The Gap (GPS) 2Q16 Earnings Call Notes

Old Navy brand has performed well

“I think the return to improved performance that we’ve seen at Old Navy is validation. It’s validation that we can, once again, move the brand to a market share gaining position, validation of the operating model that has allowed us to respond quite quickly and improve the business quite quickly, validation in the fact that we have a solid team in place, and frankly, validation of the value proposition that our consumer sees in Old Navy.” Arthur Peck – CEO

 

Banana Republic brand has not performed well

Let me move to a brand-by-brand conversation for Q2 and I want to start with Banana Republic. Clearly, nowhere close to the performance that the brand is capable of, nor what we expect and want to hold it accountable for.

The team and I are relentlessly focused on continuing to make improvement in the business and under the covers, there are some proof points that the work that we’re doing is the right work… So, we have urgency and we have a lot more work to do. Arthur Peck – CEO

 

Which demonstrates the strength of discount retail and weakness of higher-end retail

So, number one on my mind is a consumer environment and let me tease it apart. There’s obviously some strength out there in different parts of retail. In apparel specifically, the environment remains challenging, and quite frankly, it remains most challenging in the higher end of the market. And just to remind everybody we have a very robust value portfolio with our outlet channels and the Old Navy business. Arthur Peck – CEO

 

Innovation— like stretch and stain resistance— is a focus for GPS

We’re pushing stretch across, — really in men’s, our two key bottoms fabrications in terms of denim and twill and both shorts and long bottoms. And really testing where else we can go with it, because we believe that it’s actually really revolutionizing in many respects…So, that’s a step. We have nanotechnology in pants in Banana that we have basically not marketed at all, which is highly stain-resistant. If you pour a cup of coffee on the pants, it beads up and runs off and we find that he has responded to that. Arthur Peck – CEO

 

GPS believes it is well-positioned to ride a resurgence in denim

“We’re obviously extraordinarily well-positioned in the denim business across all our businesses. Banana has a great denim business now as well and it’s front of store. I’m not ready to say — I’m always hopeful about denim and it’s been in a trough for a long time.” Arthur Peck – CEO

Gap 1Q16 Earnings Call Notes

The Gap’s (GPS) CEO Arthur Peck on Q1 2016 Results

Clearly we need to move faster

“over a year ago, I spoke to you very directly about the fact that we were not where we needed to be in terms of products, across our brands, and how we needed to bring product to market. And we have done a great deal of work across the company over the last 12 months-plus to be focused on product, focused on restoring the aesthetic of our brands, quality where is appropriate, consistent fit and a number of elements of product, including building responsive product capabilities. I am pleased with the work, it is the right work and we will scale this work progressively period-over-period as we go forward. But clearly, we need to do more, faster.”

When a business isn’t going to deliver you have to make tough decisions

“As part of this, we have announced that we will be winding down our Old Navy operations in Japan, partly due to the macro factors in that environment and partly due to, frankly, needing to apply the resources to greater and higher potential opportunities. I am obviously disappointed that we’re going to be discontinuing operations, but I view it as a sign of a good company, when you acknowledge that the business isn’t going to deliver, and you make changes and move forward.”

When you start tightening in promotion you are playing a game of chicken with your customers

” I will be the first to say that when you start tightening up in promotion, you are playing a game of chicken with your customers, and they try to way you out. And so we’ve been playing that now for really the last quarter. And we’ve seen more effects on this quite honestly. It will be easier in Gap, where we’re seeing the numbers move more consistently in the right direction, a little more sporadic inside of Banana. Maybe we have been promotional. We are promotional. We missed execution in Q1 from a marketing standpoint, and we are really tightening up the commercial messaging for Q2 and Q3, but we are going to continue to be promotional there.”

Traffic converts at a much lower rate on mobile than in store

“I think it’s really a question to place where we have had strength and we continue to have strength. And we see it obviously as everybody does, I think, a long-term progressive shift of the consumer moving in that direction. Let me go straight to mobile for a second, but let me do the, sort of, what I call the leaky bucket. If you think about business moving from stores to a desktop or laptop to mobile, stores for the industry, conversion of traffic into stores, whether its in the mid-20s to the high-30s or something like that; if you go down to a desktop or a laptop experience, where someone is buying, that traffic converts somewhere in the low-single digits for most people out there.”

Sabrina Simmons

We are operating in an evolving retail environment

“With regard to our earnings outlook for the remainder of the year, we are operating in an evolving apparel retail environment and it’s unclear whether the trends in Q1 will play forward for the remainder of the year. Therefore, we are not reaffirming our 2016 guidance.”

Our global growth strategy remains intact

“In closing, our global growth strategy remains intact. We are simply focusing our talents in capital on areas that have the greatest potential for profitability. After our actions, we will still have a presence in over 90 countries. While we’re disappointed with the results for the quarter, we’re energized about our plans to evolve our business and to capitalize on the competitive advantages we have.”

The Gap 2Q15 Earnings Call Notes

Old Navy is the model for the rest of the company

“Old Navy’s consistency continues to be a thing of beauty. It sits on a platform of product process that they have built over the last couple of years and now are pretty relentlessly executing season after season. It’s those same product processes that we are pretty follow-on in installing in Gap and Banana Republic and as I’ve said before, Old Navy remains our proof point for building products, executing trend, delivering on brand, on quality, on fit product consistency for the rest of the company.”

I’m not going to stand at the plate and call which fence we’re going to hit it over

“I’m not going to stand up at the plate and call which fence we’re going to hit it over, that’s not who I am, but I am confident that Gap will make significant progress in spring and very pleased with what I’ve seen in the women’s assortment and the turnaround in the women’s assortment.”

We will be going to in season open

“For the first time, we will be going to in season open in some of our key product programs and therefore able to get back in after we read the business in season with significant quantities of units. This is obviously an important capability for us. We are building this across the entire compan”

Continue to be very bullish on China

“we are continuing to be very bullish on our opportunity in China. We will process the currency devaluation, and the team is working on that right now. I don’t see that really giving us any significant headwinds as we think about the continued growth of the China business.”

There’s a lot of noise, but the consumer has confidence

“I would just like to address the fact that there is a lot of noise really out there right now around the apparel sector. And just so you know my perspective, I shut it out because from where I sit across all of our businesses, our job is to deliver regardless of the noise that’s out there today and what I see is, I see a consumer who has confidence, I see dollars being spent and I see an opportunity for us to continue to get more than our fair share, as I look forward and I am very optimistic”

We’re still a ways out from in season capabilities, but we’re moving quickly

“I’m not going to give you specific numbers here because we’re actually still a ways out and we are obviously trying to build this as quickly as we can and use it as quickly as we can.”

We’re fairly confident that denim has hit bottom

“we are pretty confident that the Denim cycle has hit bottom and it has been coming back over the last several months.”

The best marketing is a good product

“I feel pretty strongly about which is the best marketing is good product. And if I look at Gap as an example, we drove the strong business back a couple of years ago in spring of 2012 with modest marketing but exceptional product. And so what I can say is that, as we feel better about the product that will help us think about the marketing that we’re willing to put behind it.”

Gap Investor Meeting Notes

We need to be more consistent on product

“We are a fashion apparel company and we are a retailer. And today the conversation is going to be distorted towards us as a fashion apparel company, because frankly, all the rest of it, global growth, digital, everything else that we are doing doesn’t matter if we aren’t better and more consistent at the product that we put in our stores.”

Old Navy has pulled hard

“Old Navy, obviously, has continued to pull very hard for us. We are very pleased with the performance and I am particularly pleased with the consistency of the performance.”

I hate closing stores

“I hate closing stores, I hate the idea of closing stores, because I hate the idea of denying our customer the opportunity to shop in their favorite Gap store. I hate the idea of conceding market share. We will do everything we can do to claw back every dollar that we can. But let’s be realistic, some of that — some of those dollars and some of that wallet is going to go to the competition.”

Bullish on Banana Republic, but haven’t performed well

“I’m very bullish on Banana Republic. And I’m not happy with the performance that I have seen out of this business over the last couple of years, especially in the women’s business where we have conceded market share to our competition.”

Old Navy is proof that we can make changes

“d Navy is our proof point on making structural change in our product processes to achieve better product more consistently season after season. 11 out of the last 13 quarters’ positive comps since 2011, $1 billion of incremental sales in the brand, that’s the market share gain.

You’ve seen our numbers quarter after quarter, they are not an accident. They are on purpose. And they are on purpose that sits on structural, fundamental change that we’ve made in the way that we bring product to market, proving that it can be done.”

Jeff Kirwan – Global Brand President, Gap

New global brand president been there for 180 days

“I’m excited to be here, representing Gap brand. Just as an update, I’ve been actually with the company, now actually with the brand 180 days and we’ve been busy, real busy.”

Need a world class leadership team

“when I first got into the role, it was really apparent to me that we needed to go very, very quickly on building a world-class leadership team.”

A rambling, indirect answer to the all important question: who is your core customer

“So we set out about six months ago on a pretty aggressive plan globally to not only identify who our target customer is but learn what’s really, really important to them. So we did deep dive research into every area around the world that where we have a high concentration of business, so in Tokyo, in Shanghai, in London and then in North America, a little bit in Canada, San Francisco, New York, Chicago is primary areas for really deep research with our customers.

On top of that we pulled up all of our consumer insights that we’ve been continually evolving overtime and we pull all of that together and we learned a couple of things about our customers. And what we learned is a lot of that’s really important to one segment of the population is actually really important to another part of the population. It’s just view a little bit differently.

So I’m just sharing example of what I mean that and what we learned…”

The Gap 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Not pleased with our 3Q performance

“While we’re not proud of our third quarter sales performance, driven by a particularly tough result at Gap brand, we are pleased that the team has demonstrated strong discipline on both expense and inventory”

Sales flat, comps down

“Regarding sales for the third quarter, total net sales were flat at $4 billion and comp sales were down 2%.”

Art Peck will be new CEO

“Art Peck, our new CEO, who will be taking over from me on February 1st can put the team he wants to put together going forward that gives Gap Inc. the best chance to have innovation to win more customers, to grow internationally and to be a top global retail apparel company around the world.”

He’s been with the co for 10 years

“Being at the company for the last 10 years and having multiple roles around the company has really given me very broad and oftentimes very deep exposure to the executives in our senior roles.”

Currency is an important headwind to consider

“in Q4 we really expect more foreign exchange headwinds than we did in Q3 as well. If you think about the yen alone, the average rate was about 105 in Q3. And as of today, it’s about 118, which is a 12% depreciation. So that’s an importance piece to keep in mind as well.”

foreign exchange does help SG&A

“just as foreign exchange hurts your sales and hurts your earnings, when you translate the SG&A dollars, it helps your SG&A.”

Digital gift guide actually costs slightly more money

“We have a new gift guide out, which is doing really well and we feel very good about that. But it’s electronic, so those are trade-offs we do. We could have gift guide distributed to our best customers, call it 3 million, 4 million people and that would have cost x per copy.

So thoughtfully we actually put a little bit more money into the digital side of it. It’s so far so good. The money we put into it when you have the digital gift guide, which changes every day on Gap, you can actually click on to something you love that’ll take you right to our site. So we felt it was more prudent to put a little bit of money behind that choice as opposed to mailing out 4 million copies.”

The Gap 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Trying to get more contemporary fashion at Banana Republic

” Last week at Banana Republic we launched a new marketing campaign called The New Look. It’s the beginning of enhancements in product and marketing, digital content from now right till the end of the year and beyond, and I think it was a nice start for the team. I think they really made a change in terms of this path that Banana Republic has been on from too conservative to more of a contemporary product appeal. I’m speaking mostly here about women’s product. I think our men’s business has been strong”

Today is the 45th anniversary of Gap Inc.

“Today is the 45th anniversary of Gap Inc. And this was the day in 1969 that Doris and Don Fisher both spent $21,000 each of their own money to start this incredible company. What I’d like to say is on behalf of the 140,000 employees and the millions of people who have worked in this company, a big, big thank you to the Fishers, this incredible couple who founded this business, who make us proud every single day. And I think that it’s a testimony to the strength of our brands, of our people, of our creativity, of our commitment to the customer, that this business has been around for 45 years, and continues to move forward and to blaze trails and be a formidable force in the apparel business.”

Consumer is feeling better

“I think the consumers feeling slightly better, which now we think it’s good for the overall industry.”

3200 stores

“Year-to-date we opened 36 company-operated stores on a net basis and ended the quarter with 3,200 stores.”

A strong relationship between outlet and core business

“I think that it’s a business that when the core brands are strong, they do very well. I mean, there’s just this incredible relationship between the specialty business and our outlet business. And our outlet business did very well in 2012 and 2013 because our core business was stronger at that time. So, if certain malls around the country, mostly B malls, maybe the odd C malls start to act promotionally like an outlet mall that’s 10 miles away, it’s more difficult to drive traffic to the outlet mall.”

About 500 stores come up for lease renewal each year

“I think the best math to apply is we have 2,500 odd stores in the U.S., so about 500 leases come up every single year. So that phenomenon plus the recession is what allowed us to do the work we did in the last four or five years.”

The Gap 3Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings.

“there’s been a lot of conversation about late Thanksgiving and all the holiday shifts. Our view is there’s always been this many holidays within the larger context of the quarter. You’ve got this run-up before Thanksgiving, which is — again, this is true of the U.S. marketplace. You have the actual event of Black Friday and the 2 days that follow it. You have these 2 or 3 weeks after Thanksgiving. Then you have the week of Christmas, and then what’s become really important is the week after Christmas. So we, more than any year, have really planned and said, “Well, look, there’s really 5 holidays inside the holiday.”

“my view is there’s a little bit of fatigue out there when it comes to consumers. So the question is, are we disappointed in the consumer sentiment? Or as we, I’m just being honest, as an industry, have we really not been that innovative in order to give the consumers a value proposition that doesn’t look like wallpaper day in day out?”

“f the definition of winning is having a similar promotion on a similar category week in, week out, I think people are going to do that. I think they’re going to struggle going forward to the point where the consumer is looking for an event, they’re looking for something exciting. At the end of the day, we’re in the fashion business. ”

“Maybe in my past life, just purely playing a discount or price card might have been effective, but not in this business”

“is there deflation in the apparel business? Well, if you look at NPD, they’d say no. But is it a business that has heavy inflation? The answer is also no. ”

“traffic improved in October, but traffic was also negative for the quarter. So the 2 levers that supported our positive comp were conversion and unit per transaction”

“as I’m sure people have figured out maybe a long time ago, maybe people spoke a lot less strategically about retail in general and maybe fashion apparel, but anybody else you’re talking to in the last couple of years, you really got to be thoughtful and strategic when it comes to your gross margin management and traffic management. Here we are the weekend before Thanksgiving, that’s a very important time to think through this first weekend. Then you have a run from Monday to Wednesday. It’s a season within a season. Thursday now is its own day, Friday is its own day. Saturday and Sunday is a unique pairing. Then you have this run of 2 or 3 weeks before the weekend before Christmas. It’s its own unique time of year. Then you have December 26. So say that we don’t spend I would probably say maybe too much time overthinking and doing our analysis and talking to customers and trying to figure out trends is what we’re spending more time than — 5 years ago, we never spent this kind of time trying to really figure out day by day and weekend by weekend. And if we figure it out right and make the right decisions, then I think Sabrina is right. Then we’ll probably have a quarter that has less pressure on AUR.”

“it’s a little early to tell about one of the larger components of our costing, which is the raw materials. So far, cotton and oil are behaving decently well, so I think — we feel good about that and the team that’s working upstream.”