gps-20210501

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 May 1, 2021


☐			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, 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 21, 2021 was 377,602,302.

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 COVID-19 on the assumptions and estimates used when preparing the quarterly financial statements, and on our results of operations, financial position, and liquidity;

•the impact of recent accounting pronouncements;

•recognition of revenue deferrals as revenue;

•our new credit card program with Barclays and Mastercard, as well as our previous program with Synchrony Financial;

•compliance with applicable covenants under the Notes and the ABL Facility (each as defined below);

•unrealized gains and losses from designated cash flow hedges;

•future share repurchases, including the potential timing and amounts thereof;

•the impact of losses due to indemnification obligations;

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

•our Power Plan 2023 strategy and our ability to execute against it;

•our omni-channel capabilities;

•our key initiatives and business priorities;

•our Gap Home venture with Walmart.com and other existing and potential future partnerships;

•the impact of COVID-related store closures and supply chain challenges;

•product acceptance by our customers;

•our investments in demand generation;

•targeted closures of North American stores, including the number and timing thereof and costs associated therewith;

•the impact of our expected lease buyouts amounts;

•our ability to reach agreements with our landlords regarding suspended rent payments for our temporarily closed stores;

•the expected timing, cost and scope of the strategic review of our operating model in Europe;

•the impact of the divestiture of the Janie & Jack and Intermix businesses;

•our loyalty programs;

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

•investing 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;

•reducing our fixed cost structure to fuel demand generation investments;

•leveraging our scale to navigate constraints in supply chain;

•managing inventory to support a healthy merchandise margin;

•rationalizing the Gap and Banana Republic brands;

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

•continuing to integrate social and environmental sustainability into business practices;

•our ability to respond to developments in the COVID-19 pandemic situation and guidance from international and domestic authorities;

•our ability to manage through the impacts of COVID-19, including the impact it has on our liquidity;

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

•cash flows from our operations, along with current cash balances, and the Notes and the ABL Facility being sufficient to support our business operations;

•the impact of seasonality and COVID-19 recovery on our operations;

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

•the impact of changes in 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 environment and risks associated with the COVID-19 pandemic;

•the risk that we or our franchisees will be unsuccessful in gauging apparel trends and changing consumer preferences;

•the risk that failure to maintain, enhance and protect our brand image could have an adverse effect on our results of operations;

•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 the failure to manage key executive succession and retention and to continue to attract qualified personnel could have an adverse impact on our results of operations;

•the risk that if we are unable to manage our inventory effectively, our gross margins will be adversely affected;

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

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

•the risk that we are subject to data or other security breaches that may result in increased costs, violations of law, significant legal and financial exposure, and a loss of confidence in our security measures, which could have an adverse effect on our results of operations and our reputation;

•the risk that a failure of, or updates or changes to, our information technology systems may disrupt our operations;

•the risks to our efforts to expand internationally, including our ability to operate in regions where we have less experience;

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

•the risk that our franchisees’ operation of franchise stores is not directly within our control and could impair the value of our brands;

•the risk that trade matters could increase the cost or reduce the supply of apparel available to us and adversely affect our business, financial condition, and results of operations;

•the risk that foreign currency exchange rate fluctuations could adversely impact our financial results;

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

•the risk that natural disasters, public health crises (similar to and including the ongoing COVID-19 pandemic), political crises, negative global climate patterns, or other catastrophic events could adversely affect our operations and financial results, or those of our franchisees or vendors;

•the risk that changes in global economic conditions or consumer spending patterns could adversely impact our results of operations;

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

•the risk that changes in the regulatory or administrative landscape could adversely affect our financial condition and results of operations;

•the risk that reductions in income and cash flow from our credit card arrangement related to our private label and co-branded credit cards could adversely affect our operating results and cash flows;

•the risk that changes in our credit profile or deterioration in market conditions may limit our access to the capital markets and adversely impact our financial position or our business initiatives;

•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.

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 30, 2021 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 28, 2021. 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 30, 2021.

THE GAP, INC.

TABLE OF CONTENTS


		Page
	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets as of May 1, 2021, January 30, 2021, and May 2, 2020	1

	Condensed Consolidated Statements of Operations for the Thirteen Weeks Ended May 1, 2021 and May 2, 2020	2

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Thirteen Weeks Ended May 1, 2021 and May 2, 2020	3

	Condensed Consolidated Statements of Stockholders' Equity for the Thirteen Weeks Ended May 1, 2021 and May 2, 2020	4

	Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended May 1, 2021 and May 2, 2020	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4.	Controls and Procedures	22

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	23

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 6.	Exhibits	24

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

THE GAP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


($ and shares in millions except par value)	May 1, 2021		January 30, 2021		May 2, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	2,066	$	1,988	$	1,028
Short-term investments	475		410		51
Merchandise inventory	2,370		2,451		2,217
Other current assets	1,091		1,159		920
Total current assets	6,002		6,008		4,216
Property and equipment, net of accumulated depreciation of $5,616, $5,608 and $5,886	2,839		2,841		2,945
Operating lease assets	4,060		4,217		4,851
Other long-term assets	703		703		698
Total assets	$	13,604	$	13,769	$	12,710
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Revolving credit facility	$	—	$	—	$	500
Accounts payable	1,530		1,743		971
Accrued expenses and other current liabilities	1,294		1,276		1,051
Current portion of operating lease liabilities	798		831		886
Income taxes payable	16		34		23
Total current liabilities	3,638		3,884		3,431
Long-term liabilities:
Long-term debt	2,218		2,216		1,250
Long-term operating lease liabilities	4,449		4,617		5,331
Other long-term liabilities	493		438		381
Total long-term liabilities	7,160		7,271		6,962
Commitments and contingencies (see Note 9)
Stockholders’ equity:
Common stock $0.05 par value
Authorized 2,300 shares for all periods presented; Issued and Outstanding 377, 374, and 373 shares	19		19		19
Additional paid-in capital	118		85		17
Retained earnings	2,667		2,501		2,235
Accumulated other comprehensive income	2		9		46
Total stockholders’ equity	2,806		2,614		2,317
Total liabilities and stockholders’ equity	$	13,604	$	13,769	$	12,710

See Accompanying Notes to Condensed Consolidated Financial Statements

THE GAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	13 Weeks Ended
($ and shares in millions except per share amounts)	May 1, 2021		May 2, 2020
Net sales	$	3,991	$	2,107
Cost of goods sold and occupancy expenses	2,361		1,839
Gross profit	1,630		268
Operating expenses	1,390		1,512
Operating income (loss)	240		(1,244)

Interest expense	54		19
Interest income	(1)		(4)
Income (loss) before income taxes	187		(1,259)
Income taxes	21		(327)
Net income (loss)	$	166	$	(932)
Weighted-average number of shares - basic	376		372
Weighted-average number of shares - diluted	385		372
Earnings (loss) per share - basic	$	0.44	$	(2.51)
Earnings (loss) per share - diluted	$	0.43	$	(2.51)

See Accompanying Notes to Condensed Consolidated Financial Statements

THE GAP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	13 Weeks Ended
($ in millions)	May 1, 2021		May 2, 2020
Net income (loss)	$	166	$	(932)
Other comprehensive income (loss), net of tax
Foreign currency translation	(3)		(9)
Change in fair value of derivative financial instruments, net of tax of $— and $2	(7)		19
Reclassification adjustment for losses (gains) on derivative financial instruments, net of tax of $— and $—	3		(4)
Other comprehensive income (loss), net of tax	(7)		6
Comprehensive income (loss)	$	159	$	(926)

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
($ and shares in millions except per share amounts)	Shares	Amount								Total
Balance as of January 30, 2021	374	$	19	$	85	$	2,501	$	9	$	2,614
Net income for the thirteen 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

Balance as of February 1, 2020	371	$	19	$	—	$	3,257	$	40	$	3,316

Net loss for the thirteen weeks ended May 2, 2020						(932)				(932)
Other comprehensive income (loss), net of tax
Foreign currency translation								(9)		(9)
Change in fair value of derivative financial instruments								19		19
Amounts reclassified from accumulated other comprehensive income								(4)		(4)

Issuance of common stock related to stock options and employee stock purchase plans	1	—		6						6
Issuance of common stock and withholding tax payments related to vesting of stock units	1	—		(7)						(7)
Share-based compensation, net of forfeitures				18						18
Common stock dividends declared ($

SEC Form 10-Q filed by Gap, Inc. (The)