Joe Scheeline Head, Corporate Finance and Investor Relations
Sonia Syngal CEO, President & Director
Katrina O'Connell EVP & CFO
Brooke Roach Goldman Sachs Group
Lorraine Hutchinson Bank of America Merrill Lynch
Matthew Boss JPMorgan Chase & Co.
Kimberly Greenberger Morgan Stanley
Irwin Boruchow Wells Fargo Securities
Adrienne Yih Barclays Bank
Dana Telsey Telsey Advisory Group
Paul Lejuez Citigroup
Call transcript
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Good afternoon, ladies and gentlemen. My name is Justin, and I will be your conference operator today. At this time, I would like to welcome everyone to The Gap Inc.

Third Quarter 2021 Earnings Conference Call. [Operator Instructions]. to and host, Investor like of Scheeline, now Finance Corporate Relations. would introduce Joe your Head I

Joe Scheeline

Good afternoon, everyone. XXXX earnings Welcome to Gap call. Inc.'s conference third quarter

Before contains forward-looking that remind on like webcast statements. we made this call information available you conference and begin, I'd the to

from XXXX, report filed to description revise with consistent on materially refer and today's Form and XX-K principles, filings X statements. any on we measures assume that today's not annual Commission, and the reconciliation as generally slides the update November to factors with as accepted Securities company's shown please obligation earnings statements of forward-looking and information as Exchange remarks, our Investors publicly statements cause XXXX, our of forward-looking of For forward-looking on information on results any March of or the available and section well as which our release, are with today, well accounting to Exchange subsequent Securities supplement the based actual XX, are all website, Page could differ These any as the the on Commission will, no on financial of XX,

Chief Joining that, Officer, Syngal; Katrina to me I'll over Executive O'Connell. turn today on the and call are Sonia. With Sonia Officer, Chief Financial the call

Sonia Syngal

everyone. joining today. us afternoon, for Thanks and good Thank you, Joe,

record affected manufacturing to our ability back chain, to meet half momentum X.X by customer transformation the our Vietnam, port of sales time, well off supply I we teams XX despite As strong fully by to broader pandemic-related accelerated I'm our made as incredible top ongoing disruption as QX, month the in business which economy. our last both driven closure congestion, into before in demand. reflect on facing had our the the a disruption an the have performance inspired of country, and such Coming short months, heading

our longer the weeks including into supply we anticipated Vietnam, persisted business known entered into had we to chain months. the as quarter, as in than closures shock COVID-related planned While constraints turned the

to and our that taking center We have We been our our in chain ensuring is on We're in on air To transitory ocean business, on the the all headwinds to that the at beyond, into and customers, proactively our on go and impact every our our holiday secure assortment, customer will long chose navigating believe impact hands help growth decision sustain scale and over short-term the we invest advantage. we material meet a the resulting needs on supply for is vessels customer of to disappointed address our the build the promise portion freight a costs. later. of make. Overall, of detail these significant extreme we of Katrina continue the greater loyalty choice supply earnings. made efforts will term. mitigation over deck

on clock current as crisis across as faster. rates. speed underway There increase an That already we a process. not efforts across have was them We're to relationships accelerate opportunity transportation future initiatives product-to-market the partners, expertise. from industry-leading in combated advantage will speed the a have crisis manufacturers that to better we an We our with offering strong multiple digitization said, go and origin enterprise sizable our on of optimized cost, were with for speed And and eye using countries learnings this deep waste. transformative

we're on creation unlock tools will and efficiency. to processes that adding we're transforming the and to personalization. digital loyalty inventory a by example, We've product significant supply us allow better capabilities made And unexpected. with anticipate operating focus progress speed digitizing chain For core targeted using management,

not have in forward pay near-term pressures our core us distracted All of will work these and from XXXX strategy. These beyond.

We XXXX, position we because strategy of of than It's date and in The of on an fiscal were simple in last current executable in this October the Even focus matters, have consumable assets. the entering confident face Plan really shared ownable what stronger, is unique, year, Gap our acute our to year. a we more headwinds, is this resilient Inc. I'm Power true.

brands a pricing the to in healthy. for average decade. Demand Our is have margin with retail strong we are gross over contributing our and product highest power unit

to of the unlocked compared are has our sales total XX% and We tech the Online becoming XX% cloud sales, in migration portfolio. digitally-led. grew innovation XXXX, to quarter representing our in

sales our year-end X% X% customers strategy. partners European Nearly basis, supply active supply delivering have headwinds. through unproductive by team the shed our brands shoppers, growth you. billion to comp business while X divesting estimated strategically loyalty $X by impact of on X continuing to X-year To positive an executing customers. and closing a drive X-year smaller much versus you X/X X% long-term of to disruption, as accelerate our and due were near-term watched they as XXXX, and comps. are sheet to twice includes our by an stores, sales the for spending us brands which were with to XXXX point will down our chain balance focus fortified chain And profitability. while restructuring persevere allowing in estimated Net strong challenges up long-term Despite around partnering are we navigate, have We and thank shareholders. I cash to world, these debt, sales nonloyalty invest and return

Our track is on strategy is working. and

relevant the cut through is driving billion-dollar our in is QX. expand Let me with finding of brands This new in our and a decrease increase power discounting. reach Power ways how the to brand walk you our to and to through of consumer. brands. Each in an and came Plan power life Starting

quarter. August. rank and market sustained lateness a according kids Navy the with Let the from kids by successfully customer Navy. of the Old in are brand first sizes to sizing XXXX, extended who first BODEQUALITY, growth start its Old half file as was versus and NPD have to shopped but during from sales before, doubles X% than #X performance. the its delivered customers Navy brand Navy's shopped X% Old baby size than launched The with growth affected me share the trend new the back-to-school launch. Old Old since new disproportionately half brand category. more X/X extended strong maintained more Navy deceleration integration inventory in its and inclusive are to

extended strong across choice size is categories, a that clear market. our We trend fashion are seeing in the craving customer signal demand lacking

assortments growth. to Plan, penetration of business an net to versus digital comparable momentum driving increase strategic points particularly almost growth and more The third brand, nearly partners brighter at the This Moving America, sales XXXX as local with despite lighter the tighter positive percentage sales European the concluding a brand critical core review by amplify revenue better in of of flat its model we a closures. North store Gap in and to sales profitable from shed quality consecutive North stores. improves working Gap with and our U.K. comparable of stores XX and Gap. our the X-year and America up continues XX% the reached marks in strategic quarter Power market, through Gap product health milestone shuttering business

are strong Europe. in our committed Gap to and identified U.K., and in Ireland, customers have serving We France the partners growing and together, Italy

Gen power most delivered the day partnership Perfect in diverse XX% With X this Yeezy a Our first newest us in men of sales time, new plus for Z shopping with history. Gap an the Gap, by of unlocking Yeezy is background. icon, audience Gap over from the the item Hoodie, the customers single for a Gen

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leveraged portfolio. purpose-led advantage our Next, scale platform and power and We size X for the billion-dollar our of our brands. drive to

or pickup. and platform mobile omni customer engaging store, in leading convenience curbside provides through experiences, Our on whether

grew U.S. and rank sales. sales maintained #X online XX% to we quarter compared in e-commerce our as Our in the apparel XXXX,

size. customers our customer Our average with XXXX, the are sits program average improving. us than more Compared of million, average customer customer our acquired lifetime health and our important ago. But XX Rewards is more value. file spending ability that on and were are build retail more newly is sizable to they those to increased basket unit the with file customers at than with and innovative of customers We're pleased launch the X years our transactions, existing spending a active

Now our brands across our shop Xx We through than more channels. with are likely fuel XX our to Xx technology shop million more members, operations. across advantage and scale likely more loyalists to brands,

and diversify our and To reduce also will We costs are seeding capabilities are investing growth, capital speed we drive new business, value. unlock strengthen additional increase and agility. that to

machine new tools insights. with For technology with we acquired will which Draper, expect consumer sales, we e-commerce our acquisition potential and example, and across acquired we power inventory AI CDX, learning and XDFit broad

portfolio our to return, customer better through deliver boost experiences build to key our X power This will all We in solutions these comes stores brands capability. have our categories. and margins in-stock online scale help brands. XXXX across The and digital increase of core plans leadership in life lower our to levels, in

Our and and respectively, business kids strong $X share business generate Old and Denim owns billion this revenue across Athleta. market business Active and Fleece our to and Navy, year, X% baby billion, of our $X Gap and expected are

We're have pilot sustain. and as every reach Even value and and comfort occasion occasions the extending addressable premium to clear leverage body We will categories expansion our and strengthened, and new scale from customer wear-to-work across and test rest. then to through learnings X style brand it's category markets. age, can across

the into advantage. with our Navy, brand sizing Canada and the inclusive Athleta's presence and to product Gap and power scale enable It's us Athleta quick Navy strong scaling Old entry in example, starting gives Old Republic's quality that market. using rollout or of Banana infrastructure our and at For collective seamless in

have Earlier people and million where Inc., to water goal doing Water to and to by continue impacted sanitation, be to sourcing improve empowering and XXXX. USAID, we announced focus to with of community. clean empowered climate communities change, their our and that part enabling we month, our on a by mitigate innovate the supply industry are halfway this women access our operate. Gap Every sustainable the reaching and X We impact, enriching in already both this on we will in opportunity Alliance chain X Women million

accessory and That next. we the for retail of consumer and Looking against across into the the constraints. supply ahead, industry the climate current year we balancing the sales apparel robust anticipate remainder favorable are said,

our everything we fall. As our I last, given current resulting strategy inventories environment. are performance the on-hand cautious still, sustainable the remain One impact remain we focused versus while near-term we are long-term difficult, doing executing improve headwinds and mentioned we our to can on for And on earlier, growth.

restructuring matters, work on focused reduce and fueled are efficiency what investments deploying our our science creative, way we in demand-generating to and billion-dollar in by the We to brands business cost. cut-through drive data

the from you growth I emerge a to wish With and us and growing allows term. families Katrina? your crisis, share, profitable health these delivering of All happy Thanksgiving. increasing that, brand long

Katrina O'Connell

good Thanks, everyone. afternoon, Sonia, and

proud progress Inc. through we're said, we're of Plan Gap XXXX. transform Sonia our deeply making As the to Power

optimization have for international progressing divestitures demand and closures, our well brands We is value. and partnerships adding through and strong our fleet store

in operating we Our remains by XX% hit our disruptions. navigate these line margin near-term as on with XXXX, plan, track even to

business Our to The balance enables shareholders. our sheet restructuring returning while well are strategy in our recent invest XXXX growth of in to with our Plan cash Power fortified core delivering us debt to tenets drive value. underway

unanticipated global in on of confident at X quarter. deliveries impacted While We of to resulting X up revenue or U.S. due X-year a our to transit fall led the $XXX of supply sales performance. to our year, points to longer with to lost backlog inventory. The meaningfully worsening weeks chain the third we're half basis issues delays widely product million continuous throughout strategy, ports reported of which growth percentage approximately on-hand quarter

than In anticipated. largely factory is to significantly diversified, X.X closures production XX% extended approximately Vietnam, longer months, initially over our in our is addition, while where produced globally capacity product of

on-hand inventory XX% below XXXX. fiscal in year Our average was QX

lost So as a of volume sell-through trends, supply. despite limited result we strong

to styles While are believe and and forward. year. using QX the disproportionate. from holiday, learnings to disruption delays brands to early and accelerate demand, strong With will to persist that although supply help crisis we We to potentially our these new that sales better margins challenges impacts chain fully proactively increase in our next in XXXX for more all meet and and supply taken improve some for speed capabilities their acute supply market Navy Old believe near-term limited logistics we're will mitigate ability that, was into actions transitory, to go we've profitably experienced sizes

efforts. on touch me some Let

inventory. First, air in incremental holiday support capacity to

to an East Coast costs delivery. port. Beach million in to have holiday $XXX routed In the Long million [indiscernible] portion we in QX the our L.A. of further $XXX estimated to addition QX, congestion of we've air airfreight to approximately invested inventory incurred also modest a ports in expedite bypass

ports, to to we up are alternate holiday worsening and [indiscernible] capacity delays and new our adding air utilizing improve on-time the for air on are continues production chain volatile. ramping slowly, by While are charters airport causing aspire be supply port holiday deliveries behind situation ongoing congestion.

cautious significant outlook of our and $X.XX they share remain love focused are providing for products customers holiday We efforts to [indiscernible] to the in an on basis year with Our driving our we're balance on mitigation has the transitory costs, reported preserving basis. share season per during but our on adjusted and the $X.XX $X.XX customer market and a maintaining loyalty. the and

meet of supply range revenue We based half to [indiscernible] XXXX to estimated emerge we underlying our possible. to when acute and and second of XXXX that And $XXX plan, are our $XXX we adjusting updating solely chosen strong substantial million are confident margin This is much for seek the and on customer as we impact. ahead incur sales these be guidance now lost in as will as from the [indiscernible] business in to demand reflects million the disruptions beyond.

longer we look we adding our teams As added port us believe deliveries. with to significantly Beginning we that into goods product the by less summer expected which XXXX, for enable times with ocean capabilities more on-time have to flexibility deadlines, enable will ship airfreight. booking XXXX, largely and new will are delay

the in Also to our product begin will strong its flexibility, addition, in and us with we and of And creation of the fall speed has transformation the vendors. use brand. XXXX. retails confidence and with AI efficiency geographic increase This for gives better its drive efforts multinational for in vendors. stores. of management as to inventory now CDX of to recent program more majority the added diversification AI, to acquisition new sustainability our deploy accelerated to from ongoing the loyalty combined average our inventory we Old unit in-stock leverage leverage In breakthrough pipeline expect has the digital orders Navy

quarter turning Now third to financials.

provide Before while the from XX%; progress supply into XX%, in while financials on we and debt sales. quarter related pleased partnership to America the our that with Banana X-year of X%; to select navigating X-year I'd to Comp to market Starting North Global results. from through the I'll as quarter these I issues. Net I up deceleration brand specific there the up All get due adjusted a We're growth restructuring Athleta, model. comp Republic's with QX And were to comp more through XX%. details Old X%. X%; X% note down chain with that our half with and down sales and experience first was results, customer incurred talk up sales XXXX its sales issues. year the excluded long-term in our Navy Gap charges like are the improved acute relaunch. supply the up product made are particularly

to channel XX% sales to XXXX. were e-commerce XXXX, in of sales continues in up as advantage QX compared strong total from of sales XX% XX% Our online the contributing quarter, be an up

to Moving margin. gross

XXX margin quarter points an versus was basis gross Third increase reported of XXXX. XX.X%,

related across closures our the margin higher partnership points X discount despite in X for just a European were in model, Product of costs gross XX and headwinds years. at and business Merchandise of online impacts margins was QX points airfreight. acceptance basis rate to XXX all level with strong overall lowest shipping short-term basis related about represent to brands of to nearly the points adjusted Excluding [indiscernible] our renegotiated the XX.X% basis down transition rents. quarter

basis XXXX. adjusted which to to of was transition XXX points million XXX to QX XXXX compared operating the charges SG&A. On an sales, XX.X% our basis, of sales, points European SG&A. model related Turning was $XX of XX.X% Reported SG&A in deleveraging adjusted basis above includes SG&A,

continue rates. divested costs those a North down the Fixed form portion been of Republic, investments no costs relaunch as and supported year focused out contributor major new chain up digital our of sizing brand QX the Marketing, particularly to to higher strategy to We were investing into balance at primarily while and America, we and versus on significantly technology a the The reduced as low of accruals inclusive is supply XXX loyalty, build our meaningful Old low driving on incentive in of execute of on and bonus remaining were strategy headwinds. our generation XXXX as costs long-term brands a versus supply marketing X of our even stores and in to as closed agreements rollout well and European basis discount earlier based face have prudent capabilities of the our that making performance. near-term fixed year successfully demand technology. we're payouts we're granted in for initiatives, investments committed partnership today The points are and our in baseline Banana XXXX, this Navy at reached markets. differentiators, while

Operating a margin. on quarter reported basis. X.X% was margin the operating Regarding for

charges due in million an adjusted includes to noted sales of Excluding the million margin million earlier, $XXX in to our I in approximately constrained which related to costs. inventory lost $XX in was estimated European nonstructural airfreight $XXX as X.X%, addition market transition, operating impact

on interest to tax. Moving and

Through unencumber all quarter. collateral. pledged restructuring, approximately and billion $X.X achieve incurred our $XXX we was lower unsecured During this secured of were net to year related balance, million. debt charge savings, Full overall senior to million real beginning interest QX debt now by and net long-term restructured as debt on our notes senior our able retiring to material reduce $XXX billion in an debt of XXXX, extinguishment basis interest the estate the $X.XX issuing quarter, notes. we $XXX a interest nonrecurring annual previously $XX We is million. assets be expected million our coupon in

XX%. related effective we European quarter, adjusted the third for charge XXXX, changes rate beyond net effective fees and the The expense around rate was extinguishment to model, $XX of tax the was tax interest operating impact annual XX% to excluding our expect Looking from the debt million.

the about basis. about XX% on expect be effective year on We rate and tax to reported basis full an adjusted XX% a

on earnings of loss reflect QX per Regarding share. the quarter, $X.XX a reported earnings

debt transition were per with European $X.XX. the associated of a restructuring to and fees our share model, markets long-term earnings quarter for partnership Excluding adjusted the our

quarter, XXXX. Turning average inventory our outpaced and worsened versus inventory. XXXX XX% QX X% to Inventory down to sales of delays throughout down on-hand the

ended quarter below and Third levels. inventory X% On-hand fiscal XXXX, with average at in-transit relevant 'XX year. remained versus X% to flat the QX end versus XX% up on-hand with inventory end seasonally quarter down quarter and the down of last markdowns XXXX inventory

year, expect in outlook last ending We point-in-time high may volatility single this versus be QX given continued inventory although supply up to chain. change digits the

$X.X flow, cash billion the Regarding cash QX cash, in short-term balance and sheet ended we equivalents investments. with and

of share the And QX earn During $XX part dividend share. million paying we to to offset current announced of cash QX we $X.XX return our of to continue repurchasing dilution. shareholders, plan dividend to -- per a and as a per earlier quarter, this $X.XX shares month, in

phase Looking global Gap to Banana plan stores recent expected approximately our by of market. to our America the and partners at Italy, a of the the Republic now be early our European concluded new year. an is store restructure model fleet, to of our agreement complete announcement And partner be end to XXXX. All to the XXX important with transferred to XX% in in North are close of expected our we've transition markets

range on reported net a of of and Full sales million model. which the of financial margin million includes in European comprised our restructuring of supply update the year divestitures acute year downwardly to which partnership $XXX fees I'd to a and to and model approximately related business transition based charges of full to our of the expected on chain $XXX an $X.XX, debt XXXX business our $XXX European disruptions. like related million, to earnings $X.XX share long-term to are -- revising Now provide to are of be in we per now solely outlook, the the impact

in impacts, the year range full year of and now EPS assumptions: to following adjusted the full guidance XXXX to growth $X.XX. charges This these be XXXX. $XXX XXXX expected includes now expect an of $XXX $X.XX we associated estimated revenue about is second versus $XXX updated of XX% million tax in Excluding half the of sales QX. from to supply from the million $XXX expected reflects million, and XXXX million estimated to disruptions QX an This $XXX range first, lost in approximately including million

Second, on air we delays delays closures consciously we expect and product freight million. to full as approximately X-week approximately to our holiday air deliver QX Vietnam Coast nonstructural be chose to we port of the much year our XX% $XXX We over can X.X-month product West so given from customers can their the holiday that expectations. in as give

this sales retain the mitigate material our customers further and believe necessary to losses term. is is we profitability, it for While to long

and expected our of of of the operating path for air come and margin strong from back still Q&A. in chain constraints, approximately about cost or face progress with full strategy Plan the and will expecting brands, to business for margin that, from these our we be XXXX million. half at move still adjusted costs on challenges Power acute disruptions, for are Full about underlying we'll the of is health XXXX. In core spend the about meaningful Sachs. plan our adjusting at Roach capital Brooke as by impacting to we've original a impact year the trends we XXX air providing And our in remain be momentum. that up is in XXXX. confident The [Operator XXXX, With summary, X.X%, real X% $XXX above With open highlights we in reported operating year it our demonstrating toward and when sales made the the end of question points. the margin margin supply for quite our basis operating added are supply strength fiscal Goldman inclusive our Instructions]. year first with to operating impact XX% business we short-term expect XXXX now This

Brooke Roach

the on Sonia, bit inventory the Katrina, if could some may the for there like you year? about How February? lapsing right planning you looking delays? the Vietnam's impacts where of January I chain of may of slow around that us into about was you're and of delays restarts inventory boats cadence more As impact help season. holiday, understanding some it thinking little And be a in time wondering into supply into perhaps inventory those these and carryover customers that of the be next ports these sounds holiday shipments chain and quarter the fourth thinking are some really stuck and with are supply XQ

Katrina O'Connell

Hi, Brooke, it's Katrina.

could of season. delays So play for as late really effort port well Vietnam. for holiday the the amped range through call, navigate as up an on outcomes we airfreight how as that the the we a lengthening said possible have holiday in to the of opening there's And

And see inventory. so with that holiday lands we'll where

reflowed proved we We units based and What them into January to looking front this strategy all. need we pack potentially what year the for February, into are future next was a half relates us. that past then year. so carryover And particular, to that what really for going for get the can it As didn't at teams on season. pack in and good at -- units the the have units and a hold hold Vietnam, we do been take cancel to in closures

online have put if next for won't or said generate And in we think and we'll are holiday year. be hold to stores them so and for too late the them markdowns season, going that we things

so don't So end we're up or current issue. using with a variety inventory February inventory of liability that situation things really to we a the navigate help January


Bank come will America. question next of Hutchinson our And from Lorraine with

Lorraine Hutchinson

price chain take you you any cost, the much view how costs higher of When to headwinds? actions can some And of you the take as these structural? points think offset are there to supply about do

Sonia Syngal

Hi Lorraine, here. it's Sonia

we the bet. think the have the We that is QX air to that's promise. cost incurring wanted do that with maintain we And transitory. customer So why made and miss that we're

Our brands are resonating.

price realization. through We XX-year high margin have a

to we on the even our next so we're of and the We And lumpiness think are our as year-end, what's to year. bet share have we here in that. plan into more included first do confident move and stay And navigating quarter, that's outlook. that our but on in products about office was track at the power year, holiday, the we'll service to with

across inventory levers strong that charge investments key the across of pleased think So and exemplified QX the expect as I the the gains that all such level through optimization seeing enabling as company. product can that, the the in continue. over the -- we've as management sign, order a brands acceptance and well coming we're through the personalized margins. price we've sequentially health by price we've combination made that, brands, continue seen of We're able as capabilities think will our marketing, the really We in drive we gains to to that, that years, and been to discounting of pricing continue and that are with X


with will And Boss be next JPMorgan. Matthew

Matthew Boss

the Old you on if Navy margin of Have we at that comps, Navy, gross exactly the deceleration what what time in exactly trends the how SG&A? wrong was the points target, was due sequential in went what's between the August? Sonia, XX-point versus then, if the at Katrina, to And much seen split think basis and had plan And you Old here about operating inventory? in of we line XX% late improve think margin November? XXX from

Sonia Syngal

Thanks, Matt.

as what is as much know, Vietnam Vietnam, more well And delay had had Old X- this left is shutdown other strong higher, [indiscernible] half in month to What Navy, that baked when you therefore, we that's we first country, dramatic. have sourcing had a forecasted, closures as port of growth. we as X-day sales seen was, we really we our slightly what go actualized XX% momentum with know, particularly seen, as about top for We maybe disruption guided, from and we in the some women. for So X.X we've X-week a forward. with because year which of countries, the

as new as worsening port And that so the well effect compounding is the news. of the

the in growth even in way compete palpable momentum, growth its Score maybe, so holiday. to substantial Net we awareness we in thought BODEQUALITY and the through Promoter the in made launch, And a airfreight the the as in and decision the invest to brand QX, about

because inventory now. fact, chain due We in and in with sales the first that's leaner So entered constraints portfolio. of the to quite quarter lean Vietnam demand and -- Old in out exacerbate than we the that are of that due then Navy And the the supply majority right the the supply think the loss, you to port. strong all out-of-stocks is half, of the where loss the

we're realization, brand that that's loyalty indicators, Navy. so joining do new are the younger, the short We in price the has to think, maybe do all the health, I customers really that and navigating believe Score, customer Promoter bet it's believe right transitory. age We that is term. And the for the Net all Old with of healthy, the the customers, play the of what to incredibly offense had, abodes

Katrina O'Connell

impact margin, relates And confident it in to point at includes operating from When we for about as addition remain basis that with of includes X% look the it this the from to supply to impact you year sales Matt, XXX million transitory that for our guidance $XXX in the airfreight XX% operating XXXX. close year. constraints. we're this that, incurring And a a then, that cost margin, then

when well us line year and Plan Power all chain of impacts, guidance gives And that this confidence ahead August. supply this more for in provided of you that we would have with the our in out so original the take been XXXX back year,

get we'll that this. confident we're through So

of As move Navy accelerating for timelines And then we looking the to is digitizing the supply creation summer. we're buying delays forward, Old talked before, are from our about product ports all adding we can us its chain to we for sales then think fall, to recovering year we to see with which of line will enable with better much the sight supply. lost and freight, less air next navigate

year to sales been line but would and forward. plan, more So ahead of losses next come have that of into costs these this mitigating year, we see to and going we sight we have when get do


come next Stanley. with Greenberger our will question And Kimberly from Morgan

Kimberly Greenberger

be realized would I assume is going And the spending you we're new wanted that we when Navy the forward? quarter the seeing. SG&A baseline spending inventory, during of that level to that low of Old third ask Should this of about not the the thought any obviously, marketing, there to the driving was back Because, as the traffic to would perhaps stores marketing the and inventory disappoint customer? so existed. quarter on with through lack have during cut to of potential certainly

Katrina O'Connell


do commitment drop on partially as call sales. then to offset by the the And as was marketing stores the the was that we which quarter face out. in deleverage by did we let by really little about sales pull in on in in said, we the then we the in targeted SG&A And had So to try expenses, marketing talk quarter. the not was in that Kimberly, the of it quarter, impacted seeing you pullbacks SG&A Sonia side, piece. that I'll course were the SG&A partially back the constraints supply the customer the the of the from emerged we seeing declines to on a really anything bit that middle facing

Sonia Syngal

around on, back payroll did, was look, of BODEQUALITY really marketing lower costs fact maybe the we a points you And rigor Promoter that's QX in suggest fixed as working. brand know level of marketing despite value Score the that But spend Navy, probably with up add amount being have fact And we at other in for just some us is we And a disappointment. of that will that effectiveness we Yes. And I'll is add strategy our particular, look fair sales, don't a that pulled on fundamentally, the launch. that and strong up it for dramatic as base the confidence gave had Net we Kimberly. and the stock at size, and that brand X we based Old would on BODEQUALITY, outs have awareness with investment.

marketing sales closures markets. right. of our on are cost the focused international fixed removing the elimination transition our that's We're that's unprofitable stores think to store we and automating unproductive investments processes, So

our broad our a That's a areas that costs plan X-year operations. bit our advantage. We're that so very, as made as are we've those continue SG&A where So committed fixed SG&A competitive a very our lot core of SG&A. in that color well little affect more digitizing operations on to to progress gives be store on that

Kimberly Greenberger

clarifying a what Great. And the to Could quarter? you I tell question, just Katrina. was us just AUR third wanted increase in ask

Katrina O'Connell

We as Yes, only of deleverage quantify XXX no quarter, transitory our airfreight basis in as margins, online and is though, basis were basis on merchandise that that problem. points of the with down didn't that. points XX What say, we XXX well did the was points costs. they Kimberly,

we points helpful. margin. So that hopefully, that that the basis -- emerge that's points headwinds, meaningfully would AUR up so But with only XX we XXX was lost about basis of tell you if


Wells And moving with Fargo. Boruchow on to Ike

Irwin Boruchow

ask about on wanted margin. So I Katrina, questions to two

Just back understand that and in to this your XX% 'XX? to that stick? X Just my the it? That's be that I points, us mean, X.X% trying I the XX%. think Is is today airfreight is dynamic. I my to the questions. in basis right XX%, about you your target is XXX to of Or help just months? to build would some it it And full halfway that's in to it to as years. XX sense I is, transitory next is right, even is would the Or get build going to X% that One, is kind to this versus way then -- guess, to great. mind, about the over for then going onetime? of an margin If bridge is trying the think, loaded be math onetime? there my year. I'm X this guess more think we

Katrina O'Connell


we cost crisis. you're solely is would of to XXX headwind is airfreight navigating Ike. basis points thinking attributable supply So that includes right, say year the about that This from what

we And so having continues navigate the have points front current something of year it would We'll these the next without that see fundamentally, half been see year. higher would how basis of in But not that continue. year much to issues. this XXX

is really stores, against X behind correctly. you you say do we're smaller When we the proud year, Sonia think of like by Europe about that progress brands, X got we countries the will then thinking pace But would you're us. on that, in like feel end the restructured I of the good about getting partnered, really North third restructuring quarter. America is of do our debt this we'll made more I divesting largely in closing out feel what So how And restructuring core versus I our We and the the say we've would XX% XXXX of it think XXXX. the company give plan.

year, through next the our add rates of cost years and be healthy XX% through about to the But think about way with core more about digitization core optimization get of the lower management, X that And through to we to about as efforts think that that value, automation of going try are so that's and margin. of we but out. pacing the will to drive processes operating to when the talked end really we driving some we'll talk now these return inventory start

Sonia Syngal

quarter strategy going our is that very it just fundamentally, this, through at think, right resolved strategy. like I looked the I'd are Yes, and we a add have on, in

But by The our like, plan not in the last at plan driven than that. that customer return quarter. that to sales the October. quarters we back center, you We are still happy you are X communicated on with these would still think we a meet on lumpier our health are track and certainly, we double-digit the commitment this putting will year, we if step look be growing growth to objective. with we're that operating is brands at And to

look commitment to I to years. And of well think, the that to is, as so the couple next as there


Yih question comes next with Our Barclays. Adrienne from

Adrienne Yih

deltas on the I'm to retailers Sonia, understand, other trying particular. quarter the versus biggest probably one for you of quarter, in the had third

that's historically, these up and and of to very $XX, lead happening to AHR Numbers know near shorten have too there something lead times? forefront was initiative in times? $XX types hourly been an your we talk pressure didn't there SG&A those with Have an line. is of short up wondering, I'm tighten floating they leading are And out Gap's I So average that impact? a that Katrina, at then, become that events about actually can that the much there initiative. rate any

wage are how And you that? annually? we about inflation that think how about So thinking should

Sonia Syngal

retailer as who as disproportionately were about impacted, Vietnam a those and manufacture a had vertically Well, integrated there natural was certainly, apparel don't manufacturing our advantage. of we XX% in

believe better and the that We unit shows It continue to right? better advantage our scale always cost and an last has access in supply rates chain mile. up to been of

advantage. so And that's

an this to using Now find insulate further opportunity as we that are said, ways to ourselves.

Vietnam, for exposed the And to the was delay a government to and especially other weeks, of were shutdown were similar so exposed. think women's countries, in longer South where we most substantially in Vietnam, I where expected we be example, couple while maybe we most

it was our expectations. outside of So

model. multinational of opposed on really focused lead we're times well as which the vendors product as to point as creation and process, will digitizing reduce forward, product-to-market the times single in Going our let partners cycle us

did some including opportunities and to key we we're forward. us into transformation of management the last to we Power crisis transformation, opportunity accelerate think are all as leaning see that this I using components supply which move So chain, including of inventory an as XXXX digitization, year Plan our

Katrina O'Connell

then rate well. in the are seeing we I our primarily definitely on centers, AHR pressure. pressure, hourly mean in as our average distribution And but stores

are one it's not teams doing but that. a headlines, is but structure of sort are. we as it we are others job that the far, within biggest our And definitely called haven't out, it the something good so navigating navigating And cost of

Sonia Syngal

are Yes, and stores, half. and us. we said, the of are into DCs then have would back hedge automation headwind embedded That it's great in And some I is our being we outlook. absorbing AHRs the some levels we our our in those have for say contemplated what a

Adrienne Yih

what given you Have is? your actually AHR Okay.

Kimberly Greenberger

No, we haven't.


question Dana have Telsey Telsey Group. a And Advisory from we with

Dana Telsey

you going that Do differently? forward even and you XXXX forward? into to help you adjust now even about may and your about How going that As the are manage think that you do going chain that better forward? learnings think chain XXXX, the operate what think this supply adjust into the you from inventory supply obstacles how happen

Sonia Syngal

that our supply would the We information a of know first we unit end-to-end detail and the I to to where all that exactly say, so but links investments and that foremost, technology is starts greater in chain. we're supply more our information, level in end-to-end going chain. visibility. And we're now digitizing with making it had real-time digitizing every

I'd So that's first and say foremost.

is now cost Second supply has flexibility. given advantage. And a we've us emphasis we'll be and that chain resiliency putting always had a greater on

of sourcing supply And our multiple advantage origin, in to levers your chain. our scale that's store, at more countries in we competitive whether whether so that's a of look enhance variety

Katrina O'Connell

port their better And cycles. much the the us as of Dana, digitization fully fall, moved forward a times navigate Coast West Navy to are we our speed of and in much the our in believe built then seeing lot volume particular so which for for flexibility. longer said, the we that XXXX, will Coast, line spring, into help lead team pulled to we buying And delays summer, East they have better. in port fall Old we've And

we're of feel leg next been Power the some to like work So make a that this said, then we've digitization I always more been advantage to XXXX, next that but as we've think sequentially, has sure incorporating getting Plan that learnings. as we year, accelerate of Sonia used And way faster. really

Sonia Syngal

think, a I'd the side, say, sentiment. been, we much XX on would we've response Yes. a problem. than And I the problem and And with reflect I supply pleased on the have as months, demand the demand customer rather

use short-term loyalty pricing brand customer has power, our we which exceeded as so the it's the our into the navigating the into lean program, expectations. helps really, And acquisition transitory about


And our Citi. Lejuez Paul last question with will come from

Paul Lejuez

traffic versus how go about talk you XQ miss in about a how differed sales And the curious conversion by maybe quarter? the can wondering you note, related on that measuring versus I'm XQ? in brand and

Sonia Syngal

for. what Paul, sell wasn't looking quantifying that sales, literal to missed have at Yes. to here pretty a took approach would sold inventory what and The really we

that units. unit. buy impact that a actually often You think X could basket you customers about our when say just there's fact the than of They buy that larger don't a often

maybe out our I on know brand. certainly brand having to units. relates the But the can versus the what maybe loss to don't break effect we'll is we're Tony really way halo there's don't we by so as that then those consider to not literal QX. QX happy but about a the brand don't that And have the components, quantify brand, And unit, you by the sales you talk it sale. thoughts get give trend would

Katrina O'Connell

the [indiscernible] whether of really Gap, Yes. with Walmart acceleration or X Home, build brands the I X the America North for item icon partnerships out have America really comp momentum. in for nice the launched. our XX% Yeezy Gap And being to and a with mean pleased stores quarter with growth I'd then showing North at a great of say, continued it's hoodies Gap

positioning their So sales I'd the great XX% customer response. across say XXXX. the about terms had partnerships, just Republic Athleta really accelerated brand been the relaunch, with Allyson the for Gap, luxury, And momentum spectacular in of feel sales for momentum. Simone awareness we've in we the Banana with with Biles which has that which Felix have successful since Athleta, a been a momentum. And been over partnership of us pleased the a driver a quarter growth there and cornerstone tailwind company and the

healthy just we compete I for as back able to we can had that we'll brands think wanted. indicators, and I'd simply maybe QX. planning for half customer and best we've said, to the in I were And continue level say as to to the our are that not to So meet as demand the navigate while we

Paul Lejuez

Or lower that quantify But XQ XQ did metrics this that Any can you a inventory? XQ? share show conversion up result help lower as of versus from decel in in XQ to UPTs? the lower

Katrina O'Connell

Yes. actually components. break out those I we don't know, Paul,

Old the totally than said QX of think I saw was inventory what and So attributable was the XX%, we've And lack supply. from we that. Navy to is down deceleration that was down more

that's helpful, traffic don't, conversion. as hopefully, a So practice, but out and we break


any additional remarks. to now back I'll the that does the And over for conference conclude you session. question-and-answer turn

Joe Scheeline

great and a Thanks Thanksgiving. for have joining


conference. your participation. that you conclude an day. you. do excellent And Have Thank We for does thank today's