65 slides from Gap, Inc. (the)'s investor presentation, Sep 12, 2019
Slide 1: Welcome
WELCOME TINA ROMANI INVESTOR RELATIONS
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS This presentation 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
Slide 3: Presentation Notes
PRESENTATION NOTES Beginning with fiscal 2015, the slides in this presentation reflect Old Navy as a stand alone company under the carve out basis of accounting. Prior to fiscal 2015, the slides reflect Old Navy as an operating segment within The Gap, Inc. The derived GapINC metrics reflect the hist
Slide 4: Agenda
AGENDA OPENING REMARKS Art Peck OLD NAVY Sonia Syngal GapINC Art Peck FINANCIAL OVERVIEW Teri List-Stoll Q&A PANEL Art, Sonia & Teri
Slide 5: Unique Strengths, Different Paths
UNIQUE STRENGTHS DIFFERENT PATHS Creates Two Independent Companies with Unique Strategies and Opportunities • Consumer-relevant brands with large, complementary and loyal • Unique brand positioning at the intersection of value and customer bases specialty apparel • Strong omni-channel platform • La
Slide 6: Sonia Syngal
SONIA SYNGAL GLOBAL BRAND PRESIDENT AND CHIEF EXECUTIVE OFFICER
Slide 7: Old Navy iconic American brand
| | OLD NAVY 7 isTore [EM Iconic ; cee AMERICAN 2 R = BRAND FASHION FAMILY EQUATION y-Fsee ¥ FS 2 ) Za We | isnt EYE CANDY Wi see p Rockstar = CATS HERE EVERYONE is FAMILY ee weceouene Ai Sippel vie DIVERSITY (gents in fashion
Slide 8: Imagine
IMAGINE THAT THE WORLD RUNS RIGHT AND THERE'S A PLACE THAT OFFERS CLOTHING @> Fairy everything it sells has (GREAT: at a price you can’t believe | Tia =:0LD NAVY =m FRANCISCO. CALIFORNIA 34994 We believe in the democracy of style
Slide 9: Old Navy milestones
Old Navy opens its first Manhattan flagship opens, First retailer to reach $4 billion in store in Colma, CA Rockettes perform sales within four years of opening Old Navy launches in Canada Old Navy Active hits stores The Rockstar debuts, becoming our best selling jean to date ovpnavy = nh a oldnavy.
Slide 10: Value
Value Accessible pricing Uniquely advantaged at the intersection of Value, Curated and Fast Sectors
Slide 11: Old Navy by the Numbers
Old Navy by the Numbers SCALE STRONG MOMENTUM PROFITABILITY $7.9B 7% mid-20s 4-WALL CASH CONTRIBUTION MARGIN NET SALES IN 2018 NET SALES 2016 – 2018 CAGR2 IN 20183 #2 145 $1.4B APPAREL BRAND MARKET SHARE NEW STORES OPENED 2016 - 2018 ADJUSTED EBITDA IN 20184 IN THE U.S.1 42M $1.6B 18% ONLINE SALES I
Slide 12: Path to $10 Billion and Beyond
Path to $10 Billion and Beyond NET SALES ($ IN BILLIONS) $10+ $7.9 (a) $7.2 6.7 $6.8 $6.1 $6.3 $6.6 $ I | ) | ; f/ Fiscal Year 2012 2013 2014 2015 2016 2017 2018 —TinRHEeH & 4 Reflects the adoption of the new revenue recognition standard, which resulted in an increase of $280 million in net sales fo
Slide 13: Competitive Strengths
Competitive Strengths Iconic American Brand A Value Brand with Values with Broad Customer Appeal & Leading Brand Share Standing for Opportunity, Sustainability, Inclusivity Highly Profitable Store Base Leading E-commerce Channel Focused on Off-Mall Locations versus top apparel retailers Efficient Pr
Slide 14: Iconic American Brand with Broad Customer Appeal
Iconic American Brand with Broad Customer Appeal Gives us room to grow in the $284 Billion U.S. Apparel Market® #2 APPAREL BRAND HEALTH OLD NAVY U.S. CUSTOMERS AND CONTRIBUTION ACCORDING TO YOUGOV BRAND INDEX SCORES BY RETAILER" Q3 2018 - 92 2019 Asian American Other 20-30 African American 60+ $125K
Slide 15: Fit, Style and Quality at Jaw-Dropping Prices
Fit, Style and Quality at Jaw-Dropping Prices $25 ROCKSTAR On-trend high-rise =i quo NAN ———— ! \$5 Distressed, lived: Universally flattering fit JINGLE JAMMMES CAMI DRESS Category disrupting “must-haves” that Brand-defining items deliver innovation, quality and trend that drive traffic and urgency
Slide 16: Profitable North America Store Portfolio
Profitable North America Store Portfolio 1,139 STORES WITH ~2,000 STORE LONG-TERM POTENTIAL As of Year-End FY 2018 20 3 4 5 mid-20s 12 17 2 6 FOUR-WALL CASH CONTRIBUTION MARGIN IN 20181 5 1 16 69 32 0 25 4 10 45 17 9 6 34 33 75% 12 43 20 4 17 5 2 108 8 18 29 24 10 32 22 13 21 3 9 16 IN OFF-MALL LOCA
Slide 17: Leading E-commerce Channel
Leading E-commerce Channel E-COMMERCE NET SALES ($ IN BILLIONS) E-commerce Penetration % 16 18 20 1.6 13 a) 141 x ) mo? = - a ee > 2016 2017 2018 High Online Penetration vs. Top Apparel Retailers? 2018) ( 20% 1% 4* Largest U.S. Apparel E-commerce Site* (2018) 1, 2018 financial metrics reflect the ad
Slide 18: Efficient Product Operations
Efficient Product Operations and Proven, Scaled Supply Chain ® Repeatable, disciplined product-to-market processes with improved testing and in-season responsiveness Gross margin expansion from 2016 to 2018 al Geographically diverse vendor base Only Vietnam accounts for more than 15% volume at cost
Slide 19: A Value Brand with Values
A Value Brand with Values We stand for Opportunity, Sustainability, Inclusivity Partner with non-profits to take youth to the Committed to sustainably sourcing 100% of Founding partner of the Open to All next level. More than $1M donated for our cotton and making 100% of our denim Coalition. First c
Slide 20: #2 Apparel Brand and #9 Apparel Retailer
We are the #2 Apparel Brand and #9 Apparel Retailer at 3.0% Market Share We Have Significant Share Opportunity #2 #9 APPAREL BRAND APPAREL RETAILER MARKET SHARE IN THE U.S.! MARKET SHARE IN THE U.S.! 1. The NPD Group /Consumer Tracking Service/ U.S. Dollar Share, 12 Months Ending January 2019
Slide 21: Old Navy Growth Strategy
Old Navy Growth Strategy to $10B Net Sales and Beyond Win with Product Drive Online Growth Drive Market Share Through Category Focus & And a Superior Omni-channel Experience Category Expansion Double Fleet to ~2,000 Stores Acquire New Customers + in North America Drive Lifetime Value Predominantly i
Slide 22: Win with Product: Category Focus
WIN WITH PRODUCT Drive Market Share Through Category Focus’ MAINTAIN BRAND SHARE ACCELERATE BRAND SHARE ~$90 Billion Addressable Market ~$100 Billion Addressable Market #1 #1 #1 #1 #2 #2 #2 #3 #5 Knit Tops Pants Shorts Sweaters Dresses Woven Tops Kids + Baby Jeans Active (non-active) (non-active) (n
Slide 23: Win with Product: Data and Digitization
WIN WITH PRODUCT Drive Consistent Results and Margin Expansion with Data and Digitization Amplify Creativity with Va 3D Design + Fit ff Testing and In-Season Store-Level Responsiveness Allocation and Localization
Slide 24: Win with Product: Adjacent Categories
WIN WITH PRODUCT Grow Adjacent Categories through Expanded Size and Product Offerings PLUS Longer-term ¢ Acquire new customers and INTIMATES grow share in underserved Plus size market (16+) * Extend the democracy of style to her inner wear * Amplify growing online business with in-store Plus BEAUTY
Slide 25: Double the Fleet to ~2,000 Stores
Double the Fleet to ~2,000 Stores in North America NORTH AMERICA STORE POTENTIAL • Open ~75 stores annually focused on off-mall locations 860 860 ~ 2,000 2,000 • Focus on underserved small markets, resulting in lower unit volumes • New store target economics; in-line with current fleet: ! Mid-20s fo
Slide 26: ~1,140 Existing Store Fleet
~1,140 Existing Store Fleet 2
Slide 27: ~2,000 Store Fleet of the Future
~2,000 Store Fleet of the Future 3
Slide 28: Drive E-commerce Growth and Omni-Channel Experience
Drive E-commerce Growth and Deliver a Superior Omni-Channel Experience Create a faster, easier, end-to-end experience Mobile-first site improvements, app acceleration, and expanded payment options PP AS Develop a personalized customer experience Tailor each touchpoint, implement outfitting and shopp
Slide 29: Acquire New Customers and Drive Lifetime Value
Acquire New Customers and Drive Lifetime Value GLOBAL KNOWN ACTIVE CUSTOMER FILE in millions 42 36 28 FY End 2016 2017 2018 Known Match Rate+ 1. Net sales of known customers over total net sales 2. ON US. fiscal 2018 DRIVE LIFETIME VALUE AND ACCELERATE WITH NEW CAPABILITIES Fully Integrated Multi-te
Slide 30: Key Investment Highlights
Key Investment Highlights 1 Unique brand positioning at the intersection of value and specialty apparel 4 Highly profitable store fleet complemented by a strong e-commerce business Large and growing customer base with levers to drive lifetime value Strong financial model with significant cash flow g
Slide 31: Art Peck
ART PECK PRESIDENT AND CHIEF EXECUTIVE OFFICER
Slide 32: We Inspire Confidence Through Sustainable Style
WE DO MORE THAN SELL CLOTHES. WE INSPIRE CONFIDENCE THROUGH SUSTAINABLE STYLE.
Slide 33: Game Plan
GAME Profit PLAN Purpose Brands + Platform
Slide 34: Sustainable, Inclusive, Connected
73% of consumers say it’s important that the brand they purchase practices sustainability1 WE ARE SUSTAINABLE G7 Fashion Pact Transforming the practices of the fashion and textile industry INCLUSIVE Color Proud CONNECTED Banana Republic’s True Hues collection Customer Over 90M known customers, 32M k
Slide 35: GapINC. Is Well Positioned
GapINC. IS WELL POSITIONED FRAGMENTATION CONSOLIDATION GapINC.
Slide 36: Market Opportunity
MARKET Apparel OPPORTUNITY Specialty Inclusive Sizing Gap Inc. Today
Slide 37: Our Customer and Portfolio Asset
OUR CUSTOMER AND PORTFOLIO ASSET USE OCCASIONS CASUAL PROFESSIONAL ACTIVE SPECIAL OCCASION <2% PRICE POINTS VALUE MID-PRICED PREMIUM LUXURY
Slide 38: Portfolio Today
PORTFOLIO TODAY 2018 EBIT MARGIN (1) E-commerce for All Brands 2018 REVENUE GROWTH Specialty Stores Specialty Stores 2018 Net Sales (1) Represents global fully loaded channel contribution, including overhead allocations
Slide 39: Our Game Plan
OUR GAME PLAN RALLY OUR ICONIC BRANDS ACCELERATE GROWTH BRANDS IMPROVE PROFITABILITY DRIVE GROWTH MOMENTUM OPERATE AN EFFICIENT COST STRUCTURE STRATEGICALLY APPLY DATA IMPLEMENT FULLY-LEVERAGED PRODUCT OPERATING MODEL RE-INVENT CUSTOMER ACCESS LEAD IN SUSTAINABILITY
Slide 40: We Create the Clothes You Love to Live In
WE CREATE THE CLOTHES YOU LOVE TO LIVE IN 89% 62.7 ~23% NET OF NET SALES BRAND PROMOTER FROM AWARENESS(1) SCORE(2) E-COMMERCE(3) ROAD AHEAD Meaningful opportunity to recapture profitability through fleet rationalization, cost reduction, operational discipline and gross margin expansion. • PRODUCT: L
Slide 41: Anatomy of Gap's Turnaround
ANATOMY OF GAP’S TURNAROUND SPECIALTY OUTLET ONLINE NORTH AMERICA WOMEN’S BOTTOMS DENIM It’s Our Denim Now.
Slide 42: Transforming Our Specialty Store Fleet
TRANSFORMING OUR SPECIALTY STORE FLEET EXISTING FLEET • ~1/2 Specialty / ~1/2 Outlet + Online1 • Specialty ROD structure drag on profitability • Complex + expensive field organization RATIONALIZED FLEET • Shift into more balanced mix; ~1/3 Specialty/Outlet/Online • Improved sales productivity and lo
Slide 43: Style for Life with No Boundaries
STYLE FOR LIFE WITH NO BOUNDARIES 83% 68.0 ~22% 88% NET OF NET SALES 4-STAR BRAND PRODUCT PROMOTER FROM AWARENESS(1) RATINGS SCORE(2) E-COMMERCE(3) ROAD AHEAD Healthy margin, meaningful opportunity to recapture historical levels of profitability through gross margin expansion and operational discipl
Slide 44: Athleta: Long History of Growth
ATHLETA LONG HISTORY OF GROWTH Net Sales ($ in Millions) (1) $883 $737 $607 $529 $469 $379 $249 2012 2013 2014 2015 2016 2017 2018 1) 2018 reflects the adoption of the new revenue recognition standard, which results in an increase in net sales.
Slide 45: Purpose Driven Brand
PURPOSE DRIVEN BRAND FOCUSED ON EMPOWERING WOMEN & GIRLS $24B ~43% 41% 80.7 OF NET SALES NET MARKET FROM BRAND PROMOTER OPPORTUNITY(3) E-COMMERCE(4) AWARENESS(1) IN ACTIVE WOMEN’S SCORE(2) ROAD AHEAD → PATH TO DOUBLE BUSINESS Capitalize on sweet spot of converging and accelerating macro, lifestyle,
Slide 46: About the Brand
INTERMIX IS WHERE YOU FIND THE BEST BE THE LEADING ACCESSIBLE PREMIUM HIGH-PERFORMANCE MEN’S APPAREL BRAND CHILDREN’S RETAILER, OFFERING A MODERN TAKE FASHION EDIT OF THE SEASON, MIXING THE OFFERING FUNCTIONAL AND VERSATILE ON CLASSIC SILHOUETTES AND SOPHISTICATED MOST COVETED DESIGNERS WITH ACCESSI
Slide 47: Our Game Plan
OUR GAME PLAN RALLY OUR ICONIC BRANDS ACCELERATE GROWTH BRANDS IMPROVE PROFITABILITY DRIVE GROWTH MOMENTUM OPERATE AN EFFICIENT COST STRUCTURE STRATEGICALLY APPLY DATA IMPLEMENT FULLY-LEVERAGED PRODUCT OPERATING MODEL RE-INVENT CUSTOMER ACCESS LEAD IN SUSTAINABILITY
Slide 48: We Must Optimize Powerful Platform
WE MUST OPTIMIZE POWERFUL PLATFORM TO FROM • Brands focused on customer-facing • Brands responsible for all aspects of functions that enhance unique “brand operations with limited leverage identities” (i.e. Product, Marketing, • Brands with “full stack” of Store Expression) independent functions, du
Slide 49: Our Game Plan
OUR GAME PLAN RALLY OUR ICONIC BRANDS ACCELERATE GROWTH BRANDS IMPROVE PROFITABILITY DRIVE GROWTH MOMENTUM OPERATE AN EFFICIENT COST STRUCTURE SG&A STRATEGICALLY APPLY DATA MARGIN IMPLEMENT FULLY-LEVERAGED PRODUCT OPERATING MODEL MARGIN RE-INVENT CUSTOMER ACCESS ROD LEAD IN SUSTAINABILITY MARGIN
Slide 50: Portfolio Today
PORTFOLIO TODAY 2018 EBIT MARGIN (1) E-commerce for All Brands 2018 REVENUE GROWTH Specialty Stores Specialty Stores 2018 Net Sales (1) Represents global fully loaded channel contribution, including overhead allocations
Slide 51: Near-Term Execution Strengthens Portfolio
NEAR-TERM EXECUTION STRENGTHENS PORTFOLIO… EBIT MARGIN (1) E-commerce for All Brands Specialty Stores REVENUE GROWTH Specialty Stores …PROVIDING SPRINGBOARD FOR SUSTAINABLE GROWTH Net Sales Note: Illustrative representation of relative target growth/profitability between brands/channels, does not re
Slide 52: The New GapINC.
• Consumer-relevant brands with large, complementary and loyal customer bases • Strong omni-channel platform • Advantaged capabilities to efficiently THE NEW deliver quality products and experiences • Scale that drives profitability and growth • Leading the way in sustainability and social respon
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Slide 54: Financial Overview
FINANCIAL OVERVIEW TERI LIST-STOLL EVP AND CHIEF FINANCIAL OFFICER
Slide 55: By the Numbers
BY THE NUMBERS CUSTOMERS(1) 32M 42M Known Active Customers SCALE (2) $8.7B $7.9B 2018 Net Sales >$2.1B / >$1.6B / 2018 Online Sales / ONLINE (2) ~24% ~20% Penetration Company-Operated STORES(3) 2,173 1,183 Stores Globally EARNINGS 2018 Adjusted EBITDA ~5% ~18% CAPACITY (2)(4) (~% of sales) 1) As of
Slide 56: Gap, Inc. Historical Results
GAP, INC. HISTORICAL RESULTS 2018 2017 2016 As Reported As Reported Adjusted (1) As Reported Adjusted (2) NET SALES $16,580 $15,855 $15,855 $15,516 $15,516 GROSS PROFIT $6,322 $6,066 $6,066 $5,640 $5,640 % 38.1% 38.3% 38.3% 36.3% 36.3% EBIT(3) $1,362 $1,479 $1,415 $1,191 $1,386 % 8.2% 9.3% 8.9% 7.7%
Slide 57: Derived Financial Metrics
DERIVED FINANCIAL METRICS (1) NET SALES (2) GROSS MARGIN ($ in Billions) (~% of Net Sales) $8.7 $8.6 $8.7 35% 35% 34% 2016 2017 2018 2016 2017 2018 ADJUSTED EBIT (3) ADJUSTED EBITDA (3) (~% of Net Sales) (~% of Net Sales) 8% 6% 5% 4% 3% 2% 2016 2017 2018 2016 2017 2018 1) The derived GapINC. metrics
Slide 58: Financial Metrics on a Stand-Alone Basis
FINANCIAL METRICS ON A STAND-ALONE BASIS NET SALES (1) GROSS MARGIN ($ in Billions) (~% of Net Sales) 42% 42% $7.9 40% $6.8 $7.2 2016 2017 2018 2016 2017 2018 ADJUSTED EBIT (2) ADJUSTED EBITDA (2) (~% of Net Sales) (~% of Net Sales) 16% 18% 19% 18% 15% 15% 2016 2017 2018 2016 2017 2018 1) 2018 metri
Slide 59: Financial Implications
FINANCIAL IMPLICATIONS
Slide 60: Dis-Synergy Discussion
DIS-SYNERGY DISCUSSION EXPECTED NET DIS-SYNERGIES $90 - $110 $70 - $90 (in millions) As a % of 2018 Net Sales ~1% ~1% PRIMARY SOURCES OF DIS-SYNERGY: • Technology • Logistics • Stand-Alone Public Company Costs • Product Costs
Slide 61: One-Time Separation Impact
ONE-TIME SEPARATION IMPACT Value Creation Opportunity: • Increased transparency on each company’s value creation levers • Accelerated growth on a sustainable basis • Tailored capital allocation priorities Expected 2019-2021 Separation-related Charges Related to the Transaction (1) EXPENSE CAPITAL EX
Slide 62: Strategic Rationale for Separation
COMPELLING STRATEGIC RATIONALE FOR SEPARATION • Focus: Separation creates two independent companies with sharpened strategic focus to amplify areas of operational strength • Enhance: Enables each company to capitalize on unique business models, growth plans and customer bases • Streamline: Realign o
Slide 63: Appendix
APPENDIX
Slide 64: Reconciliation of Net Income to Adjusted EBIT
APPENDIX - RECONCILIATION OF NET INCOME TO ADJUSTED EBIT The Gap, Inc. NON-GAAP FINANCIAL MEASURES UNAUDITED RECONCILIATION OF NET INCOME TO ADJUSTED EBIT Adjusted EBIT is a non-GAAP financial measure. Adjusted EBIT is provided to enhance visibility into the company's underlying results excluding ga
Slide 65: Reconciliation of Net Income to Adjusted EBITDA
APPENDIX - RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA The Gap, Inc. NON-GAAP FINANCIAL MEASURES UNAUDITED RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA EBITDA and Adjusted EBITDA are non-GAAP financial measures. We believe EBITDA and Adjusted EBITDA are important metrics because th