UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended April ~~30, 2022~~29, 2023


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

For the transition period from to

Commission File Number 1-7562

THE GAP, INC.

(Exact name of registrant as specified in its charter)


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

Two Folsom Street

San Francisco, California 94105

(Address of principal executive offices and zip code)

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

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.05 par value

GPS

The New York Stock Exchange

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

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

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

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

The number of shares of the registrant’s common stock outstanding as of May ~~20, 2022~~19, 2023 was ~~367,968,088.~~368,056,655.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements other than those that are purely historical are forward-looking statements. Words such as “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan,” “project,” and similar expressions also identify forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding the following:

•the potential impact of global ~~supply chain disruptions and the COVID-19 pandemic~~economic conditions on the assumptions and estimates used when preparing the Condensed Consolidated Financial Statements;

•the impact of recent accounting pronouncements;

•~~our new credit card program with Barclays and Mastercard, as well as discontinuing our existing program with Synchrony Financial, and~~ the timing of revenue recognition of upfront payments related to our new credit card program agreements with Barclays and Mastercard;

•costs expected to be incurred in connection with our restructuring plan and the ~~new program;~~timing of actions associated with the reduction of our workforce;

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

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

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

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

•our plans to ~~introduce certain stored inventory into~~rationalize the ~~market;~~

•~~opening additional shop-in-shops in the United Kingdom~~Gap and ~~migrating our United Kingdom and Ireland e-commerce business to the Next Total Platform as part of our joint venture with Next Plc;~~

•~~transforming our business model~~Banana Republic store fleet by ~~using strong local partnerships to grow our brands and amplify our reach;~~

•~~our plans to reduce~~reducing the number of Gap and Banana Republic stores in North America;

•managing inventory to support a healthy merchandise margin;

•reducing and optimizing our fixed cost structure to improve profitability and manage through current macroeconomic challenges;

•driving ~~improved~~ sales ~~at Old Navy~~ through assortment improvements and a balanced and relevant category mix;

•~~reducing our fixed cost structure~~driving creative excellence and delivering product that offers value to ~~fuel demand generation investments;~~

•~~leveraging our scale to navigate disruptions~~customers through a combination of fit, quality, brand, and ~~constraints in global supply chain;~~

•~~managing inventory to support a healthy merchandise margin;~~

•~~rationalizing the Gap and Banana Republic store fleet;~~price;

•prioritizing asset-light growth through licensing, online, and franchise partnerships globally;

•~~creating product that offers value to our customers through a combination of fit, quality, brand and price;~~

•~~investing~~optimizing investments in our four purpose-led lifestyle brands to drive relevance and gain market share;

•~~growing our online business;~~

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

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

•our ~~Power Plan strategy and our ability to execute against it, including by leveraging our competitive strengths;~~

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

•the impact of seasonality ~~the COVID-19 pandemic~~ and global ~~supply chain disruption~~economic conditions on certain asset and liability accounts as well as cash inflows and outflows;

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

•the importance of our sustained ability to generate free cash flow, which is a non-GAAP financial measure and is defined and discussed in more detail in Item 12 of Part 1 of this Form 10-Q below;

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

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

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

•the overall global economic and geopolitical environment and the impact on consumer spending ~~patterns and risks associated with the COVID-19 pandemic;~~patterns;

•the risk that ~~our estimates regarding consumer demand are inaccurate,~~inflationary pressures continue to negatively impact gross margins or that ~~economic conditions including delayed shipments and other global supply chain challenges worsen beyond what~~ we ~~currently estimate;~~

•~~the risk that we may be~~are unable to ~~mitigate the impact of global supply chain disruptions on our business and operations and maintain inventory commensurate with consumer demand;~~pass along price increases;

•the risk that ~~inflation continues~~restructuring our business may not generate the intended benefits and projected cost savings to ~~rise, which could increase our expenses and negatively impact consumer demand;~~

•the ~~risk that we may be unable to manage our inventory effectively and~~extent or on the ~~resulting impact on our gross margins and sales;~~

•~~the risk that global supply chain delays will result in receiving inventory after the applicable selling season and lead to significant impairment charges;~~timeline as expected;

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

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

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

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

•~~the risk that increased public focus on our ESG initiatives or our inability to meet our stated ESG goals could affect~~ our brand image and reputation;

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

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

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

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

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

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

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

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

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

•the ongoing conflict between Russia and Ukraine and the impact on global market stability;

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

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

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

•the risk of foreign currency exchange rate fluctuations;

•the risk that our comparable sales and margins ~~will~~may experience ~~fluctuations;~~

•~~natural disasters, public health crises (similar~~fluctuations, that the seasonality of our business may experience changes, or that we may fail to ~~and including the ongoing COVID-19 pandemic), political crises (such as the ongoing conflict between Russia and Ukraine), negative global climate patterns, or other catastrophic events;~~meet financial market expectations;

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

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

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

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

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

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

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

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

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

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

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

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

•the risk that the adoption of new accounting pronouncements will impact future ~~results; and~~

•~~the risk that we do not repurchase some or all of the shares we anticipate purchasing pursuant to our repurchase program.~~results.

Additional information regarding factors that could cause results to differ can be found in our Annual Report on Form 10-K for the fiscal year ended January ~~29, 2022~~28, 2023 and our other filings with the U.S. Securities and Exchange Commission.

Future economic and industry trends that could potentially impact net sales and profitability are difficult to predict. These forward-looking statements are based on information as of May ~~27, 2022.~~26, 2023. We assume no obligation to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

We suggest that this document be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January ~~29, 2022.~~28, 2023.

THE GAP, INC.

TABLE OF CONTENTS


		Page
	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets as of ~~April 30, 2022~~Apri l 2 9 , 2023 , January 2 298 , 202 23 , and ~~May 1~~April , 30, 20 212 2	1

	Condensed Consolidated Statements of Operations for the 13 Weeks ~~Weeks~~ Ended April ~~30,~~29, 202 23 and ~~May 1, 2021~~April 30, 2022	2

	Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the 13 Weeks 13 ~~Weeks~~Ended April ~~30,~~29, 202 23 and ~~May 1, 2021~~April 30, 20 2 2	3

	Condensed Consolidated Statements of Stockholders' Equity for the 13 Weeks ~~April~~Ended ~~30,~~April 29 , 202 23 and ~~May 1, 2021~~April 30, 2022	4

	Condensed Consolidated Statements of Cash Flows for the 13 Weeks Ended April ~~30,~~ 29, 202 23 and ~~May 1,~~ A ~~2021~~pril 30, 2022	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1615

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4.	Controls and Procedures	23

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	24

Item 1A.	Risk Factors	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2425

Item 6.	Exhibits	2526

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

THE GAP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


($ and shares in millions except par value)	($ and shares in millions except par value)	April 30, 2022		January 29, 2022		May 1, 2021		($ and shares in millions except par value)	April 29, 2023		January 28, 2023		April 30, 2022
ASSETS	ASSETS							ASSETS
Current assets:	Current assets:							Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	845	$	877	$	2,066	Cash and cash equivalents	$	1,170	$	1,215	$	845
Short-term investments		—		—		475

Merchandise inventory	Merchandise inventory	3,169		3,018		2,370		Merchandise inventory	2,299		2,389		3,169
Other current assets	Other current assets	991		1,270		1,091		Other current assets	814		1,013		991
Total current assets	Total current assets	5,005		5,165		6,002		Total current assets	4,283		4,617		5,005
Property and equipment, net of accumulated depreciation of $4,967, $5,071 and $5,616		2,791		3,037		2,839
Property and equipment, net of accumulated depreciation of $4,878, $4,837 and $4,967								Property and equipment, net of accumulated depreciation of $4,878, $4,837 and $4,967	2,646		2,688		2,791
Operating lease assets	Operating lease assets	3,587		3,675		4,060		Operating lease assets	3,123		3,173		3,587
Other long-term assets	Other long-term assets	874		884		703		Other long-term assets	880		908		874
Total assets	Total assets	$	12,257	$	12,761	$	13,604	Total assets	$	10,932	$	11,386	$	12,257
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:							Current liabilities:
Accounts payable	Accounts payable	$	1,599	$	1,951	$	1,530	Accounts payable	$	1,199	$	1,320	$	1,599
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	1,127		1,367		1,294		Accrued expenses and other current liabilities	1,051		1,219		1,127
Current portion of operating lease liabilities	Current portion of operating lease liabilities	717		734		798		Current portion of operating lease liabilities	658		667		717
Income taxes payable	Income taxes payable	29		25		16		Income taxes payable	10		50		29
Total current liabilities	Total current liabilities	3,472		4,077		3,638		Total current liabilities	2,918		3,256		3,472
Long-term liabilities:	Long-term liabilities:							Long-term liabilities:
Revolving credit facility	Revolving credit facility	350		—		—		Revolving credit facility	350		350		350
Long-term debt	Long-term debt	1,485		1,484		2,218		Long-term debt	1,487		1,486		1,485
Long-term operating lease liabilities	Long-term operating lease liabilities	3,921		4,033		4,449		Long-term operating lease liabilities	3,453		3,517		3,921
Other long-term liabilities	Other long-term liabilities	575		445		493		Other long-term liabilities	539		544		575
Total long-term liabilities	Total long-term liabilities	6,331		5,962		7,160		Total long-term liabilities	5,829		5,897		6,331
Commitments and contingencies (see Note 9)		0		0		0
Commitments and contingencies (see Note 10)								Commitments and contingencies (see Note 10)
Stockholders’ equity:	Stockholders’ equity:							Stockholders’ equity:
Common stock $0.05 par value	Common stock $0.05 par value							Common stock $0.05 par value
Authorized 2,300 shares for all periods presented; Issued and Outstanding 369, 371, and 377 shares		19		19		19
Authorized 2,300 shares for all periods presented; Issued and Outstanding 368, 366, and 369 shares								Authorized 2,300 shares for all periods presented; Issued and Outstanding 368, 366, and 369 shares	18		18		19
Additional paid-in capital	Additional paid-in capital	—		43		118		Additional paid-in capital	47		27		—
Retained earnings	Retained earnings	2,389		2,622		2,667		Retained earnings	2,067		2,140		2,389
Accumulated other comprehensive income	Accumulated other comprehensive income	46		38		2		Accumulated other comprehensive income	53		48		46
Total stockholders’ equity	Total stockholders’ equity	2,454		2,722		2,806		Total stockholders’ equity	2,185		2,233		2,454
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	12,257	$	12,761	$	13,604	Total liabilities and stockholders’ equity	$	10,932	$	11,386	$	12,257

See Accompanying Notes to Condensed Consolidated Financial Statements

THE GAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


		13 Weeks Ended				13 Weeks Ended
($ and shares in millions except per share amounts)	($ and shares in millions except per share amounts)	April 30, 2022		May 1, 2021			($ and shares in millions except per share amounts)	April 29, 2023		April 30, 2022
Net sales	Net sales	$	3,477	$	3,991		Net sales	$	3,276	$	3,477
Cost of goods sold and occupancy expenses	Cost of goods sold and occupancy expenses	2,381		2,361			Cost of goods sold and occupancy expenses	2,062		2,381
Gross profit	Gross profit	1,096		1,630			Gross profit	1,214		1,096
Operating expenses	Operating expenses	1,293		1,390			Operating expenses	1,224		1,293
Operating income (loss)		(197)		240
Operating loss							Operating loss	(10)		(197)

Interest expense	Interest expense	20		54			Interest expense	23		20
Interest income	Interest income	(1)		(1)			Interest income	(13)		(1)
Income (loss) before income taxes		(216)		187
Income taxes		(54)		21
Net income (loss)		$	(162)	$	166
Loss before income taxes							Loss before income taxes	(20)		(216)
Income tax benefit							Income tax benefit	(2)		(54)
Net loss							Net loss	$	(18)	$	(162)
Weighted-average number of shares - basic	Weighted-average number of shares - basic	370		376			Weighted-average number of shares - basic	367		370
Weighted-average number of shares - diluted	Weighted-average number of shares - diluted	370		385			Weighted-average number of shares - diluted	367		370
Earnings (loss) per share - basic		$	(0.44)	$	0.44
Earnings (loss) per share - diluted		$	(0.44)	$	0.43
Net loss per share - basic							Net loss per share - basic	$	(0.05)	$	(0.44)
Net loss per share - diluted							Net loss per share - diluted	$	(0.05)	$	(0.44)

See Accompanying Notes to Condensed Consolidated Financial Statements

THE GAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

(Unaudited)


		13 Weeks Ended				13 Weeks Ended
($ in millions)	($ in millions)	April 30, 2022		May 1, 2021			($ in millions)	April 29, 2023		April 30, 2022
Net income (loss)		$	(162)	$	166
Net loss							Net loss	$	(18)	$	(162)
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax						Other comprehensive income (loss), net of tax
Foreign currency translation	Foreign currency translation	3		(3)			Foreign currency translation	(1)		3
Change in fair value of derivative financial instruments, net of tax (tax benefit) of $2 and $—		7		(7)
Reclassification adjustment for losses (gains) on derivative financial instruments, net of (tax) tax benefit of $(1) and $—		(2)		3
Other comprehensive income (loss), net of tax		8		(7)
Comprehensive income (loss)		$	(154)	$	159
Change in fair value of derivative financial instruments, net of tax expense of $2 and $2							Change in fair value of derivative financial instruments, net of tax expense of $2 and $2	8		7
Reclassification adjustment for gains on derivative financial instruments, net of tax expense of $— and $(1)							Reclassification adjustment for gains on derivative financial instruments, net of tax expense of $— and $(1)	(2)		(2)
Other comprehensive income, net of tax							Other comprehensive income, net of tax	5		8
Comprehensive loss							Comprehensive loss	$	(13)	$	(154)

See Accompanying Notes to Condensed Consolidated Financial Statements

THE GAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


		Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income					Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income
($ and shares in millions except per share amounts)	($ and shares in millions except per share amounts)	Shares	Amount								Total		($ and shares in millions except per share amounts)	Shares	Amount								Total
Balance as of January 28, 2023													Balance as of January 28, 2023	366	$	18	$	27	$	2,140	$	48	$	2,233
Net loss for the 13 weeks ended April 29, 2023													Net loss for the 13 weeks ended April 29, 2023						(18)				(18)
Other comprehensive income (loss), net of tax													Other comprehensive income (loss), net of tax
Foreign currency translation													Foreign currency translation								(1)		(1)
Change in fair value of derivative financial instruments													Change in fair value of derivative financial instruments								8		8
Amounts reclassified from accumulated other comprehensive income													Amounts reclassified from accumulated other comprehensive income								(2)		(2)

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	—	—		7						7
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	2	—		(10)						(10)
Share-based compensation, net of forfeitures													Share-based compensation, net of forfeitures				23						23
Common stock dividends declared and paid ($0.15 per share)													Common stock dividends declared and paid ($0.15 per share)						(55)				(55)
Balance as of April 29, 2023													Balance as of April 29, 2023	368	$	18	$	47	$	2,067	$	53	$	2,185

Balance as of January 29, 2022	Balance as of January 29, 2022	371	$	19	$	43	$	2,622	$	38	$	2,722	Balance as of January 29, 2022	371	$	19	$	43	$	2,622	$	38	$	2,722

Net loss for the 13 weeks ended April 30, 2022	Net loss for the 13 weeks ended April 30, 2022						(162)				(162)		Net loss for the 13 weeks ended April 30, 2022						(162)				(162)
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax												Other comprehensive income (loss), net of tax
Foreign currency translation	Foreign currency translation								3		3		Foreign currency translation								3		3
Change in fair value of derivative financial instruments	Change in fair value of derivative financial instruments								7		7		Change in fair value of derivative financial instruments								7		7
Amounts reclassified from accumulated other comprehensive income	Amounts reclassified from accumulated other comprehensive income								(2)		(2)		Amounts reclassified from accumulated other comprehensive income								(2)		(2)
Repurchases and retirement of common stock	Repurchases and retirement of common stock	(4)	—		(39)		(15)				(54)		Repurchases and retirement of common stock	(4)	—		(39)		(15)				(54)
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	1	—		7						7		Issuance of common stock related to stock options and employee stock purchase plans	1	—		7						7
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	1	—		(14)						(14)		Issuance of common stock and withholding tax payments related to vesting of stock units	1	—		(14)						(14)
Share-based compensation, net of forfeitures	Share-based compensation, net of forfeitures				3						3		Share-based compensation, net of forfeitures				3						3
Common stock dividends declared and paid ($0.15 per share)	Common stock dividends declared and paid ($0.15 per share)						(56)				(56)		Common stock dividends declared and paid ($0.15 per share)						(56)				(56)
Balance as of April 30, 2022	Balance as of April 30, 2022	369	$	19	$	—	$	2,389	$	46	$	2,454	Balance as of April 30, 2022	369	$	19	$	—	$	2,389	$	46	$	2,454

Balance as of January 30, 2021		374	$	19	$	85	$	2,501	$	9	$	2,614

Net income for the 13 weeks ended May 1, 2021							166				166
Other comprehensive income (loss), net of tax
Foreign currency translation									(3)		(3)
Change in fair value of derivative financial instruments									(7)		(7)
Amounts reclassified from accumulated other comprehensive income									3		3

Issuance of common stock related to stock options and employee stock purchase plans		1	—		25						25
Issuance of common stock and withholding tax payments related to vesting of stock units		2	—		(32)						(32)
Share-based compensation, net of forfeitures					40						40

Balance as of May 1, 2021		377	$	19	$	118	$	2,667	$	2	$	2,806

See Accompanying Notes to Condensed Consolidated Financial Statements

THE GAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


		13 Weeks Ended					13 Weeks Ended
($ in millions)	($ in millions)	April 30, 2022		May 1, 2021		($ in millions)	April 29, 2023		April 30, 2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)		$	(162)	$	166
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Net loss						Net loss	$	(18)	$	(162)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:						Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Depreciation and amortization	Depreciation and amortization	130		120		Depreciation and amortization	137		130

Share-based compensation	Share-based compensation	1		36		Share-based compensation	23		1
Impairment of operating lease assets		—		5

Impairment of store assets	Impairment of store assets	3		—		Impairment of store assets	1		3

Amortization of debt issuance costs	Amortization of debt issuance costs	2		4		Amortization of debt issuance costs	1		2
Non-cash and other items	Non-cash and other items	(3)		13		Non-cash and other items	26		(3)
Loss on divestiture activity		—		56

Gain on sale of building						Gain on sale of building	(47)		—
Deferred income taxes	Deferred income taxes	(1)		18		Deferred income taxes	5		(1)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Merchandise inventory	Merchandise inventory	(166)		69		Merchandise inventory	83		(166)
Other current assets and other long-term assets	Other current assets and other long-term assets	57		10		Other current assets and other long-term assets	9		57

Accounts payable	Accounts payable	(336)		(205)		Accounts payable	(102)		(336)
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	(236)		40		Accrued expenses and other current liabilities	(22)		(236)
Income taxes payable, net of receivables and other tax-related items	Income taxes payable, net of receivables and other tax-related items	369		(18)		Income taxes payable, net of receivables and other tax-related items	(49)		369
Other long-term liabilities	Other long-term liabilities	20		41		Other long-term liabilities	(11)		20
Operating lease assets and liabilities, net	Operating lease assets and liabilities, net	(40)		(15)		Operating lease assets and liabilities, net	(21)		(40)
Net cash provided by (used for) operating activities	Net cash provided by (used for) operating activities	(362)		340		Net cash provided by (used for) operating activities	15		(362)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(228)		(124)		Purchases of property and equipment	(117)		(228)
Net proceeds from sale of building	Net proceeds from sale of building	333		—		Net proceeds from sale of building	76		333

Purchases of short-term investments		—		(298)
Proceeds from sales and maturities of short-term investments		—		233

Proceeds from divestiture activity		—		28

Net proceeds from divestiture activity						Net proceeds from divestiture activity	11		—

Net cash provided by (used for) investing activities	Net cash provided by (used for) investing activities	105		(161)		Net cash provided by (used for) investing activities	(30)		105
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Proceeds from revolving credit facility	Proceeds from revolving credit facility	350		—		Proceeds from revolving credit facility	—		350

Proceeds from issuances under share-based compensation plans	Proceeds from issuances under share-based compensation plans	7		25		Proceeds from issuances under share-based compensation plans	7		7
Withholding tax payments related to vesting of stock units	Withholding tax payments related to vesting of stock units	(14)		(32)		Withholding tax payments related to vesting of stock units	(10)		(14)
Repurchases of common stock	Repurchases of common stock	(54)		—		Repurchases of common stock	—		(54)

Cash dividends paid	Cash dividends paid	(56)		(91)		Cash dividends paid	(55)		(56)

Net cash provided by (used for) financing activities	Net cash provided by (used for) financing activities	233		(98)		Net cash provided by (used for) financing activities	(58)		233
Effect of foreign exchange rate fluctuations on cash, cash equivalents, and restricted cash	Effect of foreign exchange rate fluctuations on cash, cash equivalents, and restricted cash	(7)		(1)		Effect of foreign exchange rate fluctuations on cash, cash equivalents, and restricted cash	(2)		(7)
Net increase (decrease) in cash, cash equivalents, and restricted cash		(31)		80
Net decrease in cash, cash equivalents, and restricted cash						Net decrease in cash, cash equivalents, and restricted cash	(75)		(31)
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	902		2,016		Cash, cash equivalents, and restricted cash at beginning of period	1,273		902
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	871	$	2,096	Cash, cash equivalents, and restricted cash at end of period	$	1,198	$	871

Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid for interest during the period	Cash paid for interest during the period	$	32	$	2	Cash paid for interest during the period	$	35	$	32
Cash paid (received) for income taxes during the period, net of refunds		$	(420)	$	20
Cash paid for income taxes during the period, net of refunds						Cash paid for income taxes during the period, net of refunds	$	46	$	(420)

See Accompanying Notes to Condensed Consolidated Financial Statements

THE GAP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Accounting Policies

Basis of Presentation

In the opinion of The Gap, Inc. (the “Company,” “we,” and “our”) management, the accompanying unaudited Condensed Consolidated Financial Statements contain all normal and recurring adjustments (except as otherwise disclosed) considered necessary to present fairly our financial position, results of operations, comprehensive ~~income (loss),~~loss, stockholders' equity, and cash flows as of April 29, 2023 and April 30, 2022 ~~and May 1, 2021~~ and for all periods presented. The Condensed Consolidated Balance Sheet as of January ~~29, 2022~~28, 2023 has been derived from our audited financial statements.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted from these interim financial statements, although the Company believes that the disclosures made are adequate to make the information not misleading. We suggest that you read these Condensed Consolidated Financial Statements in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January ~~29, 2022.~~28, 2023.

The results of operations for the 13 weeks ended April ~~30, 2022~~29, 2023 are not necessarily indicative of the operating results that may be expected for the ~~52-week~~53-week period ending ~~January 28, 2023.~~February 3, 2024.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

~~In March 2020,~~ Actual results could differ from these estimates. Additionally, these estimates and assumptions may change as a result of the ~~World Health Organization declared~~impact of global economic conditions such as the ~~coronavirus disease ("COVID-19") a~~uncertainty regarding global ~~pandemic~~inflationary pressures, the Russia-Ukraine crisis, and ~~recommended containment~~distress in global credit and ~~mitigation measures worldwide. The COVID-19 pandemic continues to impact the global economy.~~

During the second half of fiscal 2021, global supply chain disruption, including increased port congestion and COVID-related factory closures, caused significant product delays resulting in brands being unable to fully meet customer demand. During the 13 weeks ended April 30, 2022, we continued to encounter global supply chain disruptions and store closures in certain internationalbanking markets.

We will continue to consider the impact of the global ~~supply chain disruptions and the COVID-19 pandemic~~economic conditions on the assumptions and estimates used when preparing these Condensed Consolidated Financial Statements including inventory valuation, income taxes and valuation allowances, sales return and bad debt allowances, and the impairment of long-lived ~~store assets and operating lease~~ assets. ~~Actual results could differ from those estimates.~~ If the global economic conditions worsen beyond what is currently estimated by management, such future changes may have an adverse impact on the Company's results of operations and financial position.

Restricted Cash

As of April ~~30, 2022,~~29, 2023, restricted cash primarily included consideration that serves as collateral for certain obligations occurring in the normal course of business and our insurance obligations. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within our Condensed Consolidated Balance Sheets to the total shown on our Condensed Consolidated Statements of Cash Flows:


($ in millions)	($ in millions)	April 30, 2022		January 29, 2022		May 1, 2021		($ in millions)	April 29, 2023		January 28, 2023		April 30, 2022
Cash and cash equivalents, per Condensed Consolidated Balance Sheets	Cash and cash equivalents, per Condensed Consolidated Balance Sheets	$	845	$	877	$	2,066	Cash and cash equivalents, per Condensed Consolidated Balance Sheets	$	1,170	$	1,215	$	845

Restricted cash included in other current assets								Restricted cash included in other current assets	—		32		—
Restricted cash included in other long-term assets	Restricted cash included in other long-term assets	26		25		30		Restricted cash included in other long-term assets	28		26		26
Total cash, cash equivalents, and restricted cash, per Condensed Consolidated Statements of Cash Flows	Total cash, cash equivalents, and restricted cash, per Condensed Consolidated Statements of Cash Flows	$	871	$	902	$	2,096	Total cash, cash equivalents, and restricted cash, per Condensed Consolidated Statements of Cash Flows	$	1,198	$	1,273	$	871

Accounting Pronouncements

~~The~~Except as noted below, the Company has considered all recent accounting pronouncements and concluded that there are no recent accounting pronouncements that may have a material impact on our Condensed Consolidated Financial Statements and disclosures, based on current information.

ASU No. 2022-04, Disclosure of Supplier Finance Program Obligations

In September 2022, the Financial Accounting Standards Board issued accounting standards update ("ASU") No. 2022-04, Disclosure of Supplier Finance Program Obligations. The ASU is intended to enhance the transparency of the use of supplier finance programs by requiring that the buyers in those programs provide additional disclosures about the program’s nature and potential magnitude, including a rollforward of the obligations and activity during the period. The ASU is effective retrospectively for fiscal years and interim periods within those years beginning after December 15, 2022, except for the rollforward information, which is effective prospectively for fiscal years beginning after December 15, 2023. We have adopted the provisions of this ASU during the 13 weeks ended April 29, 2023. The ASU does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations. See Note 13 of Notes to Condensed Consolidated Financial Statements for information regarding our supply chain finance program.

Note 2. Revenue

Disaggregation of Net Sales

We disaggregate our net sales ~~between stores and online~~by channel and also by brand and region. Net sales by region are allocated based on the location of the store where the customer paid for and received the merchandise or the distribution center or store from which the products were shipped.

Net sales disaggregated ~~for stores and online sales~~by channel are as follows:


		13 Weeks Ended				13 Weeks Ended
($ in millions)	($ in millions)	April 30, 2022		May 1, 2021			($ in millions)	April 29, 2023		April 30, 2022

Store sales (1)		$	2,137	$	2,384
Store and franchise sales							Store and franchise sales	$	2,053	$	2,137
Online sales ~~(2)~~(1)	Online sales ~~(2)~~(1)	1,340		1,607			Online sales ~~(2)~~(1)	1,223		1,340
Total net sales	Total net sales	$	3,477	$	3,991		Total net sales	$	3,276	$	3,477

__________

(1)~~Store sales primarily include sales made at our Company-operated stores and franchise sales.~~

~~(2)~~Online sales primarily include sales originating from our online channel including those that are picked up or shipped from ~~stores.~~stores and net sales from revenue-generating strategic initiatives.

Net sales disaggregated by brand and region are as follows:


($ in millions)	($ in millions)	Old Navy Global				Gap Global		Banana Republic Global				Athleta Global				Other (2)		Total				($ in millions)		Old Navy Global				Gap Global			Banana Republic Global			Athleta Global			Other (2)			Total
13 Weeks Ended April 30, 2022
13 Weeks Ended April 29, 2023																						13 Weeks Ended April 29, 2023					Old Navy Global			Gap Global			Banana Republic Global			Athleta Global			Other (2)			Total
U.S. (1)	U.S. (1)			$	1,673					$	497			$	416					$	344	$	3		$	2,933						U.S. (1)
Canada	Canada	147				64		43				9				—		263				Canada		145				61					36				10						—	252
Europe	Europe	1				54		1				2				—		58				Europe		—				29			1			1			—			31
Asia	Asia	—				141		16				—				—		157				Asia		1				77			14			—			—			92
Other regions	Other regions	20				35		6				5				—		66				Other regions		23				29			7			1			—			60
Total	Total	$	1,841			$	791	$	482			$	360			$	3	$	3,477			Total		$	1,828			$	692		$	432		$	321		$	3		$	3,276


($ in millions)	($ in millions)	Old Navy Global				Gap Global		Banana Republic Global				Athleta Global				Other (3)		Total				($ in millions)		Old Navy Global				Gap Global			Banana Republic Global			Athleta Global			Other (2)			Total
13 Weeks Ended May 1, 2021
13 Weeks Ended April 30, 2022																						13 Weeks Ended April 30, 2022					Old Navy Global			Gap Global			Banana Republic Global			Athleta Global			Other (2)			Total
U.S. (1)	U.S. (1)			$	2,099					$	556			$	333					$	347	$	89		$	3,424						U.S. (1)
Canada	Canada	159				68		34				—				—		261				Canada		147				64					43				9						—	263
Europe	Europe	—				69		3				—				—		72				Europe		1				54			1			2			—			58
Asia	Asia	1				163		16				—				—		180				Asia		—				141			16			—			—			157
Other regions	Other regions	21				30		3				—				—		54				Other regions		20				35			6			5			—			66
Total	Total	$	2,280			$	886	$	389			$	347			$	89	$	3,991			Total		$	1,841			$	791		$	482		$	360		$	3		$	3,477

__________

(1)U.S. includes the United States and Puerto Rico.

(2)Primarily consists of net sales from ~~revenue generating~~revenue-generating strategic initiatives.

~~(3)Primarily consists of net sales for the Intermix brand, which was divested on May 21, 2021. Also includes net sales for the Janie and Jack brand through April 7, 2021.~~

Deferred Revenue

We 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. For the 13 weeks ended April 29, 2023, the opening balance of deferred revenue for these obligations was $354 million, of which $131 million was recognized as revenue during the period. The closing balance of deferred revenue for these obligations was $334 million as of April 29, 2023.

For the 13 weeks ended April 30, 2022, the opening balance of deferred revenue for these obligations was $345 million, of which $127 million was recognized as revenue during the period. The closing balance of deferred revenue for these obligations was $323 million as of April 30, 2022.

For the 13 weeks ended May 1, 2021, the opening balance of deferred revenue for these obligations was $231 million, of which $89 million was recognized as revenue during the period. The closing balance of deferred revenue for these obligations was $222 million as of May 1, 2021.

The increase in the deferred revenue balance as of April 30, 2022 and the revenue recognition during the 13 weeks ended April 30, 2022 is primarily due to the issuance of additional loyalty points with the launch of our new integrated loyalty program across the U.S. and Puerto Rico in July 2021.

In April 2021, the Company entered into agreements with Barclays and Mastercard relating to a new long-term credit card program. In May 2022, the Company launched the new credit card program ~~that is expected to begin in the second quarter of fiscal 2022. Accordingly,~~with Barclays and Mastercard and accordingly, our ~~private label~~prior credit card program with Synchrony Financial ~~will be discontinued upon the launch~~was discontinued. The Company received an upfront payment of ~~the new long-term credit card program. As of April 30, 2022, the Company has received~~ $60 million related to the new agreements ~~which was primarily recorded in other long-term liabilities on our Condensed Consolidated Balance Sheet as of April 30, 2022. Upon~~prior to the program launch, ~~this upfront payment will be~~which is being recognized as revenue over the term of the ~~agreement.~~agreements.

Note 3. Restructuring

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 includes a reduction in workforce of approximately 1,800 employees, primarily in headquarters locations.

In connection with the Plan, the Company incurred $75 million in restructuring costs during the 13 weeks ended April 29, 2023 on a pre-tax basis. The costs incurred in connection with the Plan are as follows:


	13 Weeks Ended April 29, 2023
($ in millions)	Cost of Goods Sold and Occupancy Expenses		Operating Expenses		Total Costs
Employee-related costs	$	4	$	58	$	62
Consulting and other associated costs	—		13		13
Total restructuring costs	$	4	$	71	$	75

Including the costs incurred during the 13 weeks ended April 29, 2023, the Company estimates that it will incur approximately $100 million to $120 million in aggregate pre-tax cash expenditures in connection with the Plan, which consists of approximately $75 million to $85 million in employee-related costs and $25 million to $35 million in consulting and other associated costs. The actions associated with the reduction of the Company's workforce under the Plan are expected to be substantially completed by the end of the first half of fiscal 2023.

The following table summarizes restructuring costs that will be settled with cash payments and the related liability balances as of April 29, 2023, which are primarily included in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheet:


($ in millions)	Employee-Related Costs		Consulting and Other Associated Costs		Total
Balance at January 28, 2023	$	—	$	—	$	—
Provision	62		13		75
Cash payments	—		(10)		(10)
Balance at April 29, 2023	$	62	$	3	$	65

Note 4. Income Taxes

The effective income tax rate was 10.0 percent for the 13 weeks ended April 29, 2023, compared with 25.0 percent for the 13 weeks ended April 30, 2022. The decrease in the effective tax rate for the 13 weeks ended April 29, 2023 compared with the 13 weeks ended April 30, 2022 is primarily due to changes in the amount and jurisdictional mix of pre-tax operations.

Note 3.5. Debt and Credit Facilities

Long-term debt recorded on the Condensed Consolidated Balance Sheets consists of the following:


($ in millions)	($ in millions)	April 30, 2022		January 29, 2022		May 1, 2021		($ in millions)	April 29, 2023		January 28, 2023		April 30, 2022

Secured Notes
2023 Notes		$	—	$	—	$	500
2025 Notes		—		—		750
2027 Notes		—		—		1,000
Senior Notes

2029 Notes	2029 Notes	750		750		—		2029 Notes	750		750		750
2031 Notes	2031 Notes	750		750		—		2031 Notes	750		750		750
Less: Unamortized debt issuance costs	Less: Unamortized debt issuance costs	(15)		(16)		(32)		Less: Unamortized debt issuance costs	(13)		(14)		(15)
Total long-term debt	Total long-term debt	$	1,485	$	1,484	$	2,218	Total long-term debt	$	1,487	$	1,486	$	1,485

The scheduled maturity of the Senior Notes is as follows:


Scheduled Maturity ($ in millions)	Scheduled Maturity ($ in millions)	Principal		Interest Rate		Interest Payments	Scheduled Maturity ($ in millions)	Principal		Interest Rate		Interest Payments
Senior Notes

October 1, 2029 (1)	October 1, 2029 (1)	$	750	3.625	%	Semi-Annual	October 1, 2029 (1)	$	750	3.625	%	Semi-Annual
October 1, 2031 (2)	October 1, 2031 (2)	750		3.875	%	Semi-Annual	October 1, 2031 (2)	750		3.875	%	Semi-Annual
Total issuance	Total issuance	$	1,500				Total issuance	$	1,500

__________

(1)Includes an option to redeem the 2029 Notes, in whole or in part at any time, subject to a make-whole premium, prior to October 1, 2024. On or after October 1, 2024, includes an option to redeem the 2029 Notes, in whole or in part at any time, at stated redemption prices.

(2)Includes an option to redeem the 2031 Notes, in whole or in part at any time, subject to a make-whole premium, prior to October 1, 2026. On or after October 1, 2026, includes an option to redeem the 2031 Notes, in whole or in part at any time, at stated redemption prices.

InOn September 27, 2021, we completed the issuance of $1.5 billion aggregate principal amount of 3.625 percent senior notes due 2029 (“2029 Notes”) and 3.875 percent senior notes due 2031 (“2031 Notes”) (the 2029 Notes and the 2031 Notes, collectively, the “Senior Notes”). As of April ~~30, 2022,~~29, 2023, the aggregate estimated fair value of the Senior Notes was ~~$1.21~~$1.05 billion and was based on the quoted market prices for each of the Senior Notes (level 1 inputs) as of the last business day of the fiscal quarter. The aggregate principal amount of the Senior Notes is recorded in long-term debt on the Condensed Consolidated Balance ~~Sheet,~~Sheets, net of the unamortized debt issuance ~~cost.~~costs.

InOn May 7, 2020, we entered into a senior secured asset-based revolving credit agreement (the "ABL Facility"), which ~~has a~~was previously scheduled to expire in May 2023. On July 13, 2022, we entered into an amendment and restatement of the ABL Facility. Among other changes, the amendment and restatement extended the maturity of the ABL Facility to July 2027, increased the borrowing capacity from $1.8675 billion ~~borrowing capacity~~to $2.2 billion, modified the reference rate from the London Interbank Offered Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR"), and reduced the applicable interest rate margin. Following the amendment and restatement, the ABL Facility generally bears interest at a ~~base~~per annum rate ~~(typically LIBOR)~~based on SOFR (subject to a zero floor) plus a margin, depending on borrowing base availability. The ABL Facility is ~~scheduled~~available for working capital, capital expenditures, and other general corporate purposes.

As of April 29, 2023, the Company's outstanding borrowing under the ABL Facility was $350 million. The variable interest rate on the drawn amount is adjusted SOFR (calculated to ~~expire~~include a 0.10% credit adjustment spread) plus a margin of 1.25%. The borrowing was recorded in long-term liabilities on the Condensed Consolidated Balance Sheet as of April 29, 2023.

On May ~~2023.~~ 15, 2023, the Company repaid $100 million of the outstanding borrowing under the ABL Facility, which reduced the outstanding borrowing to $250 million.

We also have the ability to issue letters of credit on our ABL Facility. As of April ~~30, 2022,~~29, 2023, we had ~~$51~~$49 million in standby letters of credit issued under the ABL Facility.

~~On February 9, 2022,~~Following the ~~Company borrowed $350 million under~~closing of the ~~ABL Facility. The variable interest rate~~Gap China transaction with Baozun Inc. ("Baozun") on January 31, 2023, the ~~drawn amount is monthly LIBOR plus 200 basis points, subject~~respective Gap China credit facilities were terminated. See Note 12 of Notes to ~~a LIBOR floor of 75 basis points. The borrowing was recorded in long-term liabilities on our~~ Condensed Consolidated ~~Balance Sheet as of April 30, 2022.~~

~~We also maintain multiple agreements with third parties that make unsecured revolving credit facilities available~~Financial Statements for our operations in foreign locations (the “Foreign Facilities”). The Foreign Facilities are uncommitted and had a total capacity of $48 million as of April 30, 2022. As of April 30, 2022, there were 0 borrowings under the Foreign Facilities. There were $9 million in bank guarantees issued and outstanding primarily related ~~to store leases under the Foreign Facilities as of April 30, 2022.~~

We have bilateral unsecured standby letter of credit agreements that are uncommitted and do not have expiration dates. There were no material standby letters of credit issued under these agreements as of April 30, 2022.disclosures.

Note 4.6. Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value on a recurring ~~basis, including derivatives and available-for-sale debt securities.~~basis. The Company categorizes financial assets and liabilities recorded at fair value based upon a three-level hierarchy that considers the related valuation techniques.

There were 0no material purchases, sales, issuances, or settlements related to recurring level 3 measurements for the 13 weeks ended April ~~30, 2022~~29, 2023 or ~~May 1, 2021. There were no transfers of financial assets or liabilities into or out of level 1, level 2, and level 3 for the 13 weeks ended~~ April 30, ~~2022 or May 1, 2021.~~2022.

109

~~Financial Assets and Liabilities~~

Financial assets and liabilities measured at fair value on a recurring basis and cash equivalents held at amortized cost are as follows:


				Fair Value Measurements at Reporting Date Using									Fair Value Measurements at Reporting Date Using
($ in millions)	($ in millions)	April 30, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		($ in millions)	April 29, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:	Assets:									Assets:
Cash equivalents	Cash equivalents	$	16	$	—	$	16	$	—	Cash equivalents	$	2	$	—	$	2	$	—

Derivative financial instruments	Derivative financial instruments	44		—		44		—		Derivative financial instruments	19		—		19		—
Deferred compensation plan assets	Deferred compensation plan assets	40		40		—		—		Deferred compensation plan assets	33		33		—		—
Other assets	Other assets	4		—		—		4		Other assets	4		—		—		4
Total	Total	$	104	$	40	$	60	$	4	Total	$	58	$	33	$	21	$	4
Liabilities:	Liabilities:									Liabilities:
Derivative financial instruments	Derivative financial instruments	$	1	$	—	$	1	$	—	Derivative financial instruments	$	4	$	—	$	4	$	—
				Fair Value Measurements at Reporting Date Using									Fair Value Measurements at Reporting Date Using
($ in millions)	($ in millions)	January 29, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		($ in millions)	January 28, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:	Assets:									Assets:
Cash equivalents	Cash equivalents	$	27	$	—	$	27	$	—	Cash equivalents	$	15	$	—	$	15	$	—

Derivative financial instruments	Derivative financial instruments	16		—		16		—		Derivative financial instruments	11		—		11		—
Deferred compensation plan assets	Deferred compensation plan assets	40		40		—		—		Deferred compensation plan assets	34		34		—		—
Other assets	Other assets	4		—		—		4		Other assets	4		—		—		4
Total	Total	$	87	$	40	$	43	$	4	Total	$	64	$	34	$	26	$	4
Liabilities:	Liabilities:									Liabilities:
Derivative financial instruments	Derivative financial instruments	$	2	$	—	$	2	$	—	Derivative financial instruments	$	20	$	—	$	20	$	—
				Fair Value Measurements at Reporting Date Using									Fair Value Measurements at Reporting Date Using
($ in millions)	($ in millions)	May 1, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		($ in millions)	April 30, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:	Assets:									Assets:
Cash equivalents	Cash equivalents	$	143	$	—	$	143	$	—	Cash equivalents	$	16	$	—	$	16	$	—
Short-term investments		475		365		110		—

Derivative financial instruments	Derivative financial instruments	6		—		6		—		Derivative financial instruments	44		—		44		—
Deferred compensation plan assets	Deferred compensation plan assets	49		49		—		—		Deferred compensation plan assets	40		40		—		—
Other assets	Other assets	4		—		—		4		Other assets	4		—		—		4
Total	Total	$	677	$	414	$	259	$	4	Total	$	104	$	40	$	60	$	4
Liabilities:	Liabilities:									Liabilities:
Derivative financial instruments	Derivative financial instruments	$	30	$	—	$	30	$	—	Derivative financial instruments	$	1	$	—	$	1	$	—

We have highly liquid fixed and variable income investments classified as cash equivalents. ~~With the exception of our available-for-sale investments noted below, we~~We value these investments at their original purchase prices plus interest that has accrued at the stated rate. Our cash equivalents are placed primarily in time deposits.

Our available-for-sale securities are comprised of investments in debt securities and are recorded in both short-term investments and cash and cash equivalents on the Condensed Consolidated Balance Sheet. These securities are recorded at fair value using market prices. As of April 30, 2022 and January 29, 2022, the Company held no available-for-sale debt securities on the Condensed Consolidated Balance Sheets. As of May 1, 2021, the Company held $475 million of available-for-sale debt securities with maturity dates greater than three months and less than two years within short-term investments on the Condensed Consolidated Balance Sheet. In addition, as of May 1, 2021, the Company held $25 million of available-for-sale debt securities with maturities of three months or less at the time of purchase within cash and cash equivalents on the Condensed Consolidated Balance Sheet. Unrealized gains and losses on available-for-sale debt securities included within accumulated other comprehensive income were not material as of May 1, 2021.

The Company regularly reviews any available-for-sale debt securities for other-than-temporary impairment. For the 13 weeks ended May 1, 2021, the Company did not consider any of its securities to be other-than-temporarily impaired and, accordingly, did not recognize any impairment loss.

Derivative financial instruments primarily include foreign exchange forward contracts. ~~The fair value of the Company’s derivative financial instruments is determined using pricing models based on current market rates.~~ See Note 67 of Notes to Condensed Consolidated Financial Statements for information regarding currencies hedged against the U.S. dollar.

We maintain the Gap, Inc. Deferred Compensation Plan (“DCP”), which allows eligible employees to defer base compensation and bonus up to a maximum percentage, and non-employee directors to defer receipt of a portion of their Board fees. Plan investments are directed by participants and are recorded at market value and designated for the DCP. The fair value of the Company’s DCP assets is determined based on quoted market prices, and the assets are recorded in other long-term assets on the Condensed Consolidated Balance Sheets.

Nonfinancial Assets

We review the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The fair value of the long-lived assets is determined using level 3 inputs and based on discounted future cash flows of the asset or asset group using a discount rate commensurate with the risk. 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, which for our retail stores is at the store level.

There were no material impairment charges recorded for long-lived assets during the 13 weeks ended April 29, 2023 or April 30, ~~2022 or May 1, 2021.~~2022.

We review the carrying amount of goodwill and other indefinite-lived intangible assets for impairment annually and whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount may not be recoverable.

There were no impairment charges recorded for goodwill or other indefinite-lived intangible assets for the 13 weeks ended April ~~30, 2022~~29, 2023 or ~~May 1, 2021.~~

~~Note 5. Income Taxes~~

~~The effective income tax rate was 25.0 percent for the 13 weeks ended~~ April 30, 2022, compared with 11.2 percent for the 13 weeks ended May 1, 2021. The increase in the effective tax rate is primarily due to the impact of the tax benefit resulting from divestiture activity that occurred during the first quarter of fiscal 2021 and changes in the jurisdictional mix of pretax income.2022.

Note 6.7. Derivative Financial Instruments

We operate in foreign countries, which exposes us to market risk associated with foreign currency exchange rate fluctuations. We use derivative financial instruments to manage our exposure to foreign currency exchange rate risk and do not enter into derivative financial contracts for trading purposes. Consistent with our risk management guidelines, we hedge a portion of our transactions related to merchandise purchases for foreign operations and certain intercompany transactions using foreign exchange forward contracts. These contracts are entered into with large, reputable financial institutions that are monitored for counterparty risk. The currencies hedged against changes in the U.S. dollar are the Canadian dollar, ~~British pound,~~ Japanese yen, ~~Mexican peso,~~British pound, New Taiwan dollar, ~~Euro,~~Mexican peso, and ~~Chinese yuan.~~Euro. Cash flows from derivative financial instruments are classified as cash flows from operating activities on the Condensed Consolidated Statements of Cash Flows.

Derivative financial instruments are recorded at fair value on the Condensed Consolidated Balance Sheets as other current assets, other long-term assets, accrued expenses and other current liabilities, or other long-term liabilities.

Cash Flow Hedges

We designate ~~the following~~ foreign exchange ~~forward contracts as cash flow hedges:~~ forward contracts used to hedge forecasted merchandise purchases and related costs denominated in U.S. dollars made by our international subsidiaries whose functional currencies are their local ~~currencies.~~currencies as cash flow hedges. The foreign exchange forward contracts entered into to hedge forecasted merchandise purchases and related costs generally have terms of 12up to 24 months. The effective portion of the gain or loss on the derivative financial instruments is reported as a component of other comprehensive income (loss) and is recognized into net income (loss) during the period in which the underlying transaction impacts the Condensed Consolidated Statements of Operations.

Other Derivatives Not Designated as Hedging Instruments

We use foreign exchange forward contracts to hedge our market risk exposure associated with foreign currency exchange rate fluctuations for certain intercompany balances denominated in currencies other than the functional currency of the entity with the intercompany balance. The gain or loss on the derivative financial instruments that represent economic hedges, as well as the remeasurement impact of the underlying intercompany balances, is recorded in operating expenses on the Condensed Consolidated Statements of Operations in the same period and generally offset each other.

Outstanding Notional Amounts

We had foreign exchange forward contracts outstanding in the following notional amounts:


($ in millions)	($ in millions)	April 30, 2022		January 29, 2022		May 1, 2021		($ in millions)	April 29, 2023		January 28, 2023		April 30, 2022
Derivatives designated as cash flow hedges	Derivatives designated as cash flow hedges	$	373	$	524	$	343	Derivatives designated as cash flow hedges	$	330	$	441	$	373
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments	758		702		683		Derivatives not designated as hedging instruments	599		645		758
Total	Total	$	1,131	$	1,226	$	1,026	Total	$	929	$	1,086	$	1,131

Quantitative Disclosures about Derivative Financial Instruments

The fair values of foreign exchange forward contracts are as follows:


($ in millions)	($ in millions)	April 30, 2022		January 29, 2022		May 1, 2021		($ in millions)	April 29, 2023		January 28, 2023		April 30, 2022
Derivatives designated as cash flow hedges:	Derivatives designated as cash flow hedges:							Derivatives designated as cash flow hedges:
Other current assets	Other current assets	$	16	$	10	$	4	Other current assets	$	13	$	9	$	16

Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	—		—		19		Accrued expenses and other current liabilities	1		5		—

Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:							Derivatives not designated as hedging instruments:
Other current assets	Other current assets	28		6		2		Other current assets	6		2		28
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	1		2		11		Accrued expenses and other current liabilities	3		15		1

Total derivatives in an asset position	Total derivatives in an asset position	$	44	$	16	$	6	Total derivatives in an asset position	$	19	$	11	$	44
Total derivatives in a liability position	Total derivatives in a liability position	$	1	$	2	$	30	Total derivatives in a liability position	$	4	$	20	$	1

~~All~~Substantially all of the unrealized gains and losses from designated cash flow hedges as of April ~~30, 2022~~29, 2023 will be recognized in income (loss) within the next 12 months at the then-current values, which may differ from the fair values as of April ~~30, 2022~~29, 2023 shown above.

Our foreign exchange forward contracts are subject to master netting arrangements with each of our counterparties and such arrangements are enforceable in the event of default or early termination of the contract. We do not elect to offset the fair values of our derivative financial instruments on the Condensed Consolidated Balance Sheets, and as such, the fair values shown above represent gross amounts. The amounts subject to enforceable master netting arrangements were not material for all periods presented.

See Note 46 of Notes to Condensed Consolidated Financial Statements for disclosures on the fair value measurements of our derivative financial instruments.

The pre-tax amounts recognized in net ~~income (loss)~~loss related to derivative instruments are as follows:


		Location and Amount of (Gain) Loss Recognized in Income (Loss)									Location and Amount of Gain Recognized in Net Loss
		13 Weeks Ended April 30, 2022				13 Weeks Ended May 1, 2021					13 Weeks Ended April 29, 2023				13 Weeks Ended April 30, 2022
($ in millions)	($ in millions)	Cost of goods sold and occupancy expenses		Operating expenses		Cost of goods sold and occupancy expenses		Operating expenses		($ in millions)	Cost of goods sold and occupancy expenses		Operating expenses		Cost of goods sold and occupancy expenses		Operating expenses
Total amount of expense line items presented in the Condensed Consolidated Statements of Operations in which the effects of derivatives are recorded	Total amount of expense line items presented in the Condensed Consolidated Statements of Operations in which the effects of derivatives are recorded	$	2,381	$	1,293	$	2,361	$	1,390	Total amount of expense line items presented in the Condensed Consolidated Statements of Operations in which the effects of derivatives are recorded	$	2,062	$	1,224	$	2,381	$	1,293

(Gain) loss recognized in net income (loss)
Gain recognized in net loss										Gain recognized in net loss
Derivatives designated as cash flow hedges	Derivatives designated as cash flow hedges	(3)		—		3		—		Derivatives designated as cash flow hedges	(2)		—		(3)		—

Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments	—		(22)		—		11		Derivatives not designated as hedging instruments	—		(8)		—		(22)
Total (gain) loss recognized in net income (loss)		$	(3)	$	(22)	$	3	$	11
Total gain recognized in net loss										Total gain recognized in net loss	$	(2)	$	(8)	$	(3)	$	(22)

Note 7.8. Share Repurchases

Share repurchase activity is as follows:


	13 Weeks Ended
($ and shares in millions except average per share cost)	April ~~30,~~29, ~~2022~~2023		~~May 1,~~April 30, ~~2021~~2022
Number of shares repurchased (1)	~~3.7~~—		—3.7
Total cost	$	54—	$	—54
Average per share cost including commissions	$	~~14.47~~—	$	—14.47

_________

(1)Excludes shares withheld to settle employee statutory tax withholding related to the vesting of stock units.

In February 2019, the Company's Board of Directors (the "Board") approved a $1.0 billion share repurchase authorization (the "February 2019 repurchase program"). The February 2019 repurchase program had ~~$545~~$476 million remaining as of April ~~30, 2022.~~29, 2023. All common stock repurchased is immediately retired.

Note ~~8. Earnings (Loss)~~9. Net Loss Per Share

Weighted-average number of shares used for ~~earnings (loss)~~net loss per share is as follows:


		13 Weeks Ended		13 Weeks Ended
(shares in millions)	(shares in millions)	April 30, 2022	May 1, 2021		(shares in millions)	April 29, 2023	April 30, 2022
Weighted-average number of shares - basic	Weighted-average number of shares - basic	370	376		Weighted-average number of shares - basic	367	370
Common stock equivalents (1)	Common stock equivalents (1)	—	9		Common stock equivalents (1)	—	—
Weighted-average number of shares - diluted	Weighted-average number of shares - diluted	370	385		Weighted-average number of shares - diluted	367	370

_________

(1)For the ~~thirteen~~13 weeks ended April 29, 2023 and April 30, 2022, the dilutive impact of outstanding options and awards was excluded from dilutive shares as a result of the Company's net loss for the ~~period.~~periods.

The anti-dilutive shares related to stock options and other stock awards excluded from the computation of weighted-average number of shares – diluted were 127 million and 712 million for the 13 weeks ended April 29, 2023 and April 30, 2022, ~~and May 1, 2021,~~ respectively, as their inclusion would have an anti-dilutive effect on ~~earnings (loss)~~net loss per share.

Note 9.10. Commitments and Contingencies

We are a party to a variety of contractual agreements under which we may be obligated to indemnify the other party for certain matters. These contracts primarily relate to our commercial contracts, operating leases, trademarks, intellectual property, financial agreements, and various other agreements. Under these contracts, we may provide certain routine indemnifications relating to representations and warranties (e.g., ownership of assets, environmental or tax indemnifications), or personal injury matters. The terms of these indemnifications range in duration and may not be explicitly defined. Generally, the maximum obligation under such indemnifications is not explicitly stated, and as a result, the overall amount of these obligations cannot be reasonably estimated. Historically, we have not made significant payments for these indemnifications. We believe that if we were to incur a loss in any of these matters, the loss would not have a material effect on our Condensed Consolidated Financial Statements taken as a whole.

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. As of April ~~30, 2022,~~29, 2023, Actions filed against us included 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 are covered in part by insurance. As of April 29, 2023, January 28, 2023, and April 30, 2022, ~~January 29, 2022, and May 1, 2021,~~ we recorded a liability for an estimated loss if the outcome of an Action is expected to result in a loss that is considered probable and reasonably estimable. The liability recorded was not material for any individual Action or in total for all periods presented. Subsequent to April ~~30, 2022,~~29, 2023, and through the filing date of this Quarterly Report on Form 10-Q, no information has become available that indicates a change is required that would be material to our Condensed Consolidated Financial Statements taken as a whole.

We cannot predict with assurance the outcome of Actions brought against us. However, we do not believe that the outcome of any current Action would have a material effect on our Condensed Consolidated Financial Statements taken as a whole.

Note ~~10.~~11. Segment Information

We identify our operating segments according to how our business activities are managed and evaluated. As of April ~~30, 2022,~~29, 2023, our operating segments included: Old Navy Global, Gap Global, Banana Republic Global, and Athleta Global. Each operating segment has a brand president who is responsible for various geographies and channels. Each of our brands serves customer demand through stores and online channels, leveraging our omni-channel capabilities that allow customers to shop seamlessly across all of our brands. 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 1one reportable segment as of April ~~30, 2022.~~29, 2023. We continually monitor and review our segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact our reportable segments.

See Note 2 of Notes to Condensed Consolidated Financial Statements for disaggregation of revenue ~~for stores and online~~by channel and by brand and region.

Note ~~11.~~12. Divestitures

On November 7, 2022, we signed agreements to transition our Gap China and Gap Taiwan ("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 to the Condensed Consolidated Financial Statements upon divestiture was not material for the 13 weeks ended April 29, 2023. The Gap Taiwan operations will continue to operate as usual until regulatory approvals and closing conditions are met.

On February 1, 2022, we completed the transition of our Gap Italy operations to a third party, OVS S.p.A. ("OVS"), to operate Gap Italy stores as a franchise partner. The impact ~~from~~to the ~~transaction was not material to our~~ Condensed Consolidated Financial Statements upon divestiture was not material for the 13 weeks ended April 30, 2022. ~~The~~As of April 30, 2022, the Company ~~has~~ also reclassified certain assets as held for sale assets that ~~are~~were expected to be sold in the next 12 months related to our distribution center in Rugby, England. The aggregate carrying amount of the assets held for sale, primarily consisting of fixed assets, was $45 million and was recorded within other current assets on the Condensed Consolidated Balance Sheet as of April 30, 2022.

Note 13. Supply Chain Finance Program

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.

We may agree to side letters with participating financial institutions related to the SCF program that require us to transfer a certain amount of cash to be used as collateral for our payment obligations in a specified period. These collateral amounts, if applicable, are classified as restricted cash on our Condensed Consolidated Balance Sheets. There were no collateral amounts under the SCF program as of April ~~8, 2021,~~29, 2023 and April 30, 2022. The collateral amount under the ~~Company divested~~SCF program was $30 million as of January 28, 2023. Additionally, our lenders under the ~~Janie~~ABL Facility who also participate in the SCF program have their related financings secured pursuant to the terms of the ABL Facility.

The Company's outstanding obligations under the SCF program were $322 million, $316 million, and ~~Jack brand. In addition, the Company reclassified $109~~$238 million as of ~~assets~~April 29, 2023, January 28, 2023, and ~~$112 million of liabilities for the Intermix brand as held for sale within other current assets~~April 30, 2022, respectively, and ~~accrued expenses and other current liabilities, respectively,~~were included in accounts payable on the Condensed Consolidated Balance Sheet as of May 1, 2021 and measured the disposal group at its estimated fair value less costs to sell. The aggregate carrying amount of assets and liabilities for amounts classified as held for sale primarily consisted of $61 million of net operating lease assets, $19 million of inventory, and $97 million of operating lease liabilities. The divestiture of Intermix was completed on May 21, 2021. As a result of these transactions, the Company recognized a pre-tax loss of $56 million within operating expenses on the Condensed Consolidated Statements of Operations for the 13 weeks ended May 1, 2021.

Sheets.

1514

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

OUR BUSINESS

We are a collection of purpose-led, lifestyle brands offering apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. We have Company-operated stores in the United States, Canada, Japan, ~~China, Taiwan,~~ and ~~Mexico.~~Taiwan. Our products are available to customers online through Company-owned websites and through ~~the use of~~ third ~~parties that provide logistics and fulfillment services.~~party arrangements. We also have franchise agreements ~~with unaffiliated franchisees~~ to operate Old Navy, Gap, Banana Republic, and 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. In addition to operating in the specialty, outlet, online, and franchise channels, we 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 curbside pick-up, buy online pick-up in store, order-in-store, find-in-store, and ship-from-store, as well as enhanced mobile-enabled experiences, are tailored uniquely across our collection of brands. Most of the products sold under our brand names are designed by us and manufactured by independent sources.

OVERVIEW

Financial results for the first quarter of fiscal ~~2022~~2023 are as follows:

•Net sales for the first quarter of fiscal ~~2022~~2023 decreased 136 percent compared with the first quarter of fiscal ~~2021.~~2022.

•Online sales for the first quarter of fiscal ~~2022~~2023 decreased 179 percent compared with the first quarter of fiscal ~~2021~~2022 and store and franchise sales for the first quarter of fiscal ~~2022~~2023 decreased 104 percent compared with the first quarter of fiscal ~~2021.~~2022.

•Gross profit for the first quarter of fiscal ~~2022~~2023 was ~~$1.10~~$1.21 billion compared with ~~$1.63~~$1.10 billion for the first quarter of fiscal ~~2021.~~2022. Gross margin for the first quarter of fiscal ~~2022~~2023 was ~~31.5~~37.1 percent compared with ~~40.8~~31.5 percent for the first quarter of fiscal ~~2021.~~2022.

•Operating loss for the first quarter of fiscal ~~2022~~2023 was ~~$(197)~~$(10) million compared with ~~operating income of $240~~$(197) million for the first quarter of fiscal ~~2021.~~2022.

•The effective income tax rate for the first quarter of fiscal ~~2022~~2023 was ~~25.0~~10.0 percent compared with ~~11.2~~25.0 percent for the first quarter of fiscal ~~2021.~~2022.

•Net loss for the first quarter of fiscal ~~2022~~2023 was ~~$(162)~~$(18) million compared with ~~net income of $166~~$(162) million for the first quarter of fiscal ~~2021.~~2022.

•Diluted loss per share was $(0.05) for the first quarter of fiscal 2023 compared with $(0.44) for the first quarter of fiscal ~~2022 compared with diluted earnings per share~~2022.

•Merchandise inventory as of ~~$0.43 for~~ the first quarter of fiscal ~~2021.~~

~~During~~2023 decreased 27 percent compared with the first quarter of fiscal ~~2022, our quarterly results were negatively impacted~~2022.

On April 25, 2023, the Company's management committed to the Plan as part of the Company's previously announced efforts to simplify and optimize its operating model and structure. The Plan includes a reduction in workforce of approximately 1,800 employees, primarily in headquarters locations.

In connection with the Plan, the Company incurred $75 million in restructuring costs during the 13 weeks ended April 29, 2023 on a pre-tax basis, which includes employee-related costs of $62 million and consulting and other associated costs of $13 million. Including the costs incurred during the 13 weeks ended April 29, 2023, the Company estimates that it will incur approximately $100 million to $120 million in aggregate pre-tax cash expenditures in connection with the Plan, which consists of approximately $75 million to $85 million in employee-related costs and $25 million to $35 million in consulting and other associated costs. The actions associated with the reduction of the Company's workforce under the Plan are expected to be substantially completed by the ~~continued global supply chain disruption, as well as product assortment and acceptance issues in key categories, largely at Old Navy, related to~~end of the post-COVID lifestyle consumer shift into occasion and work-based categories compared to the active and casual category preference last year. The quarterly results were also impacted by execution missteps in size and assortment at Old Navy related to BODEQUALITY, our extended size initiative launched in the third quarter of fiscal 2021. Global supply chain disruptions continued to affect our quarterly results due to difficulty managing the timing of seasonal inventory flows, and an inability to quickly react to changing consumer preferences. As a result, inventory levels are higher with an increase in extended-life basics and select seasonal basics ~~being stored at distribution centers for expected introduction into the market in the second half of fiscal 2022and~~ first half of fiscal 2023.

While we navigate these temporary headwinds, we remain focused on our key initiatives for our Power Plan strategy. Each of our purpose-led, lifestyle brands are finding new and relevant ways to expand customer reach. In the first quarter of fiscal 2022, we have expanded Banana Republic into new lifestyle categories through the launch of BR Baby and BR Athletics, debuted new product collaborations for Athleta and Gap, and expanded our international franchise presence.

In the first quarter of fiscal 2022, we completed our European partnership transition of our Gap Italy operations to OVS who will operate Gap Italy stores as a franchise partner. In addition, in March 2022, the first Gap branded shop-in-shop opened in the United Kingdom as a part of the Company's joint venture with Next Plc ("Next"). The joint venture is planning to launch additional shop-in-shops in the United Kingdom throughout 2022 and is preparing to migrate Gap’s United Kingdom and Ireland e-commerce business to the Next Total Platform. In addition to these changes to our European operating model, we are in the process of seeking regulatory approvals to transition our Old Navy Mexico operations to a franchise partner. We believe these transformations of our business model will streamline our operations by using strong local partnerships to grow our brands and amplify our reach.

The Company ~~continues~~is also continuing to reduce the number of Gap and Banana Republic stores in North America by approximately 350 stores from the beginning of fiscal 2020 to the end of fiscal 2023. As of April ~~30, 2022,~~29, 2023, we have closed, net of openings, ~~259~~315 Gap and Banana Republic stores in North America since the beginning of fiscal 2020.

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 to the Condensed Consolidated Financial Statements upon divestiture was not material for the 13 weeks ended April 29, 2023. The Gap Taiwan operations will continue to operate as usual until regulatory approvals and closing conditions are met.

During the 13 weeks ended April 29, 2023, the Company sold a building for $76 million and recorded a pre-tax gain on sale of $47 million within operating expenses on the Condensed Consolidated Statement of Operations.

We remain focused on the following strategic priorities in the near term:

•managing inventory to support a healthy merchandise margin;

•reducing and optimizing our fixed cost structure to improve profitability and manage through current macroeconomic challenges;

•driving ~~improved~~ sales ~~at Old Navy~~ through assortment improvements and a balanced and relevant category mix;

•~~reducing~~driving creative excellence and delivering product that offers value to our ~~fixed cost structure to fuel demand generation investments;~~

•~~leveraging our scale to navigate disruptions~~customers through a combination of fit, quality, brand, and ~~constraints in global supply chain;~~

•~~managing inventory to support a healthy merchandise margin;~~price;

•rationalizing the Gap and Banana Republic store fleet;

•prioritizing asset-light growth through licensing, online, and franchise partnerships globally;

•~~creating product that offers value to our customers through a combination of fit, quality, brand and price;~~

•~~investing~~optimizing investments in our four purpose-led lifestyle brands to drive relevance and ~~gain~~ market share;

•~~growing our online business;~~

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

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

~~We believe focusing on these priorities in the near term will propel the Company to execute against its Power Plan strategy, including leveraging:~~

•~~The Power of its Brands, reflected by the Company’s four purpose-led, lifestyle brands: Old Navy, Gap, Banana Republic, and Athleta;~~

•~~The Power of its Portfolio, which enables growth synergies across key customer categories; and~~

•The Power of its Platform, which leverages the Company’s powerful platform to both enable growth, such as through competitive omni-channel capabilities, as well as cost synergies, fueled by its scaled operations.

1716

RESULTS OF OPERATIONS

Net Sales

See Note 2 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for net sales disaggregation.

Comparable Sales ("Comp Sales")

Comp Sales include the results of Company-operated stores and sales through our online ~~channels.~~channel. The calculation of ~~Gap Inc.~~ Comp Sales excludes the results of our franchise business. ~~Gap Inc.~~ Comp Sales also included the results of ~~Janie and Jack and Intermix~~certain foreign operations until ~~the divestitures~~their respective transitions to third party franchise partners. See Note 12 of ~~those brands~~Notes to Condensed Consolidated Financial Statements included in ~~fiscal 2021.~~Part I, Item 1 of this Form 10-Q, for related disclosures.

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.

For the 13 weeks ended April 30, 2022 and May 1, 2021, any stores temporarily closed for more than three days as a result of the COVID-19 pandemic were excluded from the Comp Sales calculations. After stores reopened, subsequent sales were included in the Comp/Non-comp status they were in prior to temporary closure. Online sales continued to be included in the Comp Sales calculation for each period.

The percentage change in Comp Sales by global brand and for The Gap, Inc., as compared with the preceding year, is as follows:

~~13 Weeks Ended~~

~~April 30, 2022~~

~~Old Navy Global~~

~~(22)~~

~~Gap Global~~

~~(11)~~

~~Banana Republic Global~~

~~Athleta Global~~

~~(7)~~

~~The Gap, Inc.~~

~~(14)~~


	13 Weeks Ended
	April 29, 2023		April 30, 2022
Old Navy Global	(1)	%	(22)	%
Gap Global	1	%	(11)	%
Banana Republic Global	(8)	%	27	%
Athleta Global	(13)	%	(7)	%
The Gap, Inc.	(3)	%	(14)	%


	~~13 Weeks Ended~~
	~~May 1, 2021~~
~~Old Navy Global~~	35	%
~~Gap Global~~	29	%
~~Banana Republic Global~~	~~(4)~~	%
~~Athleta Global~~	27	%
~~The Gap, Inc.~~	28	%

1817

Store count, openings, closings, and square footage for our stores are as follows:


		January 29, 2022	13 Weeks Ended April 30, 2022		April 30, 2022				January 28, 2023			13 Weeks Ended April 29, 2023			April 29, 2023
		Number of Store Locations	Number of Stores Opened	Number of Stores Closed		Number of Store Locations		Square Footage (in millions)			Number of Store Locations		Number of Stores Opened	Number of Stores Closed		Number of Store Locations		Square Footage (in millions)
Old Navy North America	Old Navy North America	1,252	9	3		1,258		20.2		Old Navy North America	1,238		15	1		1,252		20.0
Gap North America	Gap North America	520	1	9		512		5.4		Gap North America	493		—	5		488		5.1
Gap Asia		329	3	4		328		2.7
Gap Europe (1)		11	—	—		—		—
Gap Asia (1)										Gap Asia (1)	232		1	1		143		1.2

Banana Republic North America	Banana Republic North America	446	1	2		445		3.7		Banana Republic North America	419		—	6		413		3.5
Banana Republic Asia	Banana Republic Asia	50	1	—		51		0.2		Banana Republic Asia	46		2	2		46		0.2
Athleta North America	Athleta North America	227	6	2		231		1.0		Athleta North America	257		3	1		259		1.1
Company-operated stores total	Company-operated stores total	2,835	21	20		2,825		33.2		Company-operated stores total	2,685		21	16		2,601		31.1
Franchise (1)	Franchise (1)	564	23	9		589		N/A		Franchise (1)	667		57	6		852		N/A
Total	Total	3,399	44	29		3,414		33.2		Total	3,352		78	22		3,453		31.1
Decrease over prior year						(4.4)	%	(4.3)	%
Increase (decrease) over prior year										Increase (decrease) over prior year						1.1	%	(6.3)	%

		January 30, 2021	13 Weeks Ended May 1, 2021		May 1, 2021				January 29, 2022			13 Weeks Ended April 30, 2022			April 30, 2022
		Number of Store Locations	Number of Stores Opened	Number of Stores Closed		Number of Store Locations		Square Footage (in millions)			Number of Store Locations		Number of Stores Opened	Number of Stores Closed		Number of Store Locations		Square Footage (in millions)
Old Navy North America	Old Navy North America	1,220	24	2		1,242		19.9		Old Navy North America	1,252		9	3		1,258		20.2
Gap North America	Gap North America	556	1	5		552		5.8		Gap North America	520		1	9		512		5.4
Gap Asia	Gap Asia	340	5	8		337		2.9		Gap Asia	329		3	4		328		2.7
Gap Europe(2)	Gap Europe(2)	117	1	2		116		1.0		Gap Europe(2)	11		—	—		—		—
Banana Republic North America	Banana Republic North America	471	1	3		469		4.0		Banana Republic North America	446		1	2		445		3.7
Banana Republic Asia	Banana Republic Asia	47	3	2		48		0.2		Banana Republic Asia	50		1	—		51		0.2

Athleta North America	Athleta North America	199	3	—		202		0.8		Athleta North America	227		6	2		231		1.0
Intermix North America		31	—	—		31		0.1
Janie and Jack North America (2)		119	—	—		—		—
Company-operated stores total	Company-operated stores total	3,100	38	22		2,997		34.7		Company-operated stores total	2,835		21	20		2,825		33.2
Franchise		615	36	77		574		N/A
Franchise (2)										Franchise (2)	564		23	9		589		N/A
Total	Total	3,715	74	99		3,571		34.7		Total	3,399		44	29		3,414		33.2
Decrease over prior year	Decrease over prior year					(8.7)	%	(5.4)	%	Decrease over prior year						(4.4)	%	(4.3)	%

__________

(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 Franchise 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 11 Gap Italy stores that were transitioned to 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 ~~these~~Gap Italy stores and the ending balance for Franchise includes ~~these~~Gap Italy stores.

~~(2)On April 8, 2021, the Company completed the divestiture of the Janie and Jack brand. The 119 stores divested are not included as store closures or in the ending balance for fiscal 2021.~~

Outlet and factory stores are reflected in each of the respective brands.

1918

Net Sales

Our net sales for the first quarter of fiscal ~~2022~~2023 decreased ~~$514~~$201 million, or 136 percent, compared with the first quarter of fiscal ~~2021,~~2022, driven primarily by ~~Old Navy as~~ a ~~result~~decrease in online sales, the transition of ~~challenges related~~our Gap China business to ~~product acceptance~~a partnership model, and ~~BODEQUALITY program execution, compounded by continued global supply chain disruptions. Net sales were also negatively impacted by~~ strategic store ~~closures and the divestitures of the Janie and Jack and Intermix brands last year, offset by the positive~~closures. Additionally, there was an unfavorable impact of ~~growth in Banana Republic~~foreign exchange of $35 million. The foreign exchange impact is the translation impact if net ~~sales.~~sales for the first quarter of fiscal 2022 were translated at exchange rates applicable during the first quarter of fiscal 2023.

Cost of Goods Sold and Occupancy Expenses


		13 Weeks Ended						13 Weeks Ended
($ in millions)	($ in millions)	April 30, 2022			May 1, 2021				($ in millions)	April 29, 2023			April 30, 2022
Cost of goods sold and occupancy expenses	Cost of goods sold and occupancy expenses	$	2,381		$	2,361			Cost of goods sold and occupancy expenses	$	2,062		$	2,381
Gross profit	Gross profit	$	1,096		$	1,630			Gross profit	$	1,214		$	1,096
Cost of goods sold and occupancy expenses as a percentage of net sales	Cost of goods sold and occupancy expenses as a percentage of net sales	68.5		%	59.2		%		Cost of goods sold and occupancy expenses as a percentage of net sales	62.9		%	68.5		%
Gross margin	Gross margin	31.5		%	40.8		%		Gross margin	37.1		%	31.5		%

Cost of goods sold and occupancy expenses ~~increased 9.3~~decreased 5.6 percentage points as a percentage of net sales in the first quarter of fiscal ~~2022~~2023 compared with the first quarter of fiscal ~~2021.~~2022.

•Cost of goods sold ~~increased 7.6~~decreased 6.0 percentage points as a percentage of net sales in the first quarter of fiscal ~~2022~~2023 compared with the first quarter of fiscal ~~2021,~~2022, primarily driven by ~~increased average unit costs largely due to~~a decrease in air freight expenses as well as ~~higher~~improved promotional activity. This was partially offset by commodity price increases.

•Occupancy expenses increased ~~1.7~~0.4 percentage points as a percentage of net sales in the first quarter of fiscal ~~2022~~2023 compared with the first quarter of fiscal ~~2021,~~2022, primarily driven by a decrease in ~~net~~online sales without a corresponding decrease in fixed occupancy expenses.

Operating Expenses


		13 Weeks Ended						13 Weeks Ended
($ in millions)	($ in millions)	April 30, 2022			May 1, 2021				($ in millions)	April 29, 2023			April 30, 2022
Operating expenses	Operating expenses	$	1,293		$	1,390			Operating expenses	$	1,224		$	1,293
Operating expenses as a percentage of net sales	Operating expenses as a percentage of net sales	37.2		%	34.8		%		Operating expenses as a percentage of net sales	37.4		%	37.2		%
Operating margin	Operating margin	(5.7)		%	6.0		%		Operating margin	(0.3)		%	(5.7)		%

Operating expenses decreased ~~$97~~$69 million, but increased ~~2.4~~0.2 percentage points as a percentage of net sales in the first quarter of fiscal ~~2022~~2023 compared with the first quarter of fiscal ~~2021~~2022, primarily due to a decrease in net sales as well as the following:

•a decrease in ~~performance-based compensation;~~advertising expenses;

•a gain on sale of building of $47 million; and

•a ~~loss on divestiture activity that occurred~~decrease in technology-related investments; partially offset by

•restructuring expenses of $71 million incurred during the first quarter of fiscal ~~2021 related~~2023 as a result of actions taken to ~~the Janie~~further simplify and ~~Jack~~optimize our operating model and ~~Intermix brands; partially offset by~~

•~~an increase in advertising expense.~~structure.

Interest Expense


		13 Weeks Ended				13 Weeks Ended
($ in millions)	($ in millions)	April 30, 2022		May 1, 2021			($ in millions)	April 29, 2023		April 30, 2022
Interest expense	Interest expense	$	20	$	54		Interest expense	$	23	$	20

Interest expense ~~decreased $34 million or 63 percent during the first quarter of fiscal 2022 compared with the first quarter of fiscal 2021,~~ primarily ~~due to lower~~includes interest ~~rates and principal for~~on outstanding borrowings ~~for the first quarter of fiscal 2022 compared with the first quarter of fiscal 2021.~~

and obligations mainly related to our Senior Notes.

Income Taxes


		13 Weeks Ended						13 Weeks Ended
($ in millions)	($ in millions)	April 30, 2022			May 1, 2021				($ in millions)	April 29, 2023			April 30, 2022
Income taxes	Income taxes	$	(54)		$	21			Income taxes	$	(2)		$	(54)
Effective tax rate	Effective tax rate	25.0		%	11.2		%		Effective tax rate	10.0		%	25.0		%

The ~~increase~~decrease in the effective tax rate for the first quarter of fiscal ~~2022~~2023 compared with the first quarter of fiscal ~~2021~~2022 is primarily due to ~~the impact of the tax benefit resulting from divestiture activity that occurred during the first quarter of fiscal 2021 and~~ changes in the amount and jurisdictional mix of ~~pretax income.~~pre-tax operations.

LIQUIDITY AND CAPITAL RESOURCES

In addition to our cash flows from operating activities, our primary sources of liquidity include cash and cash equivalents, our Senior Notes, and borrowings under our ABL Facility. As of April ~~30, 2022,~~29, 2023, we ~~consider~~had cash and cash equivalents of approximately $1.2 billion. We hold our cash and cash equivalents across a diversified set of reputable financial institutions and monitor the ~~following to be~~credit standing of those financial institutions. In addition, we have issued $1.5 billion aggregate principal amount of our ~~primary measures of liquidity~~Senior Notes, and ~~capital resources:~~

($ in millions) Source of Liquidity Outstanding Indebtedness Total Available Liquidity
Cash and cash equivalents $ 845 $ — $ 845
Debt
3.625 percent 2029 Notes 750 750 —
3.875 percent 2031 Notes 750 750 —
Total $ 2,345 $ 1,500 $ 845

We are also able to supplement near-term liquidity, if necessary, with our ABL Facility or other available market instruments. ~~During~~As of April 29, 2023, the ~~first quarter of fiscal 2022,~~Company's outstanding borrowing under the ABL Facility was $350 million. On May 15, 2023, the Company ~~borrowed $350~~repaid $100 million of the outstanding borrowing under the ABL Facility, which reduced the outstanding borrowing to $250 million. See Note 5 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on the Senior Notes and 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, ~~air freight and~~ shipping costs, and payment of taxes. As our business typically follows a seasonal pattern, with sales peaking during the end-of-year holiday period, we fund inventory expenditures during normal and peak periods through cash flows from operating activities and available cash. The seasonality of our operations, in addition to the impact of global economic conditions such as the ~~COVID-19 pandemic~~uncertainty surrounding global inflationary pressures, the Russia-Ukraine crisis, and distress in global ~~supply chain disruption,~~credit and banking markets, may lead to significant fluctuations in certain asset and liability accounts as well as cash inflows and outflows between fiscal year-end and subsequent interim periods.

Our voluntary 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 13 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on the Company's SCF program.

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, ~~share repurchases,~~ and other liquidity requirements associated with our business operations over the next 12 months and beyond.

Cash Flows from Operating Activities

Net cash ~~used for~~provided by operating activities was ~~$362~~$15 million during the first quarter of fiscal ~~2022~~2023 compared with ~~$340~~$362 million of net cash ~~provided by~~used for operating activities during the first quarter of fiscal ~~2021,~~2022, primarily due to the following:

Net ~~Income (Loss)~~Loss

•~~Net~~a net loss of $18 million during the first quarter of fiscal 2023 compared with a net ~~income in prior comparable period;~~loss of $162 million during the first quarter of fiscal 2022;

Changes in operating assets and liabilities

•~~a decrease~~an increase of ~~$276~~$249 million related to merchandise inventory primarily due to lower inventory levels in the first quarter of fiscal 2023 compared with the first quarter of fiscal 2022;

•an increase of $234 million related to accounts payable primarily due to the timing of payments for inventory during the first quarter of fiscal 2023 compared with the first quarter of fiscal 2022; and

•an increase of $214 million related to accrued expenses and other current liabilities ~~in part~~primarily due to lower bonus ~~payout~~payment during the first quarter of fiscal ~~2022 and a decrease in accrued bonus for the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021; and~~

•a decrease of $235 million related to merchandise inventory during the first quarter of fiscal 2022 primarily due to timing of receipts as a result of global supply chain disruptions, including higher inventory due to extended-life basics and select seasonal basic product being stored at distribution centers through the first half of fiscal 2023; and

•~~a decrease of $131 million related to accounts payable primarily due to timing and increased payments for inventory during the first quarter of fiscal 2022~~2023 compared with the first quarter of fiscal ~~2021;~~2022; partially offset by

•~~an increase~~a decrease of ~~$387~~$418 million related to income taxes payable, net of receivables and other tax-related items, primarily due to receipt of tax refunds during the first quarter of fiscal 2022 related to ~~our~~ fiscal 2020 net operating loss carryback claims.

Cash Flows from Investing Activities

Net cash ~~provided by~~used for investing activities was ~~$105~~$30 million during the first quarter of fiscal ~~2022~~2023 compared with ~~$161~~$105 million of net cash ~~used for~~provided by investing activities during the first quarter of fiscal ~~2021,~~2022, primarily due to the following:

•$~~333~~76 million in net proceeds ~~received for~~from the sale of a building during the first quarter of fiscal 2023 compared with $333 million in net proceeds from the sale of a building during the first quarter of fiscal 2022; partially offset by

•$~~104~~111 million ~~more~~less purchases of property and equipment during the first quarter of fiscal ~~2022~~2023 compared with the first quarter of fiscal ~~2021.~~2022.

Cash Flows from Financing Activities

Net cash used for financing activities was $58 million during the first quarter of fiscal 2023 compared with $233 million of net cash provided by financing activities ~~was $233~~during the first quarter of fiscal 2022, primarily due to the following:

•$350 million in proceeds received from borrowing under the ABL Facility during the first quarter of fiscal 2022; partially offset by

•$54 million in repurchases of common stock during the first quarter of fiscal 2022 compared with ~~$98 million of cash used for financing activities during~~no repurchases in the first quarter of fiscal ~~2021, primarily due to $350 million in proceeds received as a result of borrowing from the ABL Facility during the first quarter of fiscal 2022.~~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. We require regular capital expenditures including technology improvements ~~to automate processes, engage with customers, and optimize our supply chain in addition to~~as well as building and maintaining ~~stores.~~our stores and 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 results.

The following table reconciles free cash flow, a non-GAAP financial measure, from a GAAP financial measure.


		13 Weeks Ended					13 Weeks Ended
($ in millions)	($ in millions)	April 30, 2022		May 1, 2021		($ in millions)	April 29, 2023		April 30, 2022
Net cash provided by (used for) operating activities	Net cash provided by (used for) operating activities	$	(362)	$	340	Net cash provided by (used for) operating activities	$	15	$	(362)
Less: Purchases of property and equipment	Less: Purchases of property and equipment	(228)		(124)		Less: Purchases of property and equipment	(117)		(228)

Free cash flow	Free cash flow	$	(590)	$	216	Free cash flow	$	(102)	$	(590)

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 a dividend of $0.15 per share during the first quarter of fiscal ~~2022.~~2023. In May ~~2022, our board of directors~~2023, the Board authorized a dividend of $0.15 per share for the second quarter of fiscal ~~2022.~~2023.

Share Repurchases

Certain financial information about the Company’s share repurchases is set forth in Note 78 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Summary Disclosures about Contractual Cash Obligations and Commercial Commitments

There have been no material changes to our contractual obligations and commercial commitments as disclosed in our Annual Report on Form 10-K as of January ~~29, 2022,~~28, 2023, other than those which occur in the normal course of business. See Note 910 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on commitments and contingencies.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended January ~~29, 2022.~~28, 2023. See Note 1 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on accounting policies.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our market risk profile as of January ~~29, 2022,~~28, 2023, is disclosed in our Annual Report on Form 10-K and has not significantly changed other than ~~the $350 million variable-rate borrowing under our ABL Facility, which is subject to interest rate risk due to changes in LIBOR.~~as noted below. See Notes ~~3, 4,~~5, 6, and 67 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on our debt and credit facilities, investments, and derivative financial instruments.

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 expense on future borrowings.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of management, including the interim Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the interim Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred during the Company’s first quarter of fiscal ~~2022~~2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company reviews its internal control over financial reporting following major organizational restructuring. The impact of the Plan on the Company's internal control over financial reporting will be assessed and monitored throughout the fiscal year. See Note 3 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on the Plan.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

We cannot predict with assurance the outcome of Actions brought against us. Accordingly, developments, settlements, or resolutions may occur and impact operations in the quarter of such development, settlement, or resolution. However, we do not believe that the outcome of any current Action would have a material effect on our financial results.

Item 1A. Risk Factors.

The following risk factors appearing in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023 have been updated.

Risks Related to Strategic Transactions and Investments

We may engage in or seek to engage in strategic transactions, such as acquisitions, divestitures and other dispositions, or adjust or restructure our business, all of which are subject to various risks and uncertainties, which could disrupt or adversely affect our business.

We may engage in or seek to engage in strategic transactions, such as acquisitions, divestitures or other dispositions, which we may not be able to complete on anticipated terms or time frames or at all, or which may not generate some or all of the strategic, financial, operational or other benefits we expect to realize from such transactions on such anticipated time frames or at all. In addition, these transactions may be complex in nature, and unanticipated developments or changes, including changes in law, the macroeconomic environment, market conditions, the retail industry or political conditions may affect our ability to complete such transactions. In addition, the process of completing these transactions may be time-consuming and involve considerable costs and expenses, which may be significantly higher than what we anticipate and may not yield a benefit if the transactions are not completed successfully. Executing these transactions may require significant time and attention from our senior management and employees, which could disrupt our ongoing business and adversely affect our results of operations. We may also experience increased difficulties in attracting, retaining and motivating employees and/or attracting and retaining customers during the pendency or following the completion of any of these transactions, which could harm our business.

In 2021, we reached agreements to transfer our European business to a franchise model, and in 2022 we reached agreements to transition our Mexico and Greater China businesses to a franchise model. In 2021, we also divested our Janie and Jack and Intermix brands and acquired two technology companies. We incurred costs and expenses in connection with these transactions and may incur such costs and expenses in connection with future strategic reviews, which may require significant attention from our senior management and employees. Executing any transactions resulting from future strategic reviews will be time-consuming, will involve additional costs and expenses, which may be significant, and may result in difficulties attracting, retaining and motivating employees, which could harm our business and adversely affect our results of operations.

We have also adjusted and may further adjust our business strategies to meet changes in our business environment. For example, in 2022, we began taking steps to drive long-term improvements across our business, which include 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 control and decreasing management layers to improve quality and speed of decision making, as well as creating a consistent organizational structure across all four brands. In connection with those actions, in April 2023, we announced a restructuring plan that includes a reduction of the Company's workforce primarily in headquarters locations. Our ability to achieve the intended benefits and projected cost savings from these actions are subject to many estimates and assumptions. For example, costs associated with these actions could be higher than anticipated, and savings associated with these actions could be lower than anticipated. In addition, these actions may impact our ability to attract and retain qualified personnel, may be distracting to our senior management and employees, and may negatively impact our business operations and reputation. 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.

Risks Relating to Our Indebtedness and Credit Profile

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 condition.

We currently have a corporate credit rating of BB with a negative outlook from Standard & Poor's. In March 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 reduced access to the credit and capital markets, more restrictive covenants in future financing documents and higher interest costs, and potentially increased lease or hedging costs. In addition, market conditions such as increased volatility or disruption in the credit markets could adversely affect our ability to obtain financing or refinance existing debt on terms that would be acceptable to us.

There have been no other material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January ~~29, 2022.~~28, 2023.

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

~~The following table presents information with respect to purchases of common stock of~~In February 2019, we announced that the ~~Company made for the 13 weeks ended April 30, 2022 by the Company or any affiliated purchaser, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended:~~

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 (January 30 - February 26) 1,244,008 $ 16.04 1,244,008 $ 579 million
Month #2 (February 27 - April 2) 698,665 $ 14.34 698,665 $ 569 million
Month #3 (April 3 - April 30) 1,805,350 $ 13.45 1,805,350 $ 545 million
Total 3,748,023 $ 14.47 3,748,023

~~__________~~

~~(1)Excludes~~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.~~

~~(2)~~Inunits, during the 13 weeks ended April 29, 2023. The February 2019 ~~we announced that the Board~~repurchase program had $476 million remaining as of ~~Directors approved a $1 billion share repurchase authorization, which has no expiration date.~~April 29, 2023.

2425

Item 6. Exhibits.

Incorporated by Reference
Exhibit No. Exhibit Description Form File No. Exhibit Filing Date Filed/
Furnished
Herewith
3.1 Amended and Restated Certificate of Incorporation (P) 10-K 1-7562 3.1 April 26, 1993
3.2
Certificate of Amendment of Amended and Restated Certificate of Incorporation 10-K 1-7562 3.2 April 4, 2000
3.3
Amended and Restated Bylaws (effective March 23, 2020) 8-K 1-7562 3.1 March 5, 2020
31.1
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer of The Gap, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002) X
31.2
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of The Gap, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002) X
32.1
Certification of the Chief Executive Officer of The Gap, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X
32.2
Certification of the Chief Financial Officer of The Gap, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X
101 The following materials from The Gap, Inc.’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2022, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Stockholders' Equity; (v) the Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements X
104 Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) X

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing Date

Filed/
Furnished
Herewith

3.1

Amended and Restated Certificate of Incorporation (P)

10-K

1-7562

3.1

April 26, 1993

3.2

Certificate of Amendment of Amended and Restated Certificate of Incorporation

10-K

1-7562

3.2

April 4, 2000

3.3

Amended and Restated Bylaws (effective August 15, 2022)

10-Q

1-7562

3.3

August 26, 2022

10.1†

Letter Agreement dated February 27, 2023 by and between Sally Gilligan and the Registrant

10.2†

Letter Agreement dated March 20, 2023 by and between Gurmeet Singh and the Registrant

10.3†

2023 Form of Non-Qualified Stock Option Agreement under the 2016 Long-Term Incentive Plan

8-K

1-7562

10.1

March 10, 2023

10.4†

2023 Form of Restricted Stock Unit Award Agreement under the 2016 Long-Term Incentive Plan

8-K

1-7562

10.2

March 10, 2023

10.5†

2023 Form of Performance Share Agreement under the 2016 Long-Term Incentive Plan

8-K

1-7562

10.3

March 10, 2023

31.1

Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer of The Gap, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002)

31.2

Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of The Gap, Inc. (Section 302 of the Sarbanes-Oxley Act of 2002)

32.1

Certification of the Chief Executive Officer of The Gap, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of the Chief Financial Officer of The Gap, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

The following materials from The Gap, Inc.’s Quarterly Report on Form 10-Q for the quarter ended April 29, 2023, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Loss, (iv) the Condensed Consolidated Statements of Stockholders' Equity; (v) the Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements

104

Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

_____________________________

(P) This Exhibit was originally filed in paper format. Accordingly, a hyperlink has not been provided.

†Indicates management contract or compensatory plan or arrangement.

2526

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		THE GAP, INC.

Date:	May ~~27, 2022~~26, 2023	By	/s/ ~~Sonia Syngal~~Bob L. Martin
			~~Sonia Syngal~~Bob L. Martin
			Interim Chief Executive Officer
			(Principal Executive Officer)

Date:	May ~~27, 2022~~26, 2023	By	/s/ Katrina O'Connell
			Katrina O'Connell
			Executive Vice President and Chief Financial Officer
			(Principal Financial and Accounting Officer)

2627


($ in millions)	Source of Liquidity		Outstanding Indebtedness		Total Available Liquidity
Cash and cash equivalents	$	845	$	—	$	845
Debt



3.625 percent 2029 Notes	750		750		—
3.875 percent 2031 Notes	750		750		—
Total	$	2,345	$	1,500	$	845


	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 (January 30 - February 26)	1,244,008	$	16.04	1,244,008	$ 579 million
Month #2 (February 27 - April 2)	698,665	$	14.34	698,665	$ 569 million
Month #3 (April 3 - April 30)	1,805,350	$	13.45	1,805,350	$ 545 million
Total	3,748,023	$	14.47	3,748,023