risks to our business, including our costs and supply chain, associated with global sourcing and manufacturing;

•the risks to our reputation or operations associated with importing merchandise from foreign countries, including failure of our vendors to adhere to our Code of Vendor Conduct;

•the risk that trade matters could increase the cost or reduce the supply of apparel available to us;

•reductions in income and cash flow from our credit card arrangement related to our private label and co-branded credit cards;

•the risk of data or other security breaches or vulnerabilities that may result in increased costs, violations of law, significant legal and financial exposure, and a loss of confidence in our security measures;

•the risk that failures of, or updates or changes to, our IT systems may disrupt our operations;

•the risk that our franchisees and licensees could impair the value of our brands or fail to make payments for which we are liable;

•natural disasters, public health crises, political crises, negative global climate patterns, or other catastrophic events;

•acts of terrorism or war, including the conflict between Russia and Ukraine and the conflict in Israel, and the impact on global market stability;

•the risk that our investments in customer, digital, and omni-channel shopping initiatives may not deliver the results we anticipate;

•engaging in or seeking to engage in strategic transactions that are subject to various risks and uncertainties;

•the risk that our efforts to expand internationally may not be successful;

•the risk of foreign currency exchange rate fluctuations;

•the risk that our comparable sales and margins may experience fluctuations, that the seasonality of our business may experience changes, or that we may fail to meet financial market expectations;

•the risk that we or our franchisees may be unsuccessful in identifying, negotiating, and securing new store locations and renewing, modifying, or terminating leases for existing store locations effectively;

•the adverse effects of climate change on our operations and those of our franchisees, vendors and other business partners;

•the risk that we will not be successful in defending various proceedings, lawsuits, disputes, and claims;

•our failure to comply with applicable laws and regulations and changes in the regulatory or administrative landscape;

•our failure to satisfy regulations and market expectations related to our ESG initiatives;

•the risk that changes in our credit profile or deterioration in market conditions may limit our access to the capital markets;

•the risk that our level of indebtedness may impact our ability to operate and expand our business;

•the risk that we and our subsidiaries may be unable to meet our obligations under our indebtedness agreements;

•the risk that worsening global economic and geopolitical conditions could result in changes to the assumptions and estimates used when preparing the Condensed Consolidated Financial Statements;

•the risk that changes in our business structure, our performance or our industry could result in reductions in our pre-tax income or utilization of existing tax carryforwards in future periods, and require additional deferred tax valuation allowances;

•the risk that changes in the geographic mix and level of income or losses, the expected or actual outcome of audits, changes in deferred tax valuation allowances, and new legislation could impact our effective tax rate; and

•the risk that the adoption of new accounting pronouncements will impact future results.

Additional information regarding factors that could cause results to differ can be found in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023 and our other filings with the U.S. Securities and Exchange Commission.

Future economic and industry trends that could potentially impact net sales and profitability are difficult to predict. These forward-looking statements are based on information as of November 21, 2023. We assume no obligation to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

We suggest that this document be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 28, 2023.

THE GAP, INC.

TABLE OF CONTENTS


		Page
	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets as of October 2 8 , 2023, January 28, 2023, and October 29 , 2022	1

	Condensed Consolidated Statements of Operations for the 13 Weeks and 39 Weeks Ended October 2 8 , 2023 and October 29 , 2022	2

	Condensed Consolidated Statements of Comprehensive Income for the 13 Weeks and 39 Weeks Ended October 28 , 2023 and October 29 , 2022	3

	Condensed Consolidated Statements of Stockholders' Equity for the 13 Weeks and 39 Weeks Ended Oct ober 28 , 2023 and October 29 , 2022	4

	Condensed Consolidated Statements of Cash Flows for the 39 Weeks Ended October 28 , 2023 and October 29 , 2022	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.	Controls and Procedures	26

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 5.	Other Information	27

Item 6.	Exhibits	28

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

THE GAP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


($ and shares in millions except par value)	October 28, 2023		January 28, 2023		October 29, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	1,351	$	1,215	$	679

Merchandise inventory	2,377		2,389		3,043
Other current assets	646		1,013		1,316
Total current assets	4,374		4,617		5,038
Property and equipment, net of accumulated depreciation of $4,890, $4,837, and $4,957	2,552		2,688		2,788

SEC Form 10-Q filed by Gap Inc.