THE GAP, INC.
TABLE OF CONTENTS
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Part I
Item 1. Business.
General
The Gap, Inc. (Gap Inc., the “Company,” “we,”"Company," "we," and “our”"our") was incorporated in the State of California in July 1969 and was reincorporated under the laws of the State of Delaware in May 1988.
Gap Inc. is an omni-channel retailer, with sales to customers both in stores and online, through Company-operated and franchise stores, Company-owned websites, and third-party arrangements. Gap Inc. hasAs of February 3, 2024, we had Company-operated stores in the United States, Canada, Japan, and Taiwan. In fiscal 2022, we signed agreements with a third party, Baozun Inc. ("Baozun"), to operate Gap China and Gap Taiwan ("Gap Greater China") stores and the United Kingdom, France, Ireland, Japan, Italy,in-market website as a franchise partner. On January 31, 2023, the Gap China Hong Kong,transaction closed with Baozun. The Gap Taiwan operations will continue to operate as usual until regulatory approvals and Mexico. closing conditions are met.
We also have franchise agreements with unaffiliated franchisees to operate Old Navy, Gap, and Banana Republic, storesand Athleta throughout Asia, Europe, Latin America, the Middle East, and Africa. Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names. Most of theWe also have licensing agreements with licensees to sell products sold underusing our brand names are designed by usnames.
In addition to operating in the specialty, outlet, online, and manufactured by independent sources. We also sell products that are designed and manufactured by branded third parties, primarily atfranchise channels, we use our Intermix brand.
Old Navy. Old Navy is a globalNorth American value apparel and accessories brand that believes in the democracymakes on-trend fashion accessible to everyone. The brand democratizes style through its combination of style, making highon-trend product, consistent quality, must-have fashion essentials for the whole family, while delivering incredible value and affordable pricing. Old Navy is committed to creating an accessible, frictionless, and delightful shopping experience including a fun unique store experiences.environment, a dynamic online channel, and convenient omni-channel capabilities. Old Navy opened its first store in 1994 in the United States and since then has expanded its international presence withto more than 1,200 Company-operated stores in Canada, China,the U.S. and Mexico,Canada, as well as franchise stores in eight countries. Customers can purchase Old Navy products globally in Company-operated and franchise stores and online.around the world.
Gap. Gap is one of the world's most iconic apparel and accessories brands anchored in optimistic, casual, American style. Founded in San Francisco in 1969, the brand's collections continueGap is an authority on modern American style and continues to build the foundationon its heritage of modern wardrobes - all things denim, tees, button-downs, and khakis, along with must-have trends.
Banana Republic. Acquired with two stores in 1983 as a travel and adventure outfitter, Banana Republic is now a global apparelpremium lifestyle retailer celebrating exploration and accessories brand focused on deliveringself-expression through timeless quality, versatile contemporary classics, designed for today with style that endures. Banana Republic offers clothingfabrics, and accessories with detailed craftsmanshipexceptionally made womenswear, menswear, and luxurious materials.home designs. Customers can purchase Banana Republic products globally in ourthe brand's specialty stores, factory stores, online, and franchise stores.
Athleta. Athleta is a premium fitness and lifestyle brand creating versatile performance apparelwhose mission is to inspire a community of active, confident womenfoster empowerment, confidence, strength, and girls.well-being through movement. Established in 1998 and acquired by Gap Inc. in 2008, Athleta integrates technical features and innovative design across its women's and girls' collection to carry her through a life in motion, from yoga, training, and sports to everyday activities and travel. In 2016, the company launched Athleta Girl, mirroring its signature performance in styles for the next generation. Customers can purchase Athleta products in the United States through its stores and catalogs, or globally through its website.
Since 2018, Athleta has been certified as a benefit corporation ("B Corp"), furthering ourits commitment to using ourthe business as a force for good to drive social and environmental impact. We have metThe Company continues to meet rigorous standards across social and environmental performance, with accountability and transparency. Additionally, we have amended Athleta's legal charter to become a Delaware Public Benefit Corporation in order to further uphold our commitments to people and the planet. With this accreditation, Gap Inc. has becomeis one of the largest publicly tradedpublicly-traded retail companies with a B Corp certified subsidiary apparel brand. We plan to leverage the learnings from Athleta as a case study for Gap Inc., providing a benchmark and roadmap of potential opportunities for greater social and environmental impact across the enterprise.
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We ended fiscal 20172023 with 3,1652,562 Company-operated stores and 429998 franchise store locations. For more information on the number of stores by brand and region, see the table in included in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-K.
Old Navy, Gap, Banana Republic, and Athleta each have a private label credit card program and a co-branded credit card program through which frequent customers receive benefits. Private label and co-branded credit cards are provided by a third-party financing company, with associated revenue sharing arrangements reflected in Gap Inc. operations. We also have an integrated loyalty program across the U.S. and Puerto Rico that aims to attract new customers and create enduring relationships by turning customers into lifelong loyalists. We are focused on increasing the lifetime value of our loyalty members through greater personalization, including leveraging first party data and increasing promotions with targeted content, offers, and experiences. Although each brand expression has a different look and feel, customers can earn and redeem rewards across all of our brands. All of our brands issue and redeem gift cards throughcards.
Product Development
We design, develop, market, and sell a wide range of apparel and accessory products reflecting a mix of basics and fashion items based on widely accepted fashion trends, striving to bring product to market quickly and provide unrivaled value to customers. We are committed to pursuing technology and product innovation that supports our brands.sustainability efforts while also delivering great quality products to our customers. Our product teams research, test, and iterate each season to deliver the latest styles in fabrics and silhouettes that are made to last while remaining conscious of the types of materials being sourced and the suppliers they work with. We leverage feedback and purchasing data from our customer database, along with market trend insights, to guide our product and merchandising decision-making.
We use a variety of Notesmarketing and advertising mediums to Consolidated Financial Statements included in Item 8, Financial Statementsdrive brand health, customer acquisition, and Supplementary Data,engagement. We leverage our customer database and respond to shopping behaviors and needs with personalized content across email, site, and digital media to drive relevance and urgency. Our diversified media mix spans traditional to digital to social media. We focus on productivity of this Form 10-K.demand generation investments to drive increased effectiveness.
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Merchandise Vendors
We purchase private label and non-private label merchandise from about 800over 250 vendors. Our vendors have factories in about 5030 countries. Our two largest vendors each accounted for about 5approximately 9 percent and 7 percent of the dollar amount of our total fiscal 20172023 purchases. Of our merchandise purchased during fiscal 2017,2023, substantially all purchases, by dollar value, were from factories outside the United States. Approximately 25 percent and 2229 percent of our fiscal 20172023 purchases, by dollar value, were from factories in Vietnam and China, respectively.Vietnam. Approximately 18 percent of our fiscal 2023 purchases, by dollar value, were from factories in Indonesia. Product cost increases or events causing disruption of imports from Vietnam, China,Indonesia, or other foreign countries, including the imposition of additional import restrictions or taxes, or vendors temporarily closing or potentially failing due to political, financial, or regulatory issues, could have an adverse effect on our operations. Substantially all of our foreign purchases of merchandise are negotiated and paid for in U.S. dollars. AlsoFor additional information on risks related to our merchandise vendors, see the below sections entitled “Risk Factors—in Item 1A, Risk Factors, of this Form 10-K.
•"Risks Related to Our Business Operations—Our business is subject to risks associated with global sourcing and manufacturing," "Risk Factors—
•"Risks Related to Our Business Operations—Risks associated with importing merchandise from foreign countries, including failure of our vendors to adhere to our Code of Vendor Conduct, could harm our business,” and “Risk Factors—"
•“Risks Related to Our Business Operations—Trade matters may disrupt our supply chain” in Item 1A, Risk Factors,chain,” and
•“General Risks—Our business and results of this Form 10-K.
operations could be adversely affected by natural disasters, public health crises, political crises, negative global climate patterns, or other catastrophic events.”
Seasonal Business
Our business typically follows a seasonal pattern, with sales peaking during the end-of-year holiday period.
Additionally, other macroeconomic conditions such as the uncertainty surrounding global inflationary pressures, acts of terrorism or war, global credit and banking markets, and new legislation have had and may continue to have an impact on customer behavior that could result in temporary changes in the seasonality of our business.
Brand Building
Our ability to develop and evolve our existing brands is a key to our success. We believe our distinct brands are among our most important assets. With the exception of Intermix, virtuallyVirtually all aspects of brand development, from product design and distribution to marketing, merchandising, and shopping environments, are controlled by Gap Inc. employees. With respect to Intermix, we control all aspects of brand development except for product design related to third-party products. We continue to invest in our business and enhance the customer experience through significantongoing supply chain, digital, marketing, and omni-channel initiatives. For additional information on risks related to building our brands, see the section entitled “Risk Factors—Risks Related to Strategic Transactions and Investments—Our investments in our supply chain and customer, digital, and omni-channel capabilities, investmentsshopping initiatives may not deliver the results we anticipate” in marketing, enhancementItem 1A, Risk Factors, of our online shopping sites, remodeling of existing stores, and international expansion.
this Form 10-K.
Trademarks and Service Marks
We own the material trademarks used in connection with the marketing, distribution and sale of our products, domestically and internationally, where our products are currently sold or manufactured. Our major trademarks include the Old Navy, Gap, GapKids,Gap Kids, babyGap, GapMaternity, GapBody,Gap Body, GapFit, Banana Republic, Old Navy,and Athleta Intermix, and Weddington Way trademarks and service marks, and certain other trademarks and service marks. We have obtained and continue to maintain registrations for the aforementioned marks have been registered, or are the subject of pending trademark applications, within the United States, PatentCanada, Mexico, the United Kingdom, the European Union, Japan, China, and Trademark Officenumerous other countries throughout the world. In addition, we own domain names for our primary trademarks and numerous copyright registrations. We intend to continue to strategically register, both domestically and internationally, trademarks, domain names, and copyrights that we utilize today and those we develop in the future. We will continue to aggressively police our intellectual property and pursue those who infringe, both domestically and internationally. We believe the distinctive trademarks we use in connection with the registriesour products are important in building our brand image and distinguishing our products from those of many foreign countries and/or are protected by common law.others.
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We have franchise agreements with unaffiliated franchisees to operate Old Navy, Gap, and Banana Republic, storesand Athleta in a number ofabout 40 countries throughout Asia, Europe, Latin America,around the Middle East, and Africa.world. Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names. We also have licensing agreements with licensees to sell products using our brand names. For additional information on risks related to our franchise and licensing business, see the below sections entitled “Risk Factors—in Item 1A, Risk Factors, of this Form 10-K.
•“Risks Related to Strategic Transactions and Investments—Our efforts to expand internationally may not be successful”successful,” and “Risk Factors—
•“Risks Related to Strategic Transactions and Investments—Our franchise business isand licensing businesses are subject to certain risks not directly within our control that could impair the value of our brands” in Item 1A, Risk Factors, of this Form 10-K.
brands.”
Inventory
The nature of the retail business requires us to carry a significant amount of inventory, especially prior to the peak holiday selling season when we, along with other retailers, generally build up inventory levels. We maintain a large part of our inventory in distribution centers. We review our inventory levels in order to identify slow-moving merchandise and broken assortments (items no longer in stock in a sufficient range of sizes or colors) and we primarily use promotions and markdowns to clear merchandise. AlsoFor additional information on risks related to our inventory, see the below sections entitled “Risk Factors—in Item 1A, Risk Factors, of this Form 10-K.
•“Risks Related to Competition, Brand Relevance and Brand Execution—We must successfully gauge apparel trends and changing consumer preferences to succeed,” "Risk Factors—"
•"Risks Related to Our Business Operations—If we are unable to manage our inventory effectively, our gross marginsresults of operations could be adversely affected,"
•"Risks Related to Our Business Operations—Failure to protect our inventory from loss and "Risk Factors—theft may adversely affect our results of operations," and
•“General Risks—Our business and results of operations could be adversely affected by natural disasters, public health crises, political crises, negative global climate patterns, or other catastrophic events" in Item 1A, Risk Factors, of this Form 10-K.
events.”
Competitors
The global apparel retail industry is highly competitive. We compete with local, national, and global apparel retailers. AlsoFor additional information on risks related to competition, see the section entitled “Risk Factors—“Risks Related to Competition, Brand Relevance and Brand Execution—Our business is highly competitive” in Item 1A, Risk Factors, of this Form 10-K.
Human Capital
As of February 3, 2018,2024, we had a workforce of approximately 135,000 employees, which includes a combination of part-time and full-time85,000 employees. We also hire seasonal employees, primarily during the peak holiday selling season. As of February 3, 2024, approximately 83 percent of employees worked in retail locations, approximately 9 percent of employees worked in distribution centers, and approximately 8 percent of employees worked in headquarters locations. In addition, as of that date, approximately 82 percent of employees were located in the U.S. and approximately 18 percent of employees were located outside of the U.S., with a majority of those non-U.S. based employees located in Canada and Japan.
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Building Talent. We invest in our employees through accessible resources and structured training programs that offer opportunities for professional and personal development. Our Retail Academy for our headquarters employees combines classroom, e-learning, and experiential programming to onboard new hires, develop early talent, and provide functional and technical training. Our Rotational Management Program develops leaders across a range of functions. Full-time U.S.-based employees who have completed one year of employment receive a tuition reimbursement benefit. We also offer functional and technical training to our employees in our stores and distribution centers.
Equality and Belonging. Our Equality and Belonging Strategy leverages our people, brands, and voice to unlock opportunities and enable a culture of belonging for our teams, customers, and future generations. Within Gap Inc., we offer year-round programming, including heritage month celebrations, and opportunities for employees to participate in our Equality & Belonging Groups. We also continue to annually disclose our people data on our website (www.gapinc.com).
Pay Equity. In 2014, we were the first Fortune 500 company to announce that we pay women and men equally for equal work, and since then we have conducted internal pay equity reviews using a third-party firm.
Employee Feedback. We value our employees' feedback and use opinion surveys as a critical component of our ongoing listening strategy. We use these insights to understand what is important to our employees, to determine where we should focus our efforts, and to inform ongoing programs and strategies, all to help us create a thriving, productive work environment. We have modernized our approach to soliciting employee feedback through the use of pulse surveys on topical issues to capture data so we can understand and respond faster to employees' needs. We also collect feedback about our employees' work experience during performance reviews.
Health, Wellness and Safety. The health and safety of our employees, customers and communities is a top priority. For our employees, we provide an array of financial incentives and health, well-being and leave benefits to help them make the most of their professional and personal lives. Our store and distribution center employees are trained on safe work practices and learn procedural knowledge through on-the-job training programs that are aligned to industry and Occupational Safety & Health standards. Our internal Safety and Claims teams analyze risks and collaborate with operational leaders to understand and adjust business practices to align with emerging trends, and our Internal Audit team gauges procedural compliance at distribution centers and stores.
Human Capital Management Oversight. The Board of Directors (the "Board") and its Compensation and Management Development Committee oversee human capital management issues. The Compensation and Management Development Committee has formal oversight over the Company's policies and strategies relating to its human capital management function, including policies, processes and strategies relating to employee recruitment, retention, appraisal, and development; talent management; workplace culture and employee engagement; workforce diversity, equity, and inclusion, and any risks or goals related thereto; and the Company's general approach to broad-based compensation, benefits, workplace, and employment practices, as outlined in its charter. The Compensation and Management Development Committee regularly receives reports on talent management, succession planning, and diversity, equity, and inclusion, and engages periodically on compensation program design for all employees at all levels.
For additional information on risks related to our human capital management, see the section entitled “Risk Factors—TheRisks Related to Our Business Operations—Our failure to manage key executive succession and retention and to continue to attract and retain keyqualified personnel or effectively manage succession, could have an adverse impact onadversely affect our results of operations” in Item 1A, Risk Factors, of this Form 10-K.
Government Regulation
As a company with global operations, we are subject to the laws of the United States and the multiple foreign jurisdictions in which we operate and the rules, reporting obligations, and regulations of various governing bodies, which may differ among jurisdictions. Compliance with these laws, rules, reporting obligations, and regulations, which can change, could result in significant costs but has not had, and is not expected to have, a material effect on our capital expenditures, results of operations, or competitive position as compared to prior periods.
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Available Information
We make available on our website www.gapinc.com,(www.gapinc.com) under “Investors,” free of charge, Financial Information, SEC Filings” our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish them to the SEC.
Our Board of Directors Committee Charters (Audit and Finance, Compensation and Management Development, and Governance and Sustainability Committees) and Corporate Governance Guidelines are also available on our website under “Investors, Governance.” Our Code of Business Conduct can be foundis available on our website under “Investors, Corporate Compliance, Code of Business Conduct.Compliance.” Any amendments and waivers to the Code of Business Conduct will also be publicly disclosed.
Environmental, Social, Governance ("ESG")
Information about our ESG efforts is available on our website (www.gapinc.com) under "Values, Sustainability" which provides information on our public commitments, policies, social and environmental programs, sustainability strategy, and ESG data. Also available are downloads of our reporting standards and frameworks - Task Force on Climate-Related Financial Disclosures (TCFD), Sustainability Accounting Standards Board (SASB) and Global Reporting Index (GRI) - and our Annual ESG reports.
For additional information on risks related to our ESG efforts, see the website.section entitled “Risks Related to Sustainability and Climate Change” in Item 1A, Risk Factors, of this Form 10-K.
The information contained in, or referred to, on our website is not deemed to be incorporated into this Annual Report unless otherwise expressly noted.
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Information about our Executive Officers of the Registrant
The following are our executive officers:
Name, Age, Position, and Principal Occupation:
Chris Blakeslee, 46, President and Chief Executive Officer, Athleta effective August 2023; President, BELLA+CANVAS and Alo Yoga from January 2020 to July 2023; and Executive Vice President, Color Image Apparel from October 2017 to December 2019.
Mark Breitbard, 56, President and Chief Executive Officer, Gap Inc. since February 2015;brand effective September 2020; President Growth, Innovation, and Digital divisionChief Executive Officer, Specialty Brands from 2012March 2020 to January 2015; President, Gap North America from 2011 to 2012; Executive Vice President of Strategy and Operations from 2005 to 2011; President, Gap Inc. Outlet from 2008 to 2011.
Richard Dickson, 55, President and Chief InformationExecutive Officer, Gap Inc. effective August 2023; President and Chief Operating Officer, Mattel, Inc. from January2015 to 2023; Chief Brands Officer, Mattel, Inc. from 2014 to December 2015; Senior Viceand President Information Technology,and Chief Executive Officer, Branded Businesses of The Jones Group (now Premier Brands Group Holdings), which owned a portfolio of premier apparel, footwear, and accessories brands, from 2010 to December 2015; Vice President, Information Technology from 2004 to 2010.2014.
Julie Gruber, 52,58, Executive Vice President, Chief Legal and Compliance Officer, and Corporate Secretary effective May 2021; Executive Vice President, Chief Legal, Compliance and Sustainability Officer, and Corporate Secretary from March 2020 to May 2021; and Executive Vice President, Global General Counsel, Corporate Secretary, and Chief Compliance Officer sincefrom February 2016;2016 to March 2020. Ms. Gruber previously held various senior roles within the Company's Legal department.
Katrina O'Connell, 54, Executive Vice President, Chief Financial Officer effective March 2020; Chief Financial Officer and Senior Vice President of Strategy & Innovation, Old Navy from January 2017 to March 2020; and General CounselChief Financial Officer and Senior Vice President of Strategy, Banana Republic from March 2015 to February 2016; Vice PresidentJanuary 2017. Ms. O'Connell has previously held various roles at the Company focused on both financial budgeting and Deputy General Counsel from 2007 to March 2015; Associate General Counsel from 2003 to 2007.forecasting for the Company's portfolio of brands, as well as roles in Supply Chain, IT, Treasury and Investor Relations.
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Sandra Stangl, 55, Executive Vice President and Chief Financial Officer since January 2017; Executive Vice President and Chief Financial Officer, Dick’s Sporting Goods, Inc. from August 2015 to September 2016; Executive Vice President and Chief Financial Officer, Kraft Foods Group, Inc. from September 2013 to May 2015; Senior Vice President and Treasurer, Procter & Gamble Co. from 2008 to August 2013.
Amy Thompson, 48, Executive Vice President, Global Supply ChainChief People Officer effective January 2024; Chief People Officer, Mattel, Inc. from 2017 to 2023; and Product OperationsChief People Officer, TOMS Shoes from February 20152012 to April 2016; Executive Vice President, Global Supply Chain from November 2013 to January 2015; Senior Vice President, Old Navy International from February 2013 to November 2013; Senior Vice President2017. Ms. Thompson previously held several executive and Managing Director, Europe from 2011 to February 2013; Senior Vice President and General Manager, International Outlets from 2010 to 2011; Vice President of Global Production, Supply Chain - Outletleadership roles at Starbucks Coffee Company from 2006 to 2010.2012.
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Item 1A. Risk Factors.
Our past performance may not be a reliable indicator of future performance because actual future results and trends may differ materially depending on a variety of factors, including but not limited to the risks and uncertainties discussed below.below and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Form 10-K and “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of this Form 10-K. In addition, historical trends should not be used to anticipate results or trends in future periods. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition and results of operations. In such case, the market price of our common stock could decline.
Risks Related to Macroeconomic Conditions
Global economic conditions have and could continue to adversely affect our business, financial condition and results of operations.
Our business is affected by global economic conditions and the related impact on consumer spending worldwide. Global economic conditions have and could continue to impact our business and other businesses around the world. Some of the factors that may influence consumer spending patterns include higher unemployment levels, pandemics (such as the COVID-19 pandemic, or the resurgence of the pandemic or the emergence of new strains or variants), extreme weather conditions and natural disasters, higher consumer debt levels, inflationary pressures, recession or fear of recession, global geopolitical instability (including the ongoing Russia-Ukraine and Israel-Hamas conflicts), reductions in net worth based on market declines and uncertainty, home foreclosures and reductions in home values, fluctuating interest and foreign currency rates and credit availability, government austerity measures, fluctuating fuel and other energy costs, fluctuating commodity prices, and general uncertainty regarding the overall future economic environment. Historically, consumer purchases of discretionary items, including our merchandise, generally decline during recessionary periods when disposable income is lower or during other periods of economic instability or uncertainty.
Deteriorating economic conditions or geopolitical instability in any of the regions in which we and our franchisees sell our products could reduce consumer confidence and adversely impact consumer spending patterns, and thereby could adversely affect our sales and results of operations, and result in changes to the assumptions and estimates used when preparing our Consolidated Financial Statements. Examples include, but are not limited to, assumptions and estimates used for inventory valuation, income taxes and valuation allowances, sales return and bad debt allowances, deferred revenue, and the impairment of long-lived assets. In challenging and uncertain economic environments, we cannot predict whether or when such circumstances may improve or worsen, or what impact, if any, such circumstances could have on our business, financial condition and results of operations, or on the price of our common stock.
Risks Related to Competition, Brand Relevance and Brand Execution
Our business is highly competitive.
The global apparel retail industry is highly competitive. We and our franchisees compete with local, national, and global department stores, mass-market retailers, specialty and discount store chains, independent retail stores, and online businesses that market similar lines of merchandise. We face a variety of competitive challenges in an increasingly complex and fast-paced environment, including:
•anticipating and quickly responding to changing apparel trends and customer demands;
•attracting customer traffic both in stores and online;
•competitively pricing our products and achieving customer perception of value;
•maintaining favorable brand recognition and effectively marketing our products to customers in diverse market segments and geographic locations;
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•anticipating and responding to changing customer shopping preferences and practices, including the increasing shift to digital brand engagement, social media communication, and online shopping;
•developing innovative, high-quality products in sizes, colors, and styles that appeal to customers of varying demographics and tastes;
•purchasing and stocking merchandise to match seasonal weather patterns, and our ability to react to shifts in weather that impact consumer demand;
•sourcing and allocating merchandise efficiently; and
•improving the effectiveness and efficiency of our processes in order to deliver cost savings to fund growth.
If we or our franchisees are not able to respond effectively to competitive pressures, changes in retail markets or customer expectations in the United States or internationally, our results of operations would be adversely affected.
We must successfully gauge apparel trends and changing consumer preferences to succeed.
Our success is largely dependent upon our ability to gauge the tastes of our customers and to provide merchandise that satisfies customer demand in a timely manner. However, lead times for many of our design and purchasing decisions may make it more difficult for us to respond rapidly to new or changing apparel trends or consumer acceptance of our products. Transportation shortages, factory closures, labor shortages, port congestion and other supply chain disruptions have in the past and may in the future lead to prolonged delays in receiving inventory. The global apparel retail business fluctuates according to changes in consumer preferences, dictated in part by apparel trends and season. To the extent we misjudge the market for our merchandise or the products suitable for local markets, or fail to execute trends and deliver productproducts to the market as timely as our competitors, our sales will be adversely affected, and the markdowns required to move the resulting excess inventory will adversely affect our operating results.
operations.
We must maintain our reputation and brand image.
Our brands have wide recognition, and the success of our success has been duebusiness depends in large part toon our ability to maintain, enhance and protect our brand image and reputation and our customers’ connection to our brands. Our continued success depends in part on our ability toWe must also adapt to a rapidly changing media environment, including our increasing reliance on social media and online dissemination of advertising campaigns. Even if we react appropriately to negative posts or comments about us and/or our brands on social media and online, our customers’ perception of our brand image and our reputation could be negatively impacted. In addition, customerCustomer sentiment could also be shaped by our partnerships with artists, athletes and other public figures, as well as our sustainability policies and related design, sourcing and operations decisions. Failure to maintain, enhance and protect our brand image could have a material adverse effect onadversely affect our business and results of operations.
Our ability to anticipate and effectively respond to changing apparel trends depends in part on our ability to attract and retain key personnel in our design, merchandising, sourcing, marketing, and other functions. In addition, several of our strategic initiatives, including our technology initiatives and supply chain initiatives, require that we hire and/or develop employees with appropriate experience. Competition for talent is intense, and we cannot be sure that we will be able to attract and retain a sufficient number of qualified personnel in future periods. If we are unable to retain, attract, and motivate talented employees with the appropriate skill sets, or if changes to our organizational structure, operating results, or business model adversely affect morale or retention, we may not achieve our objectives and our results of operations could be adversely impacted. In addition, the loss of one or more of our key personnel or the inability to effectively identify a suitable successor to a key role could have a material adverse effect on our business. In fiscal 2017, there were changes to our senior leadership team, including our new President and Chief Executive Officer of Banana Republic, and our new Executive Vice President and Chief People Officer. In addition, in February 2018, we announced the departure of our President and Chief Executive Officer of Gap brand. The effectiveness of new leaders in these roles, and any further transition as a result of these changes, could have a significant impact on our results of operations.
Business Operations
If we are unable to manage our inventory effectively, our gross marginsresults of operations could be adversely affected.
Fluctuations in the global apparel retail markets impact the levels of inventory ownedmaintained by apparel retailers. The nature of the global apparel retail business requires us to carry a significant amount of inventory, especially prior to the peak holiday selling season when we build up our inventory levels.Merchandise usually must be ordered well in advance of the applicable selling season and frequently before apparel trends are confirmed by customer purchases. We must enter into contracts for the purchaseTransportation shortages, factory closures, labor shortages, port congestion and manufacture of merchandise wellother supply chain disruptions may lead to prolonged delays in advance of the applicable selling season.receiving inventory. As a result, we are vulnerable to demand and pricing shifts and to suboptimal selection and timing of merchandise purchases. In the past, weWe have not always predicted our customers’ preferences and acceptance levels of our trend items with accuracy. If sales do not meet expectations, including due to the impact of current macroeconomic conditions on consumer demand, too much inventory may cause excessive markdowns and, therefore, lower-than-planned gross margins. We could also be
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required to take significant impairment charges on delayed or unproductive inventory, which we experienced in 2022. Conversely, if we underestimate or are unable to satisfy consumer demand for our products, we may experience inventory shortages, which could result in lower than anticipated sales, delayed shipments to customers and negative impacts on consumer relationships and brand loyalty. Any of these risks could adversely affect our results of operations.
We have key strategic initiatives designed to optimize our inventory levels and increase the efficiency and responsiveness of our supply chain, including vendor fabric platforming, product demand testing, and in-season rapid response to demand. We are also developing additional capabilities to analyze customer behavior and demand, which we believe will allow us to better localize assortment and improve store-level allocations to further tailor our assortments to customer needs and increase sell-through. These initiativescapabilities involve significantchanges to our inventory management systems and operational changes, and we have limited experience operating in this manner.processes. If we are unable to implement these initiatives and integrate these additional capabilities successfully, we may not realize the return on our investments that we anticipate, and our operating results of operations could be adversely affected.
Our failure to manage key executive succession and retention and to continue to attract qualified personnel could adversely affect our results of operations.
The loss of one or more of our key personnel or the inability to effectively identify a suitable successor to a key role could adversely affect our business. We made significant changes to our executive leadership team in recent years, including hiring a new President and Chief Executive Officer in 2023. The failure to successfully transition and assimilate key employees, including our new CEO, the effectiveness of our leaders, and any further transitions could adversely affect our results of operations.
Our business and future success depends in part on our ability to attract and retain key personnel in our design, merchandising, sourcing, marketing, and other functions. In addition, executing strategic initiatives may require us to hire and develop employees with appropriate and specialized experience. We must also attract, develop, and retain a sufficient number of qualified field and distribution center personnel. Competition for talent is intense and the turnover rate in the retail industry is generally high. Furthermore, we have experienced a shortage of labor for field and distribution center positions, and we cannot be sure that we will be able to attract and retain a sufficient number of qualified personnel for these and other positions in particular,future periods. Our ability to meet our labor needs while controlling costs is subject to external factors such as unemployment levels, prevailing wage rates and competitive wage pressures, minimum wage legislation, and overtime and paid leave regulations.
In addition, there has been an increase in workers exercising their right to form or join a union, both generally and in the targetretail industry, and the U.S. National Labor Relations Board (NLRB) has issued decisions making it easier for employees to organize. Although none of many recent cyber-attacks. We mayour U.S. and Canadian employees are currently covered by collective bargaining agreements, we have experienced union organizing activity from time to time, and there can be no assurance that our employees will not haveelect to be represented by labor unions in the resourcesfuture. If a significant portion of our work force were to anticipate or prevent rapidly evolving types of cyber-attacks. Attacks may be targeted at us,become unionized, our vendors or customers, or others who have entrusted us with information. In addition, even if we take appropriate measuresculture and operating model could change and our labor costs could increase. Our responses to safeguardany union organizing efforts could also impact how our information securityCompany and privacy environment from security breaches, we could still expose ourbrands are perceived by customers and our business to risk. Actual or anticipated attacks may disrupt or impair our technology capabilities, and may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants. Advances in computer capabilities, new technological discoveries, or other developments may result in the technology used by us to protect transaction or other data being breached or compromised. Measures we implement to protect against cyber attacks may also have the potential to impact our customers’ shopping experience or decrease activity on our websites by making them more difficult to use. Data and security breaches can also occuremployees.
Traditional geographic competition for talent has changed as a result of non-technical issues,the shift to remote work. If our employment proposition is not perceived as favorable compared to other companies, including intentionaldue to our requirements or inadvertent breach byexpectations about when or how often certain employees work on-site or remotely, it could negatively impact our ability to attract and retain our employees.
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If we are unable to retain, attract, and motivate talented employees with the appropriate skill sets, or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. In addition, the global regulatory environment surrounding information security, cybersecurity, and privacy is increasingly demanding, with new and changing requirements, such as the European Union's General Protection Regulation (GDPR), and customers have a high expectation that the Company will adequately protect their personal information from cyber-attack or other security breaches. Security breaches and cyber incidents could result in a violation of applicable privacy and other laws, significant legal and financial exposure, and a loss of consumer confidence in our security measures, which could have an adverse effect on our results of operations and our reputation.
affected.
Our business is subject to risks associated with global sourcing and manufacturing.
Independent third parties manufacture all of our products for us. As a result, we are directly impacted by increases in the cost of those products.products.
If we experience significant increases in demand or need to replace an existing vendor, there can be no assurance that additional manufacturing capacity will be available when required on terms that are acceptable to us or that any vendor would allocate sufficient capacity to us in order to meet our requirements. In addition, for any new manufacturing source, we may encounter delays in production and added costs as a result of the time it takes to train our vendors in our methods and products, as well as our quality control, standards, and environmental, labor, health, and safety standards. Moreover, in the event of a significant disruption in the supply of the fabrics or raw materials used by our vendors in the manufacture of our products, our vendors might not be able to locate alternative suppliers of materials of comparable quality at an acceptable price. Any delays, interruption,interruptions, or increased costs in the manufacture of our products could impact our ability to source product and result in lower sales and net income. In addition, certain countries represent a largerthan anticipated sales.
A large portion of our global sourcing.sourcing comes from a few specific countries. For example, in fiscal 2023, approximately 2529 percent and 2218 percent of our merchandise, by dollar value, iswas purchased from factories in Vietnam and China,Indonesia, respectively. Accordingly, any delaysDelays in production and added costs in Vietnam or China couldthese countries have a more significant impact onin the past and may in the future adversely affect our results of operations.
Because independent vendors manufacture virtually all of our products outside of our principal sales markets, third parties must transport our products over large geographic distances. DelaysIncreases in transportation costs or delays in the shipment or delivery of our products due to the availability of transportation, work stoppages, port strikes, port and infrastructure congestion, public health crises, social unrest, changes in local economic conditions, political upheavals, or other factors, and costs and delays associated with transitioning between vendors, could adversely affect our results of operations. Attacks on cargo ships in the Red Sea, catalyzed by the Israel-Hamas conflict, have disrupted Red Sea shipping lanes and may continue to disrupt global trade flows and impact our financial performance.shipping capacity. Operating or manufacturing delays, transportation delays, or unexpected demand for our products may require us to use faster, but more expensive, transportation methods such as aircraft,air freight, which couldhave in the past and may in the future adversely affect our gross margins. In addition, the cost of fuel is a significant component of transportation costs, so increases in the price of petroleum products can(including due to inflationary pressures, geopolitical instability, or regulation of energy inputs and greenhouse gas emissions) could adversely affect our gross margins.
Risks associated with importing merchandise from foreign countries, including failure of our vendors to adhere to our Code of Vendor Conduct, could harm our business.
We purchase merchandise from third-party vendors in many different countries, and we require those vendors to adhere to a Code of Vendor Conduct, which includes anti-corruption, environmental, labor, health, and safety standards. From time to time, our vendors and their suppliers may not be in compliance with these standards or applicable local laws. Significant or continuing noncompliance with such standards and laws by one or more vendors, suppliers or other third parties could subject us to liability, and could adversely affect our reputation, business and results of operations.
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Trade matters may disrupt our supply chain.
Our operations are subject to complex trade and customs laws, regulations and tax requirements. The countries in which our products are manufactured or imported, or may be manufactured or imported in the future, may from time to time impose duties, tariffs, or other restrictions on our imports or adversely change existing restrictions. For example, the United States has imposed tariffs and bans on goods imported from China (such as the Uyghur Forced Labor Prevention Act). The current political landscape, including with respect to United States-China relations, has introduced greater uncertainty with respect to future tax and trade policy. We are unable to determine the impact that changes in tax and trade policy could have on our global sourcing operations. Our sourcing operations could also be adversely affected by geopolitical and financial instability in our sourcing countries, as well as U.S. or foreign labor strikes, work stoppages, or boycotts, resulting in the disruption of trade from our sourcing countries, significant fluctuations in the value of the U.S. dollar against foreign currencies, restrictions on the transfer of funds, or other trade disruptions. Changes in tax and trade policy, such as the imposition of new duties or tariffs on imported products, or disruptions to our sourcing operations in our sourcing countries, could increase the cost or reduce the supply of apparel available to us and adversely affect our business and results of operations.
The global market for real estate is competitive.
Our ability to effectively obtain real estate to open new stores, distribution centers, and corporate offices nationally and internationally depends on the availability of real estate that meets our criteria for traffic, square footage, co-tenancies, lease economics, demographics, and other factors. We also must be able to effectively renew our existing store leases. In addition, we may seek to downsize, consolidate, reposition, relocate, or close some of our real estate locations, which in most cases requires a modification or termination of an existing store lease. Beginning in fiscal 2020 through the end of fiscal 2023, we closed, net of openings, 344 Gap and Banana Republic stores in North America. Failure to secure adequate new locations, successfully modify or exit existing locations, or effectively manage the profitability of our existing fleet of stores, could adversely affect our results of operations.
Risks Related to Strategic Transactions and Investments
We have and may continue to engage in or seek to engage in strategic transactions, such as acquisitions, partnerships, divestitures and other dispositions, that are subject to global economic conditions,various risks and uncertainties and which could disrupt or adversely affect our business.
We have and may continue to engage in or seek to engage in strategic transactions, such as well as their impactacquisitions, partnerships, divestitures or other dispositions. In recent years, we transferred our European, Mexico and China businesses to a partnership model, and are awaiting regulatory approvals to transfer our Taiwan business. We also divested our Janie and Jack and Intermix brands and acquired two technology companies.
We may not be able to complete strategic transactions on levels of consumer spending worldwide. Someanticipated terms or time frames or at all, and such transactions may not generate some or all of the factors thatexpected strategic, financial, operational or other benefits if and when completed on such anticipated time frames or at all. In addition, these transactions may influence consumer spending include high levels of unemployment, higher consumer debt levels, reductionsbe complex in net worth based on market declinesnature, and uncertainty, home foreclosures and reductions in home values, fluctuating interest and foreign currency rates and credit availability, government austerity measures, fluctuating fuel and other energy costs, fluctuating commodity prices, and general uncertainty regarding the overall future economic environment. Consumer purchases of discretionary items,unanticipated developments or changes, including our merchandise, generally decline during periods when disposable income is adversely affected or there is economic uncertainty.
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affect earnings and have a material adverse effect on our results of operations. In challengingWe may also experience increased difficulties in attracting, retaining and uncertain economic environments, we cannot predict whether motivating employees and/or when such circumstances may improveattracting and retaining customers during the pendency or worsen, or what impact, iffollowing the completion of any such circumstancesof these transactions, which could have onharm our business.
Changes in our business resultsstrategy or restructuring our operations may not generate the intended benefits or projected cost savings we anticipate.
We have and may continue to adjust our business strategies or restructure our operations to meet changes in our business environment. In 2022, we began taking steps to drive long-term improvements across our business, which included reducing open and existing corporate roles, renegotiating our advertising agency contracts, reducing technology operating costs, and rationalizing digital investments. In March 2023, we shared plans to further simplify and optimize our operating model and structure, including actions such as increasing spans of operations, cash flows,control and financial position.decreasing management layers to improve quality and speed of decision making, as well as creating a consistent organizational structure across our brands. In connection with those actions, in April 2023, we announced a restructuring plan that included a reduction of the Company’s workforce primarily in headquarters locations. As of the first half of fiscal 2023, the reduction of the Company’s workforce under the restructuring plan was substantially completed.
Our ability to achieve the intended benefits and projected cost savings from these actions are subject to many estimates and assumptions. For example, savings associated with these actions could be lower than anticipated. These actions are also subject to execution risk and may not generate the intended benefits and projected cost savings to the extent or on the timeline as expected, and our new organizational structure and strategies could be less successful than our previous organizational structure and strategies.
Our efforts to expand internationally may not be successful.
Our current business strategies include pursuing selective international expansion in a number of countries around the world through a number of channels. This includes our franchisees opening additional stores internationally. We have limited experience operating or franchising in some of these locations. In many of these locations, we face major established competitors. In addition, in many of these locations, the real estate, employment and labor, transportation and logistics, regulatory, and other operating requirements differ dramatically from those in the places where we have more experience. Consumer tastes and trends may differ in many of these locations and, as a result, the sales of our products may not be successful or result in the margins we anticipate. If our international expansion plans are unsuccessful or do not deliver an appropriate return on our investments, our results of operations and financial results could be materially, adversely affected.
Our franchise business isand licensing businesses are subject to certain risks not directly within our control that could impair the value of our brands.
We enterhave entered into franchise agreements with unaffiliated franchisees to operate stores and in limited circumstances, websites in many countries around the world. Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names. We have also entered into licensing agreements to sell products using our brand names. The effect of these arrangements on our business and results of operations is uncertain and will depend upon various factors, including the demand for our products in international markets, the demand for new markets internationallyproduct categories and our ability to successfully identify appropriate third parties to act as franchisees, licensees, distributors, or in a similar capacity. In addition, certain aspects of these arrangements are not directly within our control, such as franchisee and licensee financial stability and the ability of these third parties to meet their projections regarding store locations, store openings, and sales. Additionally, certain of our franchisees have in the past and may in the future be unable to make payments to landlords, distributors and suppliers, as well as payments to service any debt they may have outstanding, including to us. We have also provided loan guarantees to various lenders on behalf of certain franchisees, and have guaranteed or are contingently liable for certain franchisees' leases. These arrangements could have an adverse effect on our liquidity and results of operations.
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Other risks that may affect these third parties include general economic conditions in specific countries or markets, foreign exchange rates, changes in diplomatic and trade relationships, restrictions on the transfer of funds, and politicalgeopolitical instability. Moreover, while the agreements we have entered into and plan to enter into in the future provide us with certain termination rights, theThe value of our brands could be impaired to the extent that these third parties do not operate their stores or websites or sell our branded products in a manner consistent with our requirements regarding our brand identities and customer experience standards. Failure to protect the value of our brands, or any other harmful acts or omissions by a franchisee or licensee, could have an adverse effect onalso adversely affect our results of operations and our reputation.
Our investments in customer, digital, and omni-channel shopping initiatives may not deliver the results we anticipate.
One of our strategic priorities is to further develop an omni-channel shopping experience for our customers through the integration of our store and digital shopping channels. Our omni-channel initiatives include cross-channel logistics optimization and exploring additional ways to develop an omni-channel shopping experience, including further digital integration and customer personalization. These initiatives involve significant investments in information technology ("IT") systems, data science and artificial intelligence initiatives, and significant operational changes. Our competitors are also investing in omni-channel initiatives, some of which may be more successful than our initiatives. If the implementation of our customer, digital, and omni-channel initiatives is not successful, or we do not realize the return on our investments in these initiatives that we anticipate, our results of operations would be adversely affected.
Risks Related to Data Privacy and Cybersecurity
We are subject to data and security risks, which could adversely affect our operations and consumer confidence in our security measures or result in liability.
As part of our normal operations, we receive and maintain confidential, proprietary, and personally identifiable information, including credit card information, and information about our customers, our employees, job applicants, and other third parties. The secure operation of our networks and systems, and those of our business partners, suppliers and third-party service providers, including those on which this type of information is stored, processed and maintained is critical to our business operations. These networks and systems are subject to an increasing threat of continually evolving data and security risks, which we must manage.
Security breaches and vulnerabilities impacting our systems and those of our business partners and third-party service providers could cause harm to our systems or compromise data stored on our networks or those of our business partners and third-party service providers, and could expose us to remedial, legal and other costs which could be material. The retail industry, in particular, has been the target of recent cyberattacks. Our efforts to take appropriate measures to safeguard our information security and privacy environment from security breaches and vulnerabilities, and to train our employees to identify security threats as part of our security efforts, vary in maturity across our business. The constantly changing nature of the cyber threats landscape means that we are not able to anticipate or prevent all types of cyberattacks, and our logging processes may not be sufficient to fully investigate a cyberattack. Additionally, as cybercriminals become more sophisticated, the cost of proactive defensive measures continues to increase. Like our peers, we have been targeted by cyberattacks, which in some cases have been successful.
Actual or anticipated cyberattacks and vulnerabilities may disrupt or impair our operations, and may cause us to incur costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants. Advances in technological capabilities, new technological discoveries, or other developments may result in the technology used by us to protect transactions and other data being more easily breached or compromised. Measures we implement to protect against cyberattacks and address vulnerabilities may also have the potential to impact our customers’ shopping experience or decrease activity on our websites by making them more difficult to use. Data and security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information.
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The market for prime real estateglobal regulatory environment surrounding data privacy and cybersecurity is competitive.
increasingly demanding, and we are required to comply with new and constantly evolving laws, such as various state-level privacy laws in the United States and international laws such as the General Data Protection Regulation in the European Union and United Kingdom, which give consumers the right to control how their personal information is collected, used, shared and retained. Our abilityfailure to effectively obtain real estate - to open new stores, distribution centers, and corporate offices nationally and internationally - depends on the availability of real estate that meets our criteria for traffic, square footage, co-tenancies, lease economics, demographics,comply with these and other factors. data privacy laws or to secure personal or confidential information could result in significant legal and financial exposure, and a loss of consumer confidence in our security measures, which could adversely affect our results of operations and our reputation.
Failures of, or updates or changes to, our IT systems may disrupt operations.
We maintain a complex technology platform consisting of both legacy and modern systems, and we also must be able to effectively renewincreasingly rely on third-party service providers for public cloud infrastructure that powers our existing store leases. In addition, we may seek to downsize, consolidate, reposition, relocate, or closee-commerce platform and other systems. Our owned and operated systems require continual maintenance, upgrades and changes, some of which are significant. Upgrades may involve replacing existing systems with successor systems, making changes to existing systems, or cost-effectively acquiring new systems with new functionality. We are aware of the inherent risks associated with maintaining and replacing these systems, including accurately capturing data and addressing system disruptions. We may not successfully maintain or launch these systems as planned or implement them without disruptions to our real estate locations, which in most cases requires a modification of an existing store lease. Failure to secure adequate new locations, successfully modifyoperations. IT system disruptions or exit existing locations,failures, if not anticipated and appropriately mitigated, or failure to effectively manage the profitabilitysuccessfully implement new or upgraded systems, could disrupt our operations and adversely affect our results of operations. As we continue to move to their platforms, our existing fleetreliance on third-party systems means that any downtime or security issues they experience poses a greater risk of stores,a single point of failure. Any failure by our third-party service providers could have a material adverse effect ondisrupt our operations and adversely affect our results of operations.
Reductions in income and cash flow from our credit card arrangement related to our private label and co-branded credit cards could adversely affect our results of operations and financial condition.
A third party, Barclays Bank Delaware ("Barclays"), currently issues and services our portfolios of private label credit card and co-branded credit card programs for our Gap, Old Navy, Banana Republic and Athleta brands. Our agreement with Barclays provides for certain payments to be made by Barclays to us, including a share of revenues from the economic environment may at times make it difficult to determineperformance of the fair market rentcredit card portfolios. The income and cash flow that we receive from Barclays is dependent upon a number of real estate properties withinfactors, including the United Stateslevel of sales on private label and internationally. This could impactco-branded accounts, the qualitylevel of our decisions to exercise lease options at previously negotiated rents and the quality of our decisions to renew expiring leases at negotiated rents. Any adverse effectbalances carried on the qualityaccounts, payment rates on the accounts, finance charge rates and other fees on the accounts, the level of credit losses for the accounts, Barclay’s ability to extend credit to our customers, as well as the cost of customer rewards programs. All of these decisions could impactfactors can vary based on changes in federal and state credit card, banking, and consumer protection laws. For example, the U.S. Consumer Financial Protection Bureau (“CFPB”) recently capped credit card fees for late payments. The factors affecting the income and cash flow that we receive from our ability to retain real estate locations adequate to meetcredit card arrangement can also vary based on a variety of economic, legal, social, and other factors that we cannot control. If the income and cash flow that we receive from our targets or efficiently manage the profitabilitycredit card arrangement decreases significantly, our results of our existing fleet of storesoperations and could have a material adverse effect on our financial condition or results of operations.
could be adversely affected.
Our business is exposed to the risks of foreign currency exchange rate fluctuations and our hedging strategies may not be effective in mitigating those risks.
We are exposed to foreign currency exchange rate risk with respect to our sales, operating expenses, profits, assets, and liabilities generated or incurred in foreign currencies as well as inventory purchases in U.S. dollars for our foreign subsidiaries. AlthoughFluctuations in foreign currency exchange rates could impact consumer spending or adversely affect the profitability of our foreign operations or those of our franchisees and licensees. Global economic and geopolitical uncertainty, such as the ongoing conflicts between Russia and Ukraine and Israel and Hamas, have in the past and may in the future result in volatility in foreign exchange rates. Financial instruments that we use financial instruments to hedge certain foreign currency risks these measures may not succeed in fully offsetting the negative impact of foreign currency rate movements and generally only delay the impact of adverse foreign currency rate movements on our business and financial results.results of operations.
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We experience fluctuations in our comparable sales and margins.margins, which could adversely affect the market price of our common stock, our credit ratings and our liquidity.
Our success depends in part on our ability to grow sales and improve sales, in particular at our largest brands.margins. A variety of factors affect comparable sales orand margins, including but not limited to apparel trends, competition, current economic conditions (including due to macroeconomic pressures and geopolitical instability), the timing of new merchandise releases and promotional events, changes in our merchandise mix, the success of our marketing programs (including our loyalty program), supply chain disruptions and transitory costs, foreign currency fluctuations, industry traffic trends, and weather conditions. These factors may cause our comparable sales results and margins to differ materially from prior periods and from financial market expectations. Our comparable sales, including the associated comparable online sales, have fluctuated significantly in the past on an annual and quarterly basis. Over the past five fiscal year,years, our reported quarterlyannual comparable sales have ranged from a high of positive 56 percent in the fourth quarter of fiscal 20172021 to a low of positive 1of negative 7 percent in fiscal 2022. As a result of the secondextensive temporary store closures during the first quarter of fiscal 2017.2020 due to the COVID-19 pandemic, comparable sales are not a meaningful metric for fiscal 2020 and are excluded from this range. Over the past five fiscal years, our reported gross margins have ranged from a high of 39.039.8 percent in fiscal 20132021 to a low of 36.234.1 percent in fiscal 2015.2020. In addition, over the past five fiscal years, our reported operating margins have ranged from a high of 13.34.9 percent in fiscal 20132021 to a low of 7.7negative 6.2 percent in fiscal 2016.2020.
Our ability to deliver strong comparable sales results and margins depends in large part on accurately forecasting demand and apparel trends, selecting effective marketing techniques, providing an appropriate mix of merchandise for our broad and diverse customer base, managing inventory effectively, using effective pricing strategies, and optimizing store performance. FailureFluctuations in our comparable sales and margins or failure to meet thefinancial market expectations of investors, securities analysts, or credit rating agencies in one or more future periods could reduce the market price of our common stock, cause our credit ratings to decline, and negatively impact our liquidity.
Our level of indebtedness may adversely affect our ability to operate and expand our business.
We have a secured asset-based revolving credit agreement (the "ABL Facility") which has a borrowing capacity of $2.2 billion. We have also issued $1.5 billion aggregate principal amount of Senior Notes due 2029 and 2031 (the “Senior Notes”), which remain outstanding. As a result, we are subject to risks relating to our indebtedness.
As of February 3, 2024, the aggregate principal amount of our total outstanding indebtedness was $1.5 billion under the Senior Notes. As of February 3, 2024, we had $2.2 billion in principal amount of undrawn commitments available for additional borrowings under the ABL Facility, subject to borrowing base availability.
Our level of indebtedness could impact our business in the following ways:
•make it more difficult for us to satisfy our debt obligations, including with respect to the Senior Notes and ABL Facility;
•increase our vulnerability to general adverse economic and external conditions;
•impair our ability to obtain additional debt or equity financing in the future for working capital, capital expenditures, acquisitions or general corporate or other purposes;
•require us to dedicate a material portion of our cash flows from operations to the payment of principal and interest on our indebtedness, thereby reducing the availability of our cash flows to fund working capital needs, capital expenditures, acquisitions and other general corporate purposes;
•expose us to the risk of increased interest rates for borrowings under the ABL Facility, which bear interest at a variable rate;
•limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
•place us at a disadvantage compared to our competitors that have less indebtedness; and
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•limit our ability to adjust to changing market conditions.
Any of these risks could impact our ability to operate and expand our business, which could adversely affect our business, financial condition and results of operations. Furthermore, we may in the future incur additional indebtedness, which could intensify these risks and make it more difficult for us to satisfy our obligations under our indebtedness.
We may not be able to generate sufficient cash to service all of our indebtedness and fund our working capital and capital expenditures, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
We may be required to dedicate a substantial portion of cash flows from operations to the payment of principal and interest under our indebtedness. For example, in 2023 we repaid our $350 million outstanding borrowing under the ABL Facility. We generated net cash from operating activities of $1,532 million in fiscal 2023 and ended fiscal 2023 with $1,873 million of cash and cash equivalents on our balance sheet.
Our ability to make scheduled payments on our indebtedness depends upon our future operating performance and on our ability to generate cash flows in the future, which is subject to general economic, financial, business, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flows from operations or that future borrowings will be available to us in an amount sufficient to enable us to fund our debt service obligations and other liquidity needs.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investment and capital expenditures or to dispose of material assets or operations, seek additional debt or equity financing or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures (including due to restrictions in our indebtedness agreements), if necessary, on commercially reasonable terms or at all and, even if successful, such alternative actions may not allow us to meet our scheduled debt service obligations.
If we cannot make scheduled payments on our indebtedness, we will be in default and, as a result, our lenders could declare all outstanding principal and interest to be due and payable, could terminate their commitments to loan money to us and could foreclose against any assets securing our indebtedness under the ABL Facility, and we could be forced into bankruptcy or liquidation.
Covenants in the ABL Facility may restrict our business and could limit our ability to implement our business plan.
The ABL Facility includes covenants restricting, among other things, our ability to do the following under certain circumstances:
•grant or incur liens;
•sell or otherwise dispose of assets, including capital stock of subsidiaries;
•make investments in certain subsidiaries;
•pay dividends, make distributions or redeem or repurchase capital stock; and
•consolidate or merge with or into, or sell substantially all of our assets to another entity.
Compliance with these and the other covenants in the ABL Facility may restrict our ability to implement our business plan, finance future operations, respond to changing business and economic conditions, secure additional financing, and engage in strategic transactions. We cannot assure you that we will be able to comply with our financial or other covenants under the ABL Facility or that any covenant violations would be waived in the future. Any violation that is not waived could result in an event of default and, as a result, our lenders under the ABL Facility could declare all outstanding principal and interest to be due and payable, could suspend commitments to make any advances or could require any outstanding letters of credit to be collateralized by an interest bearing cash account, any or all of which could adversely affect our business, financial condition and results of operations.
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Changes in our credit profile or deterioration in market conditions may limit our access to the capital markets and adversely impact our business and financial position or our business initiatives.condition.
Risks Related to Sustainability and Climate Change
Our business is subject to evolving regulations and expectations with respect to environmental, social and governance (“ESG”) matters that could expose us to numerous risks.
Increasingly regulators, customers, investors, employees and other stakeholders are focusing on ESG matters and related disclosures. These developments have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention spent complying with or meeting ESG-related requirements and expectations. For furtherexample, developing and acting on ESG-related initiatives, including design, sourcing and operations decisions, and collecting, measuring and reporting ESG-related information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the SEC’s recently approved climate-related reporting requirements and sustainability reporting requirements in the European Union. We may also communicate certain ESG-related initiatives and goals in our SEC filings or in other public disclosures. These ESG-related initiatives and goals could be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and we could be criticized for the accuracy, adequacy or completeness of our disclosures. Further, statements about our ESG-related initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. In addition, we could be criticized for the scope or nature of such initiatives or goals, or for any revisions to these goals. If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our ESG-related goals on a timely basis, or at all, our reputation, business, financial condition and results of operations could be adversely affected.
Climate change may have an adverse impact on our debtbusiness.
There are inherent climate-related risks wherever business is conducted. Our properties and credit facilities, see Item 8, Financial Statementsoperations, and Supplementary Data, Notes 4those of our franchisees, vendors and 5other business partners, may be vulnerable to the adverse effects of Notesclimate change, which may include an increase in the frequency and severity of weather conditions and other natural cycles such as wildfires and droughts and shifts in climate patterns. The physical changes prompted by climate change could result in increased regulation or changes in consumer preferences and spending patterns. Such events have the potential to Consolidated Financial Statementsdisrupt our operations and those of this Form 10-K.our franchisees, vendors and other business partners, cause store and factory closures, and impact our customers, employees and workers in our supply chain, all of which may adversely affect our business.
General Risks
Our business and results of operations could be adversely affected by natural disasters, public health crises, political crises, negative global climate patterns, or other catastrophic events.
Natural disasters, such as hurricanes, tornadoes, floods, earthquakes, wildfires, and other adverseextreme weather conditions; unforeseen public health crises, such as pandemics and epidemics; political crises, such as terrorist attacks, war, labor unrest, and other political instability; negative global climate patterns, especially in water stressed regions; or other catastrophic events such as fires or other disasters occurring atin or impacting the areas in which our stores, distribution centers, corporate offices or our vendors'vendors’ manufacturing facilities are located, whether occurring in the United States or internationally, could disrupt our, operations, includingour franchisees' and our vendors' operations. Our disaster
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recovery and business continuity planning may not be sufficient in all instances to mitigate the operationsimpact of our franchisees, or the operations of one or more of our vendors. such catastrophic events.
In particular, these types of events could impact our supply chain from or to the impacted region and could impact our ability or the ability of our franchisees or other third parties to operate our stores or websites. In addition, theseThese types of events could also negatively impact consumer spending in the impacted regions or globally, depending upon the severity, globally.severity. Disasters occurring at our vendors’vendors’ manufacturing facilities could impact our reputation and our customers’customers’ perception of our brands. To the extent any of these events occur, our operationsbusiness and financial results of operations could be adversely affected.
Failure to comply with applicable laws and cash flows.regulations, and changes in the regulatory or administrative landscape, could adversely affect our business, financial condition and results of operations.
Our failure, or the incomefailure of our employees, franchisees, licensees, vendors, or other business partners, to comply with applicable laws and cash flowregulations, and any changes in laws or regulations, the imposition of additional laws or regulations, or the enactment of any new or more stringent legislation that the Company receives from Synchrony can also vary based on a varietyimpacts employment and labor, anti-corruption, trade, product safety, transportation and logistics, health care, tax, cybersecurity, privacy, operations, or environmental issues, among others, could adversely affect our business, financial condition and results of economic, legal, social, and other factors that we cannot control. If the income and cash flow that we receive from our consumer credit card program agreement with Synchrony decreases significantly, our operating results and cash flows could be adversely affected.
operations.
We are subject to various proceedings, lawsuits, disputes, and claims from time to time, which could adversely affect our business, financial condition and results of operations.
As a multinational company, we are subject to various proceedings, lawsuits, disputes, and claims (“Actions”) arising in the ordinary course of our business. Many of these Actions raise complex factual and legal issues and are subject to uncertainties. Actions filed against us from time to time include commercial, intellectual property, customer, employment, securities, and data privacy claims, including class action lawsuits. The plaintiffs in some Actions seek unspecified damages or injunctive relief, or both. Actions are in various procedural stages and some aremay be covered in part by insurance. We cannot predict with assurance the outcome of Actions brought against us. Additionally, defending against Actions may involve significant expense and diversion of management's attention and resources. Accordingly, developments, settlements, or resolutions may occur and impact income in the quarter of such development, settlement, or resolution. An unfavorable outcome could have an adverse impact onadversely affect our business, financial condition and results of operations.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
Risk Management and Strategy
Safeguarding our information systems as well as the information that we receive and store about our customers, employees, vendors and others is a priority for Gap Inc. We maintain a cybersecurity program with technical and organizational safeguards that is designed to identify, assess, manage, mitigate and respond to cybersecurity threats, including threats associated with the use of third-party systems. The program leverages our overall enterprise risk management (“ERM”) processes. Cybersecurity risk management processes are also embedded within our operating procedures, internal controls and information systems.
Annually, employees receive cybersecurity training, and we provide additional targeted cybersecurity awareness and education activities throughout the year. In partnership with external consultants, we periodically conduct “tabletop” exercises with management and members of our Information Security, Information Technology and Privacy teams during which we simulate real-life cybersecurity incident scenarios to assess our preparedness, test our incident response plans and highlight potential areas for improvement. Audits of our cybersecurity risk management processes are conducted periodically in order to test the effectiveness of controls designed to prevent and respond to cyberattacks at different levels within Gap Inc. In addition, we maintain cybersecurity risk insurance.
Our Information Security and Information Technology teams manage and monitor our cybersecurity environment. These teams track cybersecurity incidents across Gap Inc., our vendors and third-party service providers to remediate and resolve incidents. Incidents are escalated as appropriate based on a risk assessment framework, including as needed to senior management. Gap Inc.’s Privacy team is involved to the extent data privacy concerns are implicated. We maintain incident response plans to coordinate activities taken to respond to and remediate cybersecurity incidents. We consult with outside counsel as appropriate, including on materiality analysis and disclosure matters, and senior management makes final materiality determination and disclosure decisions.
Our cybersecurity risk management processes are based on industry-recognized standards. We partner with leading cybersecurity companies to leverage third-party technology and expertise, and we engage with these partners to support monitoring and maintaining the performance and effectiveness of controls implemented in our environment.
To date, our business strategy, results of operations and financial condition have not been materially affected by risks from cybersecurity threats, including as a result of previously identified cybersecurity incidents, but we cannot provide assurance that they will not be materially affected in the future by such risks or any future material incidents. For more information on our cybersecurity-related risks, see “Risks Related to Data Privacy and Cybersecurity” in Item 1A, Risk Factors, of this Form 10-K.
Governance
Gap Inc.’s Chief Information Security Officer (“CISO”) oversees the cybersecurity program. The CISO reports to the Chief Digital & Technology Officer (“CDTO”) and is responsible for assessing and maintaining the Company’s cybersecurity risk management processes. The CISO informs senior management regarding the prevention, detection, mitigation and remediation of cybersecurity incidents. The CISO, CDTO, and members of the Information Security, Information Technology and Privacy teams have broad experience and expertise in selecting, deploying and operating cybersecurity technologies, initiatives and processes around the world. Information about our executive officers’ work experience, including our CDTO, is included in “Information about our Executive Officers” in Item 1, Business, of this Form 10-K.
Our Board understands the importance of maintaining a robust and effective cybersecurity program. The Audit and Finance Committee of the Board oversees the Company’s cybersecurity program as well as risk exposures and steps taken by management to monitor and mitigate cybersecurity risks. The CISO and/or CDTO provide a quarterly update on the cybersecurity program, on an alternating basis to the Audit and Finance Committee or the full Board.
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Our Internal Audit department facilitates an annual ERM assessment that is designed to gather information regarding key enterprise risks, emerging risks, critical risk events, and key third-party dependencies that could impact our objectives and strategies. The Internal Audit department partners with our Information Security, Information Technology and Privacy teams to gather information about risks related to cybersecurity threats. The ERM assessment is presented to the Board and provides the foundation for the annual Internal Audit plan, management’s monitoring and risk mitigation efforts, and ongoing Board-level oversight. On a quarterly basis, Gap Inc.’s Chief Audit Executive updates the Audit and Finance Committee on the Internal Audit plan and any updates to the Company’s enterprise risk profile, including identified cybersecurity risks.
Item 2. Properties.
We own approximately 1.10.8 million square feet of corporate office space located inin: San Francisco, San Bruno, Pleasanton, and Rocklin, California, of which approximately 184,000 square feet is leased to and occupied by others.California. We lease approximately 1.00.5 million square feet of corporate office space located inin: San Francisco, Rocklin, Petaluma, and Pleasanton, California; New York, and Brooklyn, New York; Albuquerque, New Mexico; and Toronto, Ontario, Canada. Of the 1.0 million square feet of leased corporate office space, approximately 40,000 square feet is subleased to and occupied by others.Hyderabad, India. We also lease regional offices in North America and in various international locations. We own approximately 8.99.6 million square feet of distribution space located inin: Fresno, California; Fishkill, New York; Groveport, Ohio; Gallatin, Tennessee; Brampton, Ontario, Canada; and Rugby, England. Of the 8.9 million square feet of ownedLongview, Texas. We also have a distribution space, approximately 117,000 square feet is leased to and occupied by others.center in construction in London, Ontario, Canada with estimated occupancy in fiscal 2025. We lease approximately 765,0000.5 million square feet of distribution space located inin: Phoenix, Arizona; and Erlanger and Hebron, Kentucky; and Bolton, Ontario, Canada.Kentucky. Third-party logistics companies provide logistics services to us through distribution warehouses inin: Chiba, Japan; and Shanghai and Hong Kong, China.China; and New Taipei City, Taiwan. We also use a number of distribution facilities located globally that are leased and operated by third-party logistics providers related to our franchise business.
Item 3. Legal Proceedings.
We do not believe that the outcome of any current Action would have a material effect on our Consolidated Financial Statements.
Item 4. Mine Safety Disclosures.
Not applicable.
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Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The principal market on which our stock is traded is the New York Stock Exchange.Exchange under the symbol "GPS". Our website is www.gapinc.com. The number of holders of record of our stock as of March 13, 2024 was 5,394.
The Company has paid dividends on a quarterly basis and expects to continue to do so, subject to approval by the Board. Additional dividend information can be found in Liquidity and Capital Resources in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-K.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In February 2019, the Board approved a $1.0 billion share repurchase authorization (the "February 2019 repurchase program"), which has no expiration date. There were no shares repurchased, other than shares withheld to settle employee statutory tax withholding related to the vesting of stock units, during the 14 2018 was 6,336.weeks ended February 3, 2024. The table below sets forth the market prices and dividends declared and paid for eachFebruary 2019 repurchase program had $476 million remaining as of the fiscal quarters in fiscal 2017 and 2016.February 3, 2024.
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| Market Prices | Dividends Declared and Paid | |||||||||||||||||||||||
| Fiscal 2017 | Fiscal 2016 | Fiscal Year | ||||||||||||||||||||||
| High | Low | High | Low | 2017 | 2016 | |||||||||||||||||||
| 1st Quarter | $ | 26.72 | $ | 22.03 | $ | 30.49 | $ | 22.03 | $ | 0.23 | $ | 0.23 | ||||||||||||
| 2nd Quarter | $ | 26.88 | $ | 21.02 | $ | 25.95 | $ | 17.00 | 0.23 | 0.23 | ||||||||||||||
| 3rd Quarter | $ | 29.77 | $ | 21.84 | $ | 27.34 | $ | 21.57 | 0.23 | 0.23 | ||||||||||||||
| 4th Quarter | $ | 35.68 | $ | 25.36 | $ | 30.74 | $ | 22.25 | 0.23 | 0.23 | ||||||||||||||
| $ | 0.92 | $ | 0.92 | |||||||||||||||||||||
Stock Performance Graph
The graph below compares the percentage changes in our cumulative total stockholder return on our common stock for the five-year period ended February 3, 2018,2024, with the cumulative total returns of (i) the S&P 500 Index and (ii) the cumulative total return of the Dow Jones U.S. Retail Apparel Retailers Index. The total stockholder return for our common stock assumes quarterly reinvestment of dividends.any dividends paid.
TOTAL RETURN TO STOCKHOLDERS
(Assumes $100 investment on 2/2/2013)2019)
Total Return Analysis
| 2/2/2013 | 2/1/2014 | 1/31/2015 | 1/30/2016 | 1/28/2017 | 2/3/2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2/2/2019 | 2/2/2019 | 2/1/2020 | 1/30/2021 | 1/29/2022 | 1/28/2023 | 2/3/2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The Gap, Inc. | $ | 100.00 | $ | 117.60 | $ | 129.93 | $ | 80.21 | $ | 76.19 | $ | 112.10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| S&P 500 | $ | 100.00 | $ | 121.52 | $ | 138.80 | $ | 137.88 | $ | 165.51 | $ | 209.22 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dow Jones U.S. Apparel Retailers | $ | 100.00 | $ | 113.71 | $ | 137.70 | $ | 135.94 | $ | 133.98 | $ | 152.50 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Source: Research Data Group, Inc. (415) 643-6000 (www.researchdatagroup.com)
Total Number of Shares Purchased (1) | Average Price Paid Per Share Including Commissions | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or approximate dollar amount) of Shares that May Yet be Purchased Under the Plans or Programs (2) | |||||||||
| Month #1 (October 29 - November 25) | 336,891 | $ | 29.68 | 336,891 | $690 million | |||||||
| Month #2 (November 26 - December 30) | 164,915 | $ | 30.32 | 164,915 | $685 million | |||||||
| Month #3 (December 31 - February 3) | — | $ | — | — | $685 million | |||||||
| Total | 501,806 | $ | 29.89 | 501,806 | ||||||||
Item 6. Selected Financial Data.
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| Fiscal Year (number of weeks) | ||||||||||||||||||||
| 2017 (53) (b) | 2016 (52) | 2015 (52) | 2014 (52) | 2013 (52) | ||||||||||||||||
| Operating Results ($ in millions) | ||||||||||||||||||||
| Net sales | $ | 15,855 | $ | 15,516 | $ | 15,797 | $ | 16,435 | $ | 16,148 | ||||||||||
| Gross margin | 38.3 | % | 36.3 | % | 36.2 | % | 38.3 | % | 39.0 | % | ||||||||||
| Operating margin | 9.3 | % | 7.7 | % | 9.6 | % | 12.7 | % | 13.3 | % | ||||||||||
| Net income | $ | 848 | $ | 676 | $ | 920 | $ | 1,262 | $ | 1,280 | ||||||||||
| Cash dividends paid | $ | 361 | $ | 367 | $ | 377 | $ | 383 | $ | 321 | ||||||||||
| Per Share Data (number of shares in millions) | ||||||||||||||||||||
| Basic earnings per share | $ | 2.16 | $ | 1.69 | $ | 2.24 | $ | 2.90 | $ | 2.78 | ||||||||||
| Diluted earnings per share | $ | 2.14 | $ | 1.69 | $ | 2.23 | $ | 2.87 | $ | 2.74 | ||||||||||
| Weighted-average number of shares—basic | 393 | 399 | 411 | 435 | 461 | |||||||||||||||
| Weighted-average number of shares—diluted | 396 | 400 | 413 | 440 | 467 | |||||||||||||||
| Cash dividends declared and paid per share | $ | 0.92 | $ | 0.92 | $ | 0.92 | $ | 0.88 | $ | 0.70 | ||||||||||
| Balance Sheet Information ($ in millions) | ||||||||||||||||||||
| Merchandise inventory | $ | 1,997 | $ | 1,830 | $ | 1,873 | $ | 1,889 | $ | 1,928 | ||||||||||
| Total assets | $ | 7,989 | $ | 7,610 | $ | 7,473 | $ | 7,690 | $ | 7,849 | ||||||||||
| Working capital (a) | $ | 2,107 | $ | 1,862 | $ | 1,450 | $ | 2,083 | $ | 1,985 | ||||||||||
| Total long-term debt, less current maturities | $ | 1,249 | $ | 1,248 | $ | 1,310 | $ | 1,332 | $ | 1,369 | ||||||||||
| Stockholders’ equity | $ | 3,144 | $ | 2,904 | $ | 2,545 | $ | 2,983 | $ | 3,062 | ||||||||||
| Other Data ($ and square footage in millions) | ||||||||||||||||||||
| Cash used for purchases of property and equipment | $ | 731 | $ | 524 | $ | 726 | $ | 714 | $ | 670 | ||||||||||
| Percentage increase (decrease) in comparable sales | 3 | % | (2 | )% | (4 | )% | — | % | 2 | % | ||||||||||
| Number of Company-operated store locations open at year-end | 3,165 | 3,200 | 3,275 | 3,280 | 3,164 | |||||||||||||||
| Number of franchise store locations open at year-end | 429 | 459 | 446 | 429 | 375 | |||||||||||||||
| Number of total store locations open at year-end | 3,594 | 3,659 | 3,721 | 3,709 | 3,539 | |||||||||||||||
| Square footage of Company-operated store space at year-end | 36.4 | 36.7 | 37.9 | 38.1 | 37.2 | |||||||||||||||
| Percentage increase (decrease) in square footage of Company-operated store space at year-end | (0.8 | )% | (3.2 | )% | (0.5 | )% | 2.4 | % | 0.8 | % | ||||||||||
| Number of employees at year-end | 135,000 | 135,000 | 141,000 | 141,000 | 137,000 | |||||||||||||||
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
We are a global retailercollection of lifestyle brands offering apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta and Intermix brands. We haveAs of February 3, 2024, we had Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, Italy, China, Hong Kong, Taiwan, and Mexico.Taiwan. Our products are available to customers online through Company-owned websites and through third-party arrangements. We also have franchise agreements with unaffiliated franchisees to operate Old Navy, Gap, and Banana Republic, storesand Athleta throughout Asia, Europe, Latin America, the Middle East, and Africa. Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names. Our products are also available to customers online through Company-owned websites and through the use of third parties that provide logistics and fulfillment services. In addition to operating in the specialty, outlet, online, and franchise channels, we also use our omni-channel capabilities to bridge the digital world and physical stores to further enhance our shopping experience for our customers. Our omni-channel services, including buy online pick-up in store, order-in-store, reserve-in-store, find-in-store, and ship-from-store, as well as enhanced mobilemobile-enabled experiences, are tailored uniquely across our portfoliocollection of brands. Most of the products sold under our brand names are designed by us and manufactured by independent sources.
Overview
Financial results for fiscal 2023 are as follows:
•Net sales for fiscal 2023 decreased 5 percent to $14.9 billion compared with $15.6 billion for fiscal 2022.
•Store and franchise sales for fiscal 2023 decreased 3 percent compared with fiscal 2022 and online sales for fiscal 2023 decreased 7 percent compared with fiscal 2022.
•Gross profit for fiscal 2023 was $5.8 billion compared with $5.4 billion for fiscal 2022. Gross margin for fiscal 2023 was 38.8 percent compared with 34.3 percent for fiscal 2022.
•Operating income for fiscal 2023 was $560 million compared with operating loss of $(69) million for fiscal 2022.
•Effective tax rate for fiscal 2023 was 9.7 percent compared with negative 45.3 percent for fiscal 2022.
•Net income for fiscal 2023 was $502 million compared with net loss of $(202) million for fiscal 2022.
•Diluted earnings per share was $1.34 for fiscal 2023 compared with diluted loss per share of $(0.55) for fiscal 2022.
•Merchandise inventory as of the fourth quarter of fiscal 2023 decreased 16 percent compared with the fourth quarter of fiscal 2022.
Fiscal 2023 consisted of 53 weeks versus 52 weeks in fiscal 2022. Net sales and operating results, as well as other metrics derived from the Consolidated Statement of Operations, include the impact of the additional week; however, the comparable sales calculation excludes the 53rd week.
Effective August 22, 2023, Richard Dickson became the Company's President and Chief Executive Officer. Bob L. Martin, who had been serving as the Company's Chief Executive Officer on an interim basis, remained as the Executive Board Chair until October 28, 2023, when he transitioned to a non-employee Board Chair role.
On April 25, 2023, the Company's management committed to a restructuring plan (the "Plan") as part of the Company's previously announced efforts to simplify and optimize its operating model and structure. The Plan included a reduction in workforce of approximately 1,800 employees, primarily in headquarters locations. The actions associated with the reduction of the Company's workforce under the Plan were substantially completed in the first half of fiscal 2023. In connection with the Plan, the Company incurred $93 million in pre-tax restructuring costs during fiscal 2023, which included employee-related costs of $64 million and consulting and other associated costs of $29 million. These restructuring costs were primarily recorded within operating expenses on the Consolidated Statement of Operations.
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The Company has also completed its initiative of rationalizing the Gap and Banana Republic store fleet by closing, net of openings, 344 Gap and Banana Republic stores in North America from the beginning of fiscal 2020 to the end of fiscal 2023. The majority of the selected stores had leases that expired between these fiscal years, which allowed us to exit stores with a minimal net impact to our Consolidated Statements of Operations.
On November 7, 2022, we signed agreements to transition our Gap Greater China operations to a third party, Baozun, to operate Gap Greater China stores and the in-market website as a franchise partner, subject to regulatory approvals and closing conditions. On January 31, 2023, the Gap China transaction closed with Baozun. The impact upon divestiture was not material to our results of operations for fiscal 2023. The Gap Taiwan operations will continue to operate as usual until regulatory approvals and closing conditions are met.
During the first quarter of fiscal 2023, the Company also sold a building for $76 million and recorded a pre-tax gain on sale of $47 million within operating expenses on the Consolidated Statement of Operations.
We also sell products that are designedfocused on the following strategic priorities in the near term:
•maintaining and manufacturedbuilding upon the financial and operational rigor, through an optimized cost structure and disciplined inventory management;
•reinvigorating our brands to drive relevance and an engaging omni-channel experience;
•strengthening our platform and evolving with a digital first mindset;
•energizing our culture by branded third parties, primarily at our Intermix brand.attracting and retaining strong talent; and
•continuing to integrate social and environmental sustainability into business practices to support long-term growth.
We identify our operating segments according to how our business activities are managed and evaluated. As of February 3, 2018,2024, our operating segments included GapOld Navy Global, Old NavyGap Global, Banana Republic Global, and Athleta and Intermix.Global. We have determined that each of our operating segments share similar economic and other qualitative characteristics, and, therefore, the results of our operating segments are aggregated into one reportable segment.
Results of Operations
A discussion regarding our results of operations for fiscal year 2023 compared with fiscal year 2022 is presented below. A discussion regarding our results of operations for fiscal year 2022 compared with fiscal year 2021 can be found under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on the Form 10-K for the year ended January 28, 2023, filed with the SEC on March 14, 2023.
Net Sales
See Note 3 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, Note 16 of Notes to Consolidated Financial Statementsthis Form 10-K for net sales by brand and region.
disaggregation.
Comparable Sales ("Comp Sales")
| Fiscal Year | |||||||||
| 2017 | 2016 | 2015 | |||||||
| Gap Global | (1 | )% | (3 | )% | (6 | )% | |||
| Old Navy Global | 6 | % | 1 | % | — | % | |||
| Banana Republic Global | (2 | )% | (7 | )% | (10 | )% | |||
| The Gap, Inc. | 3 | % | (2 | )% | (4 | )% | |||
Comp Sales include the results of Company-operated stores and sales through our online channels in those countries where we have existing comparable store sales.channel. The calculation of The Gap, Inc. Comp Sales includes the results of Athleta and Intermix but excludes the results of ourthe franchise and licensing business. Comp Sales included the results of certain foreign operations until their respective transitions to third-party franchise partners. See Note 17 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for further details.
A store is included in the Comp Sales calculations when it has been open and operated by the Company for at least one year and the selling square footage has not changed by 15 percent or more within the past year. A store is included in the Comp Sales calculations on the first day it has comparable prior year sales. Stores in which the selling square footage has changed by 15 percent or more as a result of a remodel, expansion, or reduction are excluded from the Comp Sales calculations until the first day they have comparable prior year sales.
A store is considered non-comparable (“Non-comp”) when it has been open and operated by the Company for less than one year or has changed its selling square footage by 15 percent or more within the past year.
A store is considered “Closed” if it is temporarily closed for three or more full consecutive days or it is permanently closed. When a temporarily closed store reopens, the store will be placed in the Comp/Non-comp status it was in prior to its closure. If a store was in Closed status for three or more days in the prior year, the store will be in Non-comp status for the same days the following year.
Current year foreign exchange rates are applied to both current year and prior year Comp Sales to achieve a consistent basis for comparison.
| Fiscal Year | |||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
| Old Navy Global | (1) | % | (12) | % | |||||||||||||
| Gap Global | 1 | % | (4) | % | |||||||||||||
| Banana Republic Global | (7) | % | 9 | % | |||||||||||||
| Athleta Global | (12) | % | (5) | % | |||||||||||||
| The Gap, Inc. | (2) | % | (7) | % | |||||||||||||
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| Fiscal Year | ||||||||||||
| 2017 (2) | 2016 | 2015 | ||||||||||
| Net sales per average square foot (1) | $ | 340 | $ | 334 | $ | 337 | ||||||
Store count, openings, closings, and square footage for our stores are as follows:
| January 28, 2023 | Fiscal 2023 | February 3, 2024 | ||||||||||||||||||||||||||||||
| Number of Store Locations | Number of Stores Opened | Number of Stores Closed | Number of Store Locations | Square Footage (in millions) | ||||||||||||||||||||||||||||
| Old Navy North America | 1,238 | 25 | 20 | 1,243 | 19.8 | |||||||||||||||||||||||||||
| Gap North America | 493 | 1 | 22 | 472 | 5.0 | |||||||||||||||||||||||||||
| Gap Asia (1) | 232 | 2 | 11 | 134 | 1.2 | |||||||||||||||||||||||||||
| Banana Republic North America | 419 | 2 | 21 | 400 | 3.3 | |||||||||||||||||||||||||||
| Banana Republic Asia | 46 | 4 | 7 | 43 | 0.2 | |||||||||||||||||||||||||||
| Athleta North America | 257 | 25 | 12 | 270 | 1.1 | |||||||||||||||||||||||||||
| Company-operated stores total | 2,685 | 59 | 93 | 2,562 | 30.6 | |||||||||||||||||||||||||||
| Franchise (1) | 667 | 293 | 96 | 998 | N/A | |||||||||||||||||||||||||||
| Total | 3,352 | 352 | 189 | 3,560 | 30.6 | |||||||||||||||||||||||||||
| Increase (decrease) over prior year | 6.2 | % | (3.8) | % | ||||||||||||||||||||||||||||
| January 29, 2022 | Fiscal 2022 | January 28, 2023 | ||||||||||||||||||||||||||||||
| Number of Store Locations | Number of Stores Opened | Number of Stores Closed | Number of Store Locations | Square Footage (in millions) | ||||||||||||||||||||||||||||
| Old Navy North America (2) | 1,252 | 30 | 20 | 1,238 | 19.8 | |||||||||||||||||||||||||||
| Gap North America | 520 | 10 | 37 | 493 | 5.2 | |||||||||||||||||||||||||||
| Gap Asia | 329 | 5 | 102 | 232 | 2.0 | |||||||||||||||||||||||||||
| Gap Europe (3) | 11 | — | — | — | — | |||||||||||||||||||||||||||
| Banana Republic North America | 446 | 2 | 29 | 419 | 3.5 | |||||||||||||||||||||||||||
| Banana Republic Asia | 50 | 3 | 7 | 46 | 0.2 | |||||||||||||||||||||||||||
| Athleta North America | 227 | 40 | 10 | 257 | 1.1 | |||||||||||||||||||||||||||
| Company-operated stores total | 2,835 | 90 | 205 | 2,685 | 31.8 | |||||||||||||||||||||||||||
| Franchise (2)(3) | 564 | 138 | 70 | 667 | N/A | |||||||||||||||||||||||||||
| Total | 3,399 | 228 | 275 | 3,352 | 31.8 | |||||||||||||||||||||||||||
| Decrease over prior year | (1.4) | % | (4.5) | % | ||||||||||||||||||||||||||||
| January 28, 2017 | Fiscal 2017 | February 3, 2018 | |||||||||||||
Number of Store Locations | Number of Stores Opened | Number of Stores Closed | Number of Store Locations | Square Footage (in millions) | |||||||||||
| Gap North America | 844 | 8 | 42 | 810 | 8.4 | ||||||||||
| Gap Asia | 311 | 52 | 50 | 313 | 3.0 | ||||||||||
| Gap Europe | 164 | 3 | 12 | 155 | 1.3 | ||||||||||
| Old Navy North America | 1,043 | 32 | 9 | 1,066 | 17.7 | ||||||||||
| Old Navy Asia | 13 | 1 | — | 14 | 0.2 | ||||||||||
| Banana Republic North America | 601 | 5 | 30 | 576 | 4.9 | ||||||||||
| Banana Republic Asia | 48 | 1 | 4 | 45 | 0.2 | ||||||||||
| Banana Republic Europe | 1 | — | 1 | — | — | ||||||||||
| Athleta North America | 132 | 16 | — | 148 | 0.6 | ||||||||||
| Intermix North America | 43 | — | 5 | 38 | 0.1 | ||||||||||
| Company-operated stores total | 3,200 | 118 | 153 | 3,165 | 36.4 | ||||||||||
| Franchise | 459 | 34 | 64 | 429 | N/A | ||||||||||
| Total | 3,659 | 152 | 217 | 3,594 | 36.4 | ||||||||||
| Decrease over prior year | (1.8 | )% | (0.8 | )% | |||||||||||
| January 30, 2016 | Fiscal 2016 | January 28, 2017 | |||||||||||||
Number of Store Locations | Number of Stores Opened | Number of Stores Closed | Number of Store Locations | Square Footage (in millions) | |||||||||||
| Gap North America | 866 | 14 | 36 | 844 | 8.8 | ||||||||||
| Gap Asia | 305 | 27 | 21 | 311 | 3.0 | ||||||||||
| Gap Europe | 175 | 2 | 13 | 164 | 1.4 | ||||||||||
| Old Navy North America | 1,030 | 27 | 14 | 1,043 | 17.4 | ||||||||||
| Old Navy Asia | 65 | 5 | 57 | 13 | 0.2 | ||||||||||
| Banana Republic North America | 612 | 9 | 20 | 601 | 5.0 | ||||||||||
| Banana Republic Asia | 51 | — | 3 | 48 | 0.2 | ||||||||||
| Banana Republic Europe | 10 | — | 9 | 1 | — | ||||||||||
| Athleta North America | 120 | 12 | — | 132 | 0.6 | ||||||||||
| Intermix North America | 41 | 3 | 1 | 43 | 0.1 | ||||||||||
| Company-operated stores total | 3,275 | 99 | 174 | 3,200 | 36.7 | ||||||||||
| Franchise | 446 | 56 | 43 | 459 | N/A | ||||||||||
| Total | 3,721 | 155 | 217 | 3,659 | 36.7 | ||||||||||
| Decrease over prior year | (1.7 | )% | (3.2 | )% | |||||||||||
(1)The 89 Gap China stores that were transitioned to Baozun during the period are not included as store closures or openings for Company-operated and Banana Republic outletFranchise store activity. The ending balance for Gap Asia excludes Gap China stores and the ending balance for Franchise includes Gap China locations transitioned during the period.
(2)The 24 Old Navy Mexico stores that were transitioned to Grupo Axo during the period are not included as store closures or openings for Company-operated and Franchise store activity. The ending balance for Old Navy North America excludes Old Navy Mexico stores and the ending balance for Franchise includes Old Navy Mexico stores.
(3)The 11 Gap Italy stores that were transitioned to OVS S.p.A. ("OVS") during the period are not included as store closures or openings for Company-operated and Franchise store activity. The ending balance for Gap Europe excludes Gap Italy stores and the ending balance for Franchise includes Gap Italy stores.
Outlet and factory stores are reflected in each of the respective brands.
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Net Sales Discussion
Our net sales for fiscal 2017 increased $3392023 decreased $727 million,, or 25 percent, compared with fiscal 2016,2022, driven primarilydue to an increase in net sales at Old Navy and Athleta, partially offset by a decrease in net sales atComp Sales, the transition of our Gap China business to a partnership model, and Banana Republic. The translation of net sales in foreign currencies to U.S. dollars had an unfavorable impact of about $11 million for fiscal 2017 and is calculated by translating net sales for fiscal 2016 at exchange rates applicable during fiscal 2017.other strategic store closures. Fiscal 20172023 also includes incremental sales attributable to the 53rd week.
2023.
Cost of Goods Sold and Occupancy Expenses
| ($ in millions) | Fiscal Year | |||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||
| Cost of goods sold and occupancy expenses | $ | 9,114 | $ | 10,257 | ||||||||||||||||
| Gross profit | $ | 5,775 | $ | 5,359 | ||||||||||||||||
| Cost of goods sold and occupancy expenses as a percentage of net sales | 61.2 | % | 65.7 | % | ||||||||||||||||
| Gross margin | 38.8 | % | 34.3 | % | ||||||||||||||||
| ($ in millions) | Fiscal Year | |||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Cost of goods sold and occupancy expenses | $ | 9,789 | $ | 9,876 | $ | 10,077 | ||||||
| Gross profit | $ | 6,066 | $ | 5,640 | $ | 5,720 | ||||||
| Cost of goods sold and occupancy expenses as a percentage of net sales | 61.7 | % | 63.7 | % | 63.8 | % | ||||||
| Gross margin | 38.3 | % | 36.3 | % | 36.2 | % | ||||||
Cost of goods sold and occupancy expenses decreased 2.0 percentage points as a percentage of net sales in fiscal 2017 compared with fiscal 2016.
•Cost of improved average selling price per unit at all global brands; partially offset by higher average unit cost at all global brands. This was offset by a negative foreign exchange impact for our foreign subsidiaries as our merchandise purchases are primarily in U.S. dollars.
•Occupancy expenses for the Times Square New York location for Gap and Old Navy.
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Operating Expenses and improved product acceptance resulting in improved margins at Old Navy. This was offset by a negative foreign exchange impact for our foreign subsidiaries as our merchandise purchases are primarily in U.S. dollars.Operating Margin
| ($ in millions) | Fiscal Year | |||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||
| Operating expenses | $ | 5,215 | $ | 5,428 | ||||||||||||||||
| Operating expenses as a percentage of net sales | 35.0 | % | 34.8 | % | ||||||||||||||||
| Operating margin | 3.8 | % | (0.4) | % | ||||||||||||||||
Operating expenses decreased $213 million, but increased 0.2 percentage points as a percentage of net sales induring fiscal 20162023 compared with fiscal 2015, primarily driven by the2022, due to a decrease in net sales without as well as the following:
•a corresponding decrease in occupancy expenses.advertising expenses;
•a decrease due to the appreciationtransition of certain foreign currencies as our merchandise purchases are primarilyChina business to a partnership model;
•a decrease in U.S. dollars.technology-related investments;
•a gain on sale of building of $47 million that occurred during fiscal 2023; and
| ($ in millions) | Fiscal Year | |||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Operating expenses | $ | 4,587 | $ | 4,449 | $ | 4,196 | ||||||
| Operating expenses as a percentage of net sales | 28.9 | % | 28.7 | % | 26.6 | % | ||||||
| Operating margin | 9.3 | % | 7.7 | % | 9.6 | % | ||||||
•an increase in variable costs, such as payroll-related costs, due to the growth in Old Navyperformance-based compensation; and Athleta brands, increase in bonus expense, and the 53rd week impact;
structure.
Interest Expense
| ($ in millions) | Fiscal Year | |||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||
| ($ in millions) | ($ in millions) | Fiscal Year | ||||||||||||||||||||||||||||||
| Interest expense | $ | 74 | $ | 75 | $ | 59 | ||||||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||||||||||
Interest expense for fiscal 2017 and 2016 primarily includes interest on overalloutstanding borrowings and obligations mainly related to our $1.25 billion long-term debt.Senior Notes.
Interest expense forIncome
| ($ in millions) | Fiscal Year | |||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||
| Interest income | $ | (86) | $ | (18) | ||||||||||||||||
Interest income increased $68 million during fiscal 2015 includes $74 million of2023 compared with fiscal 2022 primarily due to higher cash balances and higher interest on overall borrowings and obligations mainly related to our $1.25 billion long-term debt, offset by a reversal of $15 million ofrates, as well as tax-related interest expense primarily resulting from a favorable foreign tax ruling and actions of foreign tax authorities related to transfer pricing matters in fiscal 2015.
income.
Income Taxes
| ($ in millions) | Fiscal Year | |||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Income taxes | $ | 576 | $ | 448 | $ | 551 | ||||||
| Effective tax rate | 40.4 | % | 39.9 | % | 37.5 | % | ||||||
| ($ in millions) | Fiscal Year | |||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||
| Income tax expense | $ | 54 | $ | 63 | ||||||||||||||||
| Effective tax rate | 9.7 | % | (45.3) | % | ||||||||||||||||
The increasechange in the effective tax rate for fiscal 20172023 compared with fiscal 20162022 was primarily due to changes in the amount and jurisdictional mix of pre-tax earnings, partially offset by prior year divestiture activity, the current year benefit from the impact of the TCJA, partially offset by the recognition of certain tax benefits associated with legal structure changes.
See Note 5 of certain foreign tax benefits associated with a legal structure realignment.Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for further details.
Liquidity and Capital Resources
We consider the following to be measures of our liquidity and capital resources:
| ($ in millions) | February 3, 2024 | January 28, 2023 | ||||||||||||||||||
| Cash and cash equivalents | $ | 1,873 | $ | 1,215 | ||||||||||||||||
| Debt | ||||||||||||||||||||
| 3.625 percent Senior Notes due 2029 | 750 | 750 | ||||||||||||||||||
| 3.875 percent Senior Notes due 2031 | 750 | 750 | ||||||||||||||||||
| Working capital | 1,299 | 1,361 | ||||||||||||||||||
| Current ratio | 1.42:1 | 1.42:1 | ||||||||||||||||||
As of February 3, 2024, the majority of our cash and cash equivalents were held in the United States and are generally accessible without any limitations.
We are also able to supplement near-term liquidity, if necessary, with our senior secured asset-based revolving credit agreement (the "ABL Facility") or other available market instruments. During fiscal 2023, the Company repaid an aggregate of $350 million to reduce the outstanding borrowing under the ABL Facility to zero. There were no borrowings under the ABL Facility as of February 3, 2024. See Note 7 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for disclosures on the ABL Facility.
Our largest source of operating cash flows is cash collections from the sale of our merchandise. Our primary uses of cash include merchandise inventory purchases, lease and occupancy costs, personnel-related expenses, purchases of property and equipment, shipping costs, and payment of taxes. In addition, we may have dividend payments, debt repayments, and share repurchases.
| ($ in millions) | February 3, 2018 | January 28, 2017 | January 30, 2016 | |||||||||
| Cash and cash equivalents | $ | 1,783 | $ | 1,783 | $ | 1,370 | ||||||
| Debt | $ | 1,249 | $ | 1,313 | $ | 1,731 | ||||||
| Working capital | $ | 2,107 | $ | 1,862 | $ | 1,450 | ||||||
| Current ratio | 1.86:1 | 1.76:1 | 1.57:1 | |||||||||
As of February 3, 2018, the majority of our cash and cash equivalents was held in the United States and is generally accessible without any limitations.
Our voluntary supply chain finance ("SCF") program provides certain suppliers with the opportunity to sell their receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. We are not a party to the agreements between our suppliers and the financial institutions and our payment terms are not impacted by whether a supplier participates in the SCF program. See Note 18 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K, for disclosures on the Company's SCF program.
We are party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Consolidated Balance Sheet as of February 3, 2024, while others are considered future obligations. Our contractual obligations primarily consist of operating leases, purchase obligations and commitments, long-term debt and related interest payments, and income taxes. See Notes 7 and 12 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for information related to our debt and operating leases, respectively.
Purchase obligations and commitments consist of open purchase orders to purchase inventory as well as commitments for products and services used in the normal course of business. As of February 3, 2024, our purchase obligations and commitments were approximately $4 billion. We expect that the majority of these purchase obligations and commitments will be settled within one year.
Our contractual obligations related to income taxes are primarily related to unrecognized tax benefits. See Note 5 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for information related to income taxes.
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We believe our existing balances of cash and cash equivalents, along with our cash flows from operations, and instruments mentioned above, provide sufficient funds for our business operations as well as capital expenditures, dividends, and other liquidity requirements associated with our business operations over the next 12 months and beyond.
Cash Flows from Operating Activities
Net cash provided by operating activities increased $925 million during fiscal 2023 compared with fiscal 2022, primarily due to the following:
Net income (loss)
•Net income compared with net loss in the prior year;
Changes in operating assets and liabilities
•an increase of $582 million related to accounts payable primarily due to the timing of payments for inventory during fiscal 2023 compared with fiscal 2022; and
•an increase of $255 million related to accrued expenses and other current liabilities primarily due to an increase in performance-based compensation during fiscal 2023 compared with fiscal 2022; partially offset by
•a decrease of $342 million related to income taxes payable, net of receivables and other tax-related items, primarily due to receipt of tax refunds during fiscal 2022 related to fiscal 2020 net operating loss carryback claims; and
•a decrease of $171 million related to merchandise inventory primarily due to a continued reduction of inventory during fiscal 2023 that was less than the reduction of inventory during fiscal 2022.
Cash Flows from Investing Activities
Net cash used for investing activities increased $107 million during fiscal 2016 decreased $201 million2023 compared with fiscal 2015,2022, primarily due to the following:
•$76 million in net proceeds from the sale of a building during fiscal 2023 compared with $458 million in net proceeds from the sale of buildings during fiscal 2022; partially offset by
•$265 million less purchases of property and equipment purchases.during fiscal 2023 compared with fiscal 2022, largely due to rationalizing our technology investments and a decrease in new store and supply chain spend.
In fiscal 2017,2023, cash used for purchases of property and equipment was $731$420 million primarily related to investments in stores, information technology, store investments, and supply chain including costs associated with the rebuilding of the company's Fishkill, New York distribution center campus.
to support our omni and digital strategies.
Cash Flows from Financing Activities
Net cash used for financing activities was $567 million during fiscal 2016 decreased $213 million2023 compared with $6 million of net cash provided by financing activities during fiscal 2015,2022, primarily due to the following:
•$123 million in repurchases of common stock induring fiscal 20162022 compared with $1 billion cash outflow related tono repurchases of common stock induring fiscal 2015; partially offset by
2023.
Free Cash Flow
Free cash flow is a non-GAAP financial measure. We believe free cash flow is an important metric because it represents a measure of how much cash a company has available for discretionary and non-discretionary items after the deduction of capital expenditures as weexpenditures. We require regular capital expenditures to buildincluding technology improvements as well as building and maintainmaintaining our stores and purchase new equipment to improve our business.distribution centers. We use this metric internally, as we believe our sustained ability to generate free cash flow is an important driver of value creation. However, this non-GAAP financial measure is not intended to supersede or replace our GAAP result. Free cash flow for fiscal 2017 is further adjusted for insurance proceeds allocated to loss on property and equipment, as our cash used for purchases of property and equipment for fiscal 2017 includes certain capital expenditures related to the rebuilding of the Company-owned distribution center which was impacted by the Fishkill fire.results.
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The following table reconciles free cash flow, a non-GAAP financial measure, from net cash provided by operating activities, a GAAP financial measure.
| Fiscal Year | Fiscal Year | ||||||||||||||||||||||||||
| ($ in millions) | 2017 | 2016 | 2015 | ||||||||||||||||||||||||
| Net cash provided by operating activities | $ | 1,380 | $ | 1,719 | $ | 1,594 | |||||||||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||||||||||||
| Less: Purchases of property and equipment | (731 | ) | (524 | ) | (726 | ) | |||||||||||||||||||||
| Add: Insurance proceeds related to loss on property and equipment | 66 | — | — | ||||||||||||||||||||||||
| Less: Purchases of property and equipment | |||||||||||||||||||||||||||
| Less: Purchases of property and equipment | |||||||||||||||||||||||||||
| Free cash flow | $ | 715 | $ | 1,195 | $ | 868 | |||||||||||||||||||||
| Free cash flow | |||||||||||||||||||||||||||
| Free cash flow | |||||||||||||||||||||||||||
Debt and Credit Facilities
Certain financial information about the Company's debt and credit facilities is set forth under the headings "Debt""Debt and "CreditCredit Facilities" in Notes 4 and 5, respectively,Note 7 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
Dividend Policy
In determining whether and at what level to declare a dividend, we consider a number of factors including sustainability, operating performance, liquidity, and market conditions.
We paid an annual dividend of $0.92$0.60 per share in fiscal 20172023 and fiscal 2016. We intend to increase our annual2022. In February 2024, the Board authorized a dividend to $0.97of $0.15 per share infor the first quarter of fiscal 2018.
2024.
Share Repurchases
Certain financial information about the Company's share repurchases is set forth under the heading "Share Repurchases" in Note 810 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
| Payments Due by Period | ||||||||||||||||||||
| ($ in millions) | Less than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | Total | |||||||||||||||
| Debt (1) | $ | — | $ | — | $ | 1,250 | $ | — | $ | 1,250 | ||||||||||
| Interest payments on debt | 74 | 149 | 37 | — | 260 | |||||||||||||||
| Operating leases (2) | 1,162 | 2,128 | 1,390 | 1,792 | 6,472 | |||||||||||||||
| Purchase obligations and commitments (3) | 3,891 | 84 | 26 | 40 | 4,041 | |||||||||||||||
| Total contractual cash obligations | $ | 5,127 | $ | 2,361 | $ | 2,703 | $ | 1,832 | $ | 12,023 | ||||||||||
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the financial statements of a large, global corporation. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.
Our significant accounting policies can be found under the heading "Organization and Summary of Significant Accounting Policies" in Note 1 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K. The policies and estimates discussed below include the financial statement elements that are either judgmental or involve the selection or application of alternative accounting policies and are material to our financial statements. Management has discussed the development and selection of these critical accounting policies and estimates with the Audit and Finance Committee of our Board of Directors, which has reviewed our disclosure relating to critical accounting policies and estimates in this annual report on Form 10-K.
We value inventory at the lower of cost or net realizable value (“LCNRV”), with cost determined using the weighted-average cost method. We review our inventory levels in order to identify slow-moving merchandise and broken assortments (items no longer in stock in a sufficient range of sizes or colors), and we primarily use promotions and markdowns to clear merchandise. We record an adjustment to inventory when future estimated selling price is less than cost. Our LCNRV adjustment calculation requires management to make assumptions to estimate the selling price and amount of slow-moving merchandise and broken assortments subject to markdowns, which is dependent upon factors such as historical trends with similar merchandise, inventory aging, forecasted consumer demand, and the promotional environment. In addition, we estimate and accrue shortage for the period between the last physical count and the balance sheet date. Our shortage estimate can be affected by changes in merchandise mix and changes in actual shortage trends. Historically, actual shortage has not differed materially from our estimates.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our LCNRV or inventory shortage adjustments.LCNRV. However, if estimates regarding consumer demand are inaccurate, or actual physical inventory shortage differs significantly from our estimate,if economic conditions including global inflationary pressures change beyond what is currently estimated by management, our operating results could be affected. We have not made any material changes in the accounting methodology used to calculate our LCNRV or inventory shortage adjustments in the past three fiscal years.
33
Impairment of Long-Lived Assets Goodwill,
Long-lived assets, which primarily consist of property and Intangible Assets
Long-lived assets are considered impaired if the carrying amount exceeds the estimated undiscounted future cash flows of the asset or asset group. group over the estimated remaining useful life. The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets. For our Company-operated stores, the individual store generally represents the lowest level of independent identifiable cash flows and the asset group is comprised of both property and equipment and operating lease assets.
For impaired assets, we recognize a loss equal to the difference between the carrying amount of the asset or asset group and its estimated fair value. The estimated fair value of the asset or asset group is based on estimated discounted future cash flows of the asset or asset group using a discount rate commensurate with the related risk. The asset group is defined asFor operating lease assets, the lowest level for which identifiable cash flows are available and largely independentCompany determines the estimated fair value of the cash flows of other groups of assets. The asset group for our retail stores is reviewed for impairment primarily atassets by comparing the store level. discounted contractual rent payments to estimated market rental rates using available valuation techniques.
Our estimate of future cash flows requires management to make assumptions and to apply judgment, including forecasting future sales and expensesgross profits and estimating useful lives of the assets. These estimates can be affected by factors such as future storesales results, real estate demand,market conditions, store closure plans, economic conditions, business interruptions, interest rates and economic conditionsgovernment regulations that can be difficult to predict. We have not made any material changes in the methodology to assess and calculate impairment of long-lived assets in the past three fiscal years. We recorded a charge for the impairment of long-lived assets of $28 million, $107 million, and $54 million for fiscal 2017, 2016, and 2015, respectively, related to store assets, which is recorded in operating expenses in the Consolidated Statements of Income.
If actual store and online results and brand performance, real estate market conditions and economic conditions including interest rates are not consistent with ourthe estimates and assumptions used in our calculations, we may be exposed to additional impairment losses that could be material.
long-lived assets.
See Note 18 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for recent accounting pronouncements related to revenue recognitionadditional information and expected impact from the adoptiondisclosures about impairment of new standards.
long-lived assets.
Income Taxes
We are a multinational company operating in multiple domestic and foreign locations with different tax laws and regulations. The Company's management is required to interpret and apply these tax laws and regulations in determining the amount of its income tax liability for financial statement purposes. We record a valuation allowanceallowances against our deferred tax assets when it is more likely than not that some portion or all of such deferred tax assets will not be realized. In determining the need for a valuation allowance,allowances, management is required to make assumptions and to apply judgment, including tax planning strategies, forecasting future income, taxable income, and the geographic mix of income or losses in the jurisdictions in which we operate. Our effective tax rate in a given financial statement period may also be materially impacted by changes in the geographic mix and level of income or losses, changes in the expected or actual outcome of audits, orand changes in the deferred tax valuation allowance.allowances or new tax legislation.
On a recurring basis, we assess the need for valuation allowances related to our deferred income tax assets, which includes consideration of both positive and negative evidence to determine, based on the weight of the available evidence, whether it is more likely than not that some or all of our deferred tax assets will not be realized. In our assessment, we consider recent financial operating results, the scheduled expiration of our net operating losses, potential sources of taxable income, the reversal of existing taxable differences, taxable income in prior carryback years (if permitted under tax law), and tax planning strategies.
It is possible that there will be changes in our business structure, our performance, our industry or otherwise that cause results to differ materially in future periods. If the changes result in significant and sustained reductions in our pre-tax income or utilization of existing tax carryforwards in future periods, additional valuation allowances may be required with corresponding adverse impacts on results of operations. Such adverse impacts may be material.
34
At any point in time, many tax years are subject to or in the process of being audited by various taxingU.S. and foreign tax jurisdictions. These audits include reviews of our tax filing positions, including the timing and amount of deductions taken and the allocation of income between tax jurisdictions. When an uncertain tax position is identified, we recognize a benefit only if we believe it is more likely than not that the tax position based on its technical merits will be sustained upon examination by the relevant tax authorities. ToWe recognize a benefit for tax positions using the extent our estimates of settlements change or the finalhighest cumulative tax outcome of these mattersbenefit that is different from the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are made. Our income tax expense includes changes in our estimatedmore likely than not to be realized. We establish a liability for exposures associated with our various tax filing positions. Determining the incomepositions that do not meet this threshold. The evaluation of uncertain tax expense for these potential assessmentspositions requires management to apply specialized skill and knowledge related to tax laws and regulations and to make assumptions that are subject to factors such as proposedpossible assessments by tax authorities, changes in facts and circumstances, issuance of new regulations, and resolutionresolutions of tax audits.
See Note 125 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for the impact of the U.S. Tax Cuts and Jobs Act enacted on December 22, 2017additional information on income taxes.
The Company’s revenues primarily include merchandise sales at stores, online, and through franchise and licensing agreements. We also receive revenue sharing from our credit card agreement for private label and co-branded credit cards, and breakage revenue related to our gift cards, merchandise return cards, and outstanding loyalty points, which are realized based upon historical redemption patterns. For online sales, the Company has elected to treat shipping and handling as fulfillment activities and not a separate performance obligation. Accordingly, we recognize revenue for our single performance obligation related to online sales at the time control of the merchandise passes to the customer, which is generally at the time of shipment. Revenues are presented net of any taxes collected from customers and remitted to governmental authorities.
We record sales return allowances and a right of returns asset on a gross basis for expected future merchandise returns, based on historical return patterns, merchandise mix, and recent trends. The actual amount of customer returns, which are inherently uncertain, may differ from our estimates. Sales return allowances are recorded within accrued expenses and other current liabilities and the right of returns asset is recorded within other current assets on our Consolidated Balance Sheets.
We also defer revenue when cash payments are received in advance of performance for unsatisfied obligations related to our gift cards, licensing agreements, outstanding loyalty points, and reimbursements of loyalty program discounts associated with our credit card agreement.
See Note 3 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for related revenue disclosures.
Recent Accounting Pronouncements
See "Organization and Summary of Significant Accounting Policies" in Note 1 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for recent accounting pronouncements, including the expected dates of adoption and estimated effects on our Consolidated Financial Statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Derivative Financial Instruments
Certain financial information about the Company's derivative financial instruments is set forth under the heading "Derivative Financial Instruments" in Note 79 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
35
We have performed a sensitivity analysis as of February 3, 20182024 based on a model that measures the impact of a hypothetical 10 percent adverse change in foreign currency exchange rates to U.S. dollars (with all other variables held constant) on our underlying estimated major foreign currency exposures, net of derivative financial instruments. The foreign currency exchange rates used in the model were based on the spot rates in effect as of February 3, 2018.2024. The sensitivity analysis indicated that a hypothetical 10 percent adverse movement in foreign currency exchange rates would have an unfavorable impact on the underlying cash flow, net of our foreign exchange derivative financial instruments, of $40$18 million as of February 3, 2018.
2024.
Debt
Certain financial information about the Company's debt is set forth under the heading "Debt""Debt and Credit Facilities" in Note 47 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
Our $1.25 billion aggregate principal amount of 5.95 percent notes due April 2021Senior Notes have fixed interest rates and are not subjectexposed to interest rate risk as they have a fixed interest rate.
On March 27, 2023, Moody's downgraded our corporate credit rating from Ba2 to Ba3 with a negative outlook and downgraded the rating of our Senior Notes from Ba3 to B1 with a negative outlook. These reductions and any future reduction in our credit ratings could result in an increase to our interest income derived from our investments. We earned interest income of $19 million in fiscal 2017.expense on future borrowings.
36
Item 8. Financial Statements and Supplementary Data.
THE GAP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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37
Report of Independent Registered Public Accounting Firm
To the Shareholdersshareholders and the Board of Directors of The Gap, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of The Gap, Inc. and subsidiaries (the “Company”"Company") as of February 3, 20182024 and January 28, 2017,2023, the related consolidated statements of income,operations, comprehensive income (loss), stockholders’ equity, and cash flows, for each of the fiscal years ended February 3, 2018,2024, January 28, 20172023 and January 30, 2016,29, 2022 and the related notes (collectively referred to as the “financial statements”"financial statements"). We also have audited the Company'sCompany’s internal control over financial reporting as of February 3, 2018,2024, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 3, 20182024 and January 28, 2017,2023, and the results of its operations and its cash flows for each of the fiscal years ended February 3, 2018,2024, January 28, 20172023 and January 30, 2016,29, 2022, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 3, 2018,2024, based on criteria established in Internal Control -— Integrated Framework (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company'sCompany’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
38
Definition and Limitations of Internal Control over Financial Reporting
A company'scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Sales Return Allowances and Right of Returns Asset — Refer to Note 1 in the financial statements
Critical Audit Matter Description
As of February 3, 2024, the Company recorded sales return allowances of $62 million within accrued expenses and other current liabilities and a right of returns asset of $28 million within other current assets. The Company establishes sales return allowances and a right of returns asset on a gross basis for expected future merchandise returns, based on historical return patterns, merchandise mix, and recent trends.
We identified sales return allowances and the right of returns asset as a critical audit matter due to the uncertainty and judgment in estimating the amount of outstanding customer returns as of the balance sheet date. A high degree of auditor judgment was required when performing audit procedures to evaluate the reasonableness of management's estimate.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to sales return allowances and the right of returns asset included the following, among others:
•We tested the effectiveness of controls over the process for establishing sales return allowances and the right of returns asset.
•We evaluated the Company’s methodology and assumptions used to develop sales return allowances and the right of returns asset by:
–Testing the completeness and accuracy of underlying data used in the sales return allowance estimate
–Evaluating whether the inputs used in the estimate were relevant and consistent with evidence obtained externally and in other areas of the audit
39
–Testing the mathematical accuracy of the sales return allowance estimate
–Assessing the Company's ability to accurately estimate merchandise returns by comparing prior period estimates to actual merchandise returns
•We developed an independent estimate of sales return allowances and the right of returns asset and compared it to the recorded amount.
/s/ Deloitte & Touche LLP
San Francisco, California
March 20, 201819, 2024
We have served as the Company’s auditor since at least 1976, in connection with its initial public offering.offering; however, an earlier year could not be reliably determined.
40
THE GAP, INC.
CONSOLIDATED BALANCE SHEETS
| ($ and shares in millions except par value) | February 3, 2018 | January 28, 2017 | ($ and shares in millions except par value) | February 3, 2024 | January 28, 2023 | |||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 1,783 | $ | 1,783 | ||||||||||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||||||||||||
| Merchandise inventory | ||||||||||||||||||||||||||||
| Merchandise inventory | ||||||||||||||||||||||||||||
| Merchandise inventory | 1,997 | 1,830 | ||||||||||||||||||||||||||
| Other current assets | 788 | 702 | ||||||||||||||||||||||||||
| Total current assets | 4,568 | 4,315 | ||||||||||||||||||||||||||
| Property and equipment, net | 2,805 | 2,616 | ||||||||||||||||||||||||||
| Property and equipment, net of accumulated depreciation | ||||||||||||||||||||||||||||
| Operating lease assets | ||||||||||||||||||||||||||||
| Other long-term assets | 616 | 679 | ||||||||||||||||||||||||||
| Total assets | $ | 7,989 | $ | 7,610 | ||||||||||||||||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||||||
| Current maturities of debt | $ | — | $ | 65 | ||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||||||
| Accounts payable | ||||||||||||||||||||||||||||
| Accounts payable | ||||||||||||||||||||||||||||
| Accounts payable | 1,181 | 1,243 | ||||||||||||||||||||||||||
| Accrued expenses and other current liabilities | 1,270 | 1,113 | ||||||||||||||||||||||||||
| Current portion of operating lease liabilities | ||||||||||||||||||||||||||||
| Income taxes payable | 10 | 32 | ||||||||||||||||||||||||||
| Total current liabilities | 2,461 | 2,453 | ||||||||||||||||||||||||||
| Long-term liabilities: | ||||||||||||||||||||||||||||
| Revolving credit facility | ||||||||||||||||||||||||||||
| Revolving credit facility | ||||||||||||||||||||||||||||
| Revolving credit facility | ||||||||||||||||||||||||||||
| Long-term debt | 1,249 | 1,248 | ||||||||||||||||||||||||||
| Lease incentives and other long-term liabilities | 1,135 | 1,005 | ||||||||||||||||||||||||||
| Long-term operating lease liabilities | ||||||||||||||||||||||||||||
| Other long-term liabilities | ||||||||||||||||||||||||||||
| Total long-term liabilities | 2,384 | 2,253 | ||||||||||||||||||||||||||
| Commitments and contingencies (see Notes 11 and 15) | ||||||||||||||||||||||||||||
| Commitments and contingencies (see Note 15) | ||||||||||||||||||||||||||||
| Stockholders' equity: | ||||||||||||||||||||||||||||
| Stockholders' equity: | ||||||||||||||||||||||||||||
| Stockholders' equity: | ||||||||||||||||||||||||||||
| Common stock $0.05 par value | ||||||||||||||||||||||||||||
| Authorized 2,300 shares for all periods presented; Issued and Outstanding 389 and 399 shares | 19 | 20 | ||||||||||||||||||||||||||
| Common stock $0.05 par value | ||||||||||||||||||||||||||||
| Common stock $0.05 par value | ||||||||||||||||||||||||||||
| Authorized 2,300 shares for all periods presented; Issued and Outstanding 372 and 366 shares | ||||||||||||||||||||||||||||
| Authorized 2,300 shares for all periods presented; Issued and Outstanding 372 and 366 shares | ||||||||||||||||||||||||||||
| Authorized 2,300 shares for all periods presented; Issued and Outstanding 372 and 366 shares | ||||||||||||||||||||||||||||
| Additional paid-in capital | 8 | 81 | ||||||||||||||||||||||||||
| Retained earnings | 3,081 | 2,749 | ||||||||||||||||||||||||||
| Accumulated other comprehensive income | 36 | 54 | ||||||||||||||||||||||||||
| Total stockholders' equity | 3,144 | 2,904 | ||||||||||||||||||||||||||
| Total liabilities and stockholders' equity | $ | 7,989 | $ | 7,610 | ||||||||||||||||||||||||
See Accompanying Notes to Consolidated Financial Statements
41
THE GAP, INC.
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
| Fiscal Year | Fiscal Year | ||||||||||||||||||||||||||||||||||||||||
| ($ and shares in millions except per share amounts) | 2017 | 2016 | 2015 | ($ and shares in millions except per share amounts) | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| Net sales | $ | 15,855 | $ | 15,516 | $ | 15,797 | |||||||||||||||||||||||||||||||||||
| Cost of goods sold and occupancy expenses | 9,789 | 9,876 | 10,077 | ||||||||||||||||||||||||||||||||||||||
| Gross profit | 6,066 | 5,640 | 5,720 | ||||||||||||||||||||||||||||||||||||||
| Operating expenses | 4,587 | 4,449 | 4,196 | ||||||||||||||||||||||||||||||||||||||
| Operating income | 1,479 | 1,191 | 1,524 | ||||||||||||||||||||||||||||||||||||||
| Operating income (loss) | |||||||||||||||||||||||||||||||||||||||||
| Loss on extinguishment of debt | |||||||||||||||||||||||||||||||||||||||||
| Interest expense | 74 | 75 | 59 | ||||||||||||||||||||||||||||||||||||||
| Interest income | (19 | ) | (8 | ) | (6 | ) | |||||||||||||||||||||||||||||||||||
| Income before income taxes | 1,424 | 1,124 | 1,471 | ||||||||||||||||||||||||||||||||||||||
| Income taxes | 576 | 448 | 551 | ||||||||||||||||||||||||||||||||||||||
| Net income | $ | 848 | $ | 676 | $ | 920 | |||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes | |||||||||||||||||||||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | |||||||||||||||||||||||||||||||||||||||||
| Weighted-average number of shares—basic | 393 | 399 | 411 | ||||||||||||||||||||||||||||||||||||||
| Weighted-average number of shares—diluted | 396 | 400 | 413 | ||||||||||||||||||||||||||||||||||||||
| Earnings per share—basic | $ | 2.16 | $ | 1.69 | $ | 2.24 | |||||||||||||||||||||||||||||||||||
| Earnings per share—diluted | $ | 2.14 | $ | 1.69 | $ | 2.23 | |||||||||||||||||||||||||||||||||||
| Earnings (loss) per share—basic | |||||||||||||||||||||||||||||||||||||||||
| Earnings (loss) per share—diluted | |||||||||||||||||||||||||||||||||||||||||
See Accompanying Notes to Consolidated Financial Statements
42
THE GAP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| Fiscal Year | ||||||||||||||||||||
| ($ in millions) | 2023 | 2022 | 2021 | |||||||||||||||||
| Net income (loss) | $ | 502 | $ | (202) | $ | 256 | ||||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||
| Foreign currency translation | (4) | 14 | 9 | |||||||||||||||||
| Change in fair value of derivative financial instruments, net of tax expense of $2, $—, and $— | 16 | 27 | 8 | |||||||||||||||||
| Reclassification adjustment for losses (gains) on derivative financial instruments, net of (tax expense) tax benefit of $(1), $(2), and $3 | (17) | (31) | 12 | |||||||||||||||||
| Other comprehensive income (loss), net of tax | (5) | 10 | 29 | |||||||||||||||||
| Comprehensive income (loss) | $ | 497 | $ | (192) | $ | 285 | ||||||||||||||
| Fiscal Year | ||||||||||||
| ($ in millions) | 2017 | 2016 | 2015 | |||||||||
| Net income | $ | 848 | $ | 676 | $ | 920 | ||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||
| Foreign currency translation, net of tax benefit of $-, $-, and $(1) | 35 | 7 | (38 | ) | ||||||||
| Change in fair value of derivative financial instruments, net of tax (tax benefit) of $(9), $(2), and $21 | (51 | ) | (26 | ) | 60 | |||||||
| Reclassification adjustment for gains on derivative financial instruments, net of (tax) tax benefit of $3, $(11), and $(42) | (2 | ) | (12 | ) | (102 | ) | ||||||
| Other comprehensive loss, net of tax | (18 | ) | (31 | ) | (80 | ) | ||||||
| Comprehensive income | $ | 830 | $ | 645 | $ | 840 | ||||||
See Accompanying Notes to Consolidated Financial Statements
43
THE GAP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income | ||||||||||||||||||||||
| ($ and shares in millions except per share amounts) | Shares | Amount | Total | ||||||||||||||||||||||
| Balance as of January 31, 2015 | 421 | $ | 21 | $ | — | $ | 2,797 | $ | 165 | $ | 2,983 | ||||||||||||||
| ($ and shares in millions except per share amounts) | |||||||||||||||||||||||||
| ($ and shares in millions except per share amounts) | |||||||||||||||||||||||||
| Balance as of January 30, 2021 | |||||||||||||||||||||||||
| Balance as of January 30, 2021 | |||||||||||||||||||||||||
| Balance as of January 30, 2021 | |||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||
| Other comprehensive income, net of tax | |||||||||||||||||||||||||
| Other comprehensive income, net of tax | |||||||||||||||||||||||||
| Other comprehensive income, net of tax | |||||||||||||||||||||||||
| Foreign currency translation | |||||||||||||||||||||||||
| Foreign currency translation | |||||||||||||||||||||||||
| Foreign currency translation | |||||||||||||||||||||||||
| Change in fair value of derivative instruments | |||||||||||||||||||||||||
| Change in fair value of derivative instruments | |||||||||||||||||||||||||
| Change in fair value of derivative instruments | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | |||||||||||||||||||||||||
| Repurchases and retirement of common stock | |||||||||||||||||||||||||
| Repurchases and retirement of common stock | |||||||||||||||||||||||||
| Repurchases and retirement of common stock | |||||||||||||||||||||||||
| Issuance of common stock related to stock options and employee stock purchase plans | |||||||||||||||||||||||||
| Issuance of common stock related to stock options and employee stock purchase plans | |||||||||||||||||||||||||
| Issuance of common stock related to stock options and employee stock purchase plans | |||||||||||||||||||||||||
| Issuance of common stock and withholding tax payments related to vesting of stock units | |||||||||||||||||||||||||
| Issuance of common stock and withholding tax payments related to vesting of stock units | |||||||||||||||||||||||||
| Issuance of common stock and withholding tax payments related to vesting of stock units | |||||||||||||||||||||||||
| Share-based compensation, net of forfeitures | |||||||||||||||||||||||||
| Share-based compensation, net of forfeitures | |||||||||||||||||||||||||
| Share-based compensation, net of forfeitures | |||||||||||||||||||||||||
| Common stock dividends declared and paid ($0.36 per share) | |||||||||||||||||||||||||
| Common stock dividends declared and paid ($0.36 per share) | |||||||||||||||||||||||||
| Common stock dividends declared and paid ($0.36 per share) | |||||||||||||||||||||||||
| Balance as of January 29, 2022 | |||||||||||||||||||||||||
| Balance as of January 29, 2022 | |||||||||||||||||||||||||
| Balance as of January 29, 2022 | |||||||||||||||||||||||||
| Net loss | |||||||||||||||||||||||||
| Net loss | |||||||||||||||||||||||||
| Net loss | |||||||||||||||||||||||||
| Other comprehensive income, net of tax | |||||||||||||||||||||||||
| Other comprehensive income, net of tax | |||||||||||||||||||||||||
| Other comprehensive income, net of tax | |||||||||||||||||||||||||
| Foreign currency translation | |||||||||||||||||||||||||
| Foreign currency translation | |||||||||||||||||||||||||
| Foreign currency translation | |||||||||||||||||||||||||
| Change in fair value of derivative instruments | |||||||||||||||||||||||||
| Change in fair value of derivative instruments | |||||||||||||||||||||||||
| Change in fair value of derivative instruments | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | |||||||||||||||||||||||||
| Repurchases and retirement of common stock | |||||||||||||||||||||||||
| Repurchases and retirement of common stock | |||||||||||||||||||||||||
| Repurchases and retirement of common stock | |||||||||||||||||||||||||
| Issuance of common stock related to stock options and employee stock purchase plans | |||||||||||||||||||||||||
| Issuance of common stock related to stock options and employee stock purchase plans | |||||||||||||||||||||||||
| Issuance of common stock related to stock options and employee stock purchase plans | |||||||||||||||||||||||||
| Issuance of common stock and withholding tax payments related to vesting of stock units | |||||||||||||||||||||||||
| Issuance of common stock and withholding tax payments related to vesting of stock units | |||||||||||||||||||||||||
| Issuance of common stock and withholding tax payments related to vesting of stock units | |||||||||||||||||||||||||
| Share-based compensation, net of forfeitures | |||||||||||||||||||||||||
| Share-based compensation, net of forfeitures | |||||||||||||||||||||||||
| Share-based compensation, net of forfeitures | |||||||||||||||||||||||||
| Common stock dividends declared and paid ($0.60 per share) | |||||||||||||||||||||||||
| Common stock dividends declared and paid ($0.60 per share) | |||||||||||||||||||||||||
| Common stock dividends declared and paid ($0.60 per share) | |||||||||||||||||||||||||
| Balance as of January 28, 2023 | |||||||||||||||||||||||||
| Balance as of January 28, 2023 | |||||||||||||||||||||||||
| Balance as of January 28, 2023 | |||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||
| Net income | 920 | 920 | |||||||||||||||||||||||
| Other comprehensive loss, net of tax | (80 | ) | (80 | ) | |||||||||||||||||||||
| Repurchases and retirement of common stock | (30 | ) | (1 | ) | (99 | ) | (900 | ) | (1,000 | ) | |||||||||||||||
| Other comprehensive loss, net of tax | |||||||||||||||||||||||||
| Other comprehensive loss, net of tax | |||||||||||||||||||||||||
| Foreign currency translation | |||||||||||||||||||||||||
| Foreign currency translation | |||||||||||||||||||||||||
| Foreign currency translation | |||||||||||||||||||||||||
| Change in fair value of derivative instruments | |||||||||||||||||||||||||
| Change in fair value of derivative instruments | |||||||||||||||||||||||||
| Change in fair value of derivative instruments | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | |||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | |||||||||||||||||||||||||
| Issuance of common stock related to stock options and employee stock purchase plans | |||||||||||||||||||||||||
| Issuance of common stock related to stock options and employee stock purchase plans | |||||||||||||||||||||||||
| Issuance of common stock related to stock options and employee stock purchase plans | 3 | — | 65 | 65 | |||||||||||||||||||||
| Issuance of common stock and withholding tax payments related to vesting of stock units | 3 | — | (69 | ) | (69 | ) | |||||||||||||||||||
| Tax benefit from exercise of stock options and vesting of stock units | 26 | 26 | |||||||||||||||||||||||
| Share-based compensation, net of estimated forfeitures | 77 | 77 | |||||||||||||||||||||||
| Common stock dividends ($0.92 per share) | (377 | ) | (377 | ) | |||||||||||||||||||||
| Balance as of January 30, 2016 | 397 | 20 | — | 2,440 | 85 | 2,545 | |||||||||||||||||||
| Net income | 676 | 676 | |||||||||||||||||||||||
| Other comprehensive loss, net of tax | (31 | ) | (31 | ) | |||||||||||||||||||||
| Issuance of common stock related to stock options and employee stock purchase plans | 1 | — | 29 | 29 | |||||||||||||||||||||
| Issuance of common stock and withholding tax payments related to vesting of stock units | 1 | — | (19 | ) | (19 | ) | |||||||||||||||||||
| Tax benefit from exercise of stock options and vesting of stock units | (4 | ) | (4 | ) | |||||||||||||||||||||
| Share-based compensation, net of estimated forfeitures | 75 | 75 | |||||||||||||||||||||||
| Common stock dividends ($0.92 per share) | (367 | ) | (367 | ) | |||||||||||||||||||||
| Balance as of January 28, 2017 | 399 | 20 | 81 | 2,749 | 54 | 2,904 | |||||||||||||||||||
| Cumulative effect of a change in accounting principle related to stock-based compensation | (5 | ) | 3 | (2 | ) | ||||||||||||||||||||
| Net income | 848 | 848 | |||||||||||||||||||||||
| Other comprehensive loss, net of tax | (18 | ) | (18 | ) | |||||||||||||||||||||
| Repurchases and retirement of common stock | (13 | ) | (1 | ) | (156 | ) | (158 | ) | (315 | ) | |||||||||||||||
| Issuance of common stock related to stock options and employee stock purchase plans | 2 | — | 30 | 30 | |||||||||||||||||||||
| Issuance of common stock and withholding tax payments related to vesting of stock units | 1 | — | (18 | ) | (18 | ) | |||||||||||||||||||
| Share-based compensation, net of forfeitures | 76 | 76 | |||||||||||||||||||||||
| Common stock dividends ($0.92 per share) | (361 | ) | (361 | ) | |||||||||||||||||||||
| Balance as of February 3, 2018 | 389 | $ | 19 | $ | 8 | $ | 3,081 | $ | 36 | $ | 3,144 | ||||||||||||||
| Share-based compensation, net of forfeitures | |||||||||||||||||||||||||
| Share-based compensation, net of forfeitures | |||||||||||||||||||||||||
| Common stock dividends declared and paid ($0.60 per share) | |||||||||||||||||||||||||
| Common stock dividends declared and paid ($0.60 per share) | |||||||||||||||||||||||||
| Common stock dividends declared and paid ($0.60 per share) | |||||||||||||||||||||||||
| Balance as of February 3, 2024 | |||||||||||||||||||||||||
| Balance as of February 3, 2024 | |||||||||||||||||||||||||
| Balance as of February 3, 2024 | |||||||||||||||||||||||||
See Accompanying Notes to Consolidated Financial Statements
44
THE GAP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Fiscal Year | Fiscal Year | ||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | 2017 | 2016 | 2015 | ($ in millions) | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 848 | $ | 676 | $ | 920 | |||||||||||||||||||||||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | |||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | |||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | |||||||||||||||||||||||||||||||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 559 | 593 | 592 | ||||||||||||||||||||||||||||||||||||||
| Amortization of lease incentives | (60 | ) | (62 | ) | (65 | ) | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 87 | 76 | 76 | ||||||||||||||||||||||||||||||||||||||
| Tax benefit from exercise of stock options and vesting of stock units | — | (4 | ) | 26 | |||||||||||||||||||||||||||||||||||||
| Excess tax benefit from exercise of stock options and vesting of stock units | — | (1 | ) | (28 | ) | ||||||||||||||||||||||||||||||||||||
| Store asset impairment charges | 28 | 107 | 54 | ||||||||||||||||||||||||||||||||||||||
| Goodwill impairment charge | — | 71 | — | ||||||||||||||||||||||||||||||||||||||
| Share-based compensation | |||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | |||||||||||||||||||||||||||||||||||||||||
| Impairment of operating lease assets | |||||||||||||||||||||||||||||||||||||||||
| Impairment of store assets | |||||||||||||||||||||||||||||||||||||||||
| Loss on extinguishment of debt | |||||||||||||||||||||||||||||||||||||||||
| Loss on extinguishment of debt | |||||||||||||||||||||||||||||||||||||||||
| Loss on extinguishment of debt | |||||||||||||||||||||||||||||||||||||||||
| Amortization of debt issuance costs | |||||||||||||||||||||||||||||||||||||||||
| Amortization of debt issuance costs | |||||||||||||||||||||||||||||||||||||||||
| Amortization of debt issuance costs | |||||||||||||||||||||||||||||||||||||||||
| Non-cash and other items | 19 | (4 | ) | (126 | ) | ||||||||||||||||||||||||||||||||||||
| Loss on divestiture activity | |||||||||||||||||||||||||||||||||||||||||
| Gain on sale of building | |||||||||||||||||||||||||||||||||||||||||
| Deferred income taxes | 61 | (54 | ) | 101 | |||||||||||||||||||||||||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||||||||||||||||||||||||||
| Merchandise inventory | |||||||||||||||||||||||||||||||||||||||||
| Merchandise inventory | |||||||||||||||||||||||||||||||||||||||||
| Merchandise inventory | (142 | ) | 46 | (6 | ) | ||||||||||||||||||||||||||||||||||||
| Other current assets and other long-term assets | 33 | 54 | 133 | ||||||||||||||||||||||||||||||||||||||
| Accounts payable | (90 | ) | 146 | (47 | ) | ||||||||||||||||||||||||||||||||||||
| Accrued expenses and other current liabilities | 34 | 76 | (41 | ) | |||||||||||||||||||||||||||||||||||||
| Income taxes payable, net of prepaid and other tax-related items | (52 | ) | 19 | (24 | ) | ||||||||||||||||||||||||||||||||||||
| Lease incentives and other long-term liabilities | 55 | (20 | ) | 29 | |||||||||||||||||||||||||||||||||||||
| Income taxes payable, net of receivables and other tax-related items | |||||||||||||||||||||||||||||||||||||||||
| Other long-term liabilities | |||||||||||||||||||||||||||||||||||||||||
| Operating lease assets and liabilities, net | |||||||||||||||||||||||||||||||||||||||||
| Net cash provided by operating activities | 1,380 | 1,719 | 1,594 | ||||||||||||||||||||||||||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||||||||||||||||||||||||
| Purchases of property and equipment | (731 | ) | (524 | ) | (726 | ) | |||||||||||||||||||||||||||||||||||
| Insurance proceeds related to loss on property and equipment | 66 | — | — | ||||||||||||||||||||||||||||||||||||||
| Purchases of property and equipment | |||||||||||||||||||||||||||||||||||||||||
| Purchases of property and equipment | |||||||||||||||||||||||||||||||||||||||||
| Net proceeds from sale of buildings | |||||||||||||||||||||||||||||||||||||||||
| Net proceeds from sale of buildings | |||||||||||||||||||||||||||||||||||||||||
| Net proceeds from sale of buildings | |||||||||||||||||||||||||||||||||||||||||
| Purchases of short-term investments | |||||||||||||||||||||||||||||||||||||||||
| Proceeds from sales and maturities of short-term investments | |||||||||||||||||||||||||||||||||||||||||
| Payments for acquisition activity, net of cash acquired | |||||||||||||||||||||||||||||||||||||||||
| Net proceeds from divestiture activity, net of cash paid | |||||||||||||||||||||||||||||||||||||||||
| Other | (3 | ) | (5 | ) | (4 | ) | |||||||||||||||||||||||||||||||||||
| Net cash used for investing activities | (668 | ) | (529 | ) | (730 | ) | |||||||||||||||||||||||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||||||||||||||||||||||||||
| Proceeds from issuance of debt | — | — | 400 | ||||||||||||||||||||||||||||||||||||||
| Payments of debt | (67 | ) | (421 | ) | (21 | ) | |||||||||||||||||||||||||||||||||||
| Proceeds from revolving credit facility | |||||||||||||||||||||||||||||||||||||||||
| Proceeds from revolving credit facility | |||||||||||||||||||||||||||||||||||||||||
| Proceeds from revolving credit facility | |||||||||||||||||||||||||||||||||||||||||
| Repayments of revolving credit facility | |||||||||||||||||||||||||||||||||||||||||
| Proceeds from issuance of long-term debt | |||||||||||||||||||||||||||||||||||||||||
| Payments to extinguish debt | |||||||||||||||||||||||||||||||||||||||||
| Payments for debt issuance costs | |||||||||||||||||||||||||||||||||||||||||
| Proceeds from issuances under share-based compensation plans | 30 | 29 | 65 | ||||||||||||||||||||||||||||||||||||||
| Withholding tax payments related to vesting of stock units | (18 | ) | (19 | ) | (69 | ) | |||||||||||||||||||||||||||||||||||
| Repurchases of common stock | (315 | ) | — | (1,015 | ) | ||||||||||||||||||||||||||||||||||||
| Excess tax benefit from exercise of stock options and vesting of stock units | — | 1 | 28 | ||||||||||||||||||||||||||||||||||||||
| Cash dividends paid | |||||||||||||||||||||||||||||||||||||||||
| Cash dividends paid | |||||||||||||||||||||||||||||||||||||||||
| Cash dividends paid | (361 | ) | (367 | ) | (377 | ) | |||||||||||||||||||||||||||||||||||
| Other | — | — | (1 | ) | |||||||||||||||||||||||||||||||||||||
| Net cash used for financing activities | (731 | ) | (777 | ) | (990 | ) | |||||||||||||||||||||||||||||||||||
| Effect of foreign exchange rate fluctuations on cash and cash equivalents | 19 | — | (19 | ) | |||||||||||||||||||||||||||||||||||||
| Net increase (decrease) in cash and cash equivalents | — | 413 | (145 | ) | |||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents at beginning of period | 1,783 | 1,370 | 1,515 | ||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents at end of period | $ | 1,783 | $ | 1,783 | $ | 1,370 | |||||||||||||||||||||||||||||||||||
| Net cash provided by (used for) financing activities | |||||||||||||||||||||||||||||||||||||||||
| Effect of foreign exchange rate fluctuations on cash, cash equivalents, and restricted cash | |||||||||||||||||||||||||||||||||||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | |||||||||||||||||||||||||||||||||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | |||||||||||||||||||||||||||||||||||||||||
| Cash, cash equivalents, and restricted cash at end of period | |||||||||||||||||||||||||||||||||||||||||
| Non-cash investing activities: | |||||||||||||||||||||||||||||||||||||||||
| Purchases of property and equipment not yet paid at end of period | |||||||||||||||||||||||||||||||||||||||||
| Purchases of property and equipment not yet paid at end of period | |||||||||||||||||||||||||||||||||||||||||
| Purchases of property and equipment not yet paid at end of period | $ | 77 | $ | 56 | $ | 81 | |||||||||||||||||||||||||||||||||||
| Supplemental disclosure of cash flow information: | |||||||||||||||||||||||||||||||||||||||||
| Cash paid for interest during the period | $ | 76 | $ | 82 | $ | 78 | |||||||||||||||||||||||||||||||||||
| Cash paid for interest during the period | |||||||||||||||||||||||||||||||||||||||||
| Cash paid for interest during the period | |||||||||||||||||||||||||||||||||||||||||
| Cash paid for income taxes during the period, net of refunds | $ | 570 | $ | 488 | $ | 452 | |||||||||||||||||||||||||||||||||||
| Cash paid for operating lease liabilities | |||||||||||||||||||||||||||||||||||||||||