91 slides from Gap, Inc. (the)'s investor day presentation, Oct 22, 2020
Slide 1: Gap Inc. Investor Meeting
Gap Inc. Investor Meeting OCTOBER 22, 2020
Slide 2: Forward-Looking Statements
Gap Inc. Investor Meeting 2020 F O R W A R D - L O O K I N G S T AT E M E N T S 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-lo
Slide 3: Sonia Syngal, Chief Executive Officer
Sonia Syngal CHIEF EXECUTIVE OFFICER
Slide 4: We grow purpose-led, billion-dollar brands that shape people's way of life
We grow purpose-led, billion-dollar brands that shape people’s way of life. We have omni-strength in North America and are partnering to amplify our reach. 4
Slide 5: We Grow Purpose-Led, Billion-Dollar Lifestyle Brands
We Grow Purpose-Led, Billion-Dollar Lifestyle Brands THE POWER OF OUR BRANDS Democracy Modern American Work for a Power of She of Style Optimism Better Republic FY19 Net Sales $8B $5B $2B $1B FY19 E-Commerce Penetration(1) 23% 25% 24% 44% Known Active Customers(2) 45M 23M 11M 3M (1) E-commerce penet
Slide 6: We have significant opportunity to leverage our strengths to gain share
We have significant opportunity to leverage our strengths to gain share 1 Economic Outlook 2 Retail Disruption 3 Shift in Discretionary Spend 6
Slide 7: Delivering What Matters Most to Customers in a Disrupted Market
Delivering What Matters Most to Customers in a Disrupted Market HOW CUSTOMERS ARE DRESSING HOW CUSTOMERS ARE SHOPPING HOW CUSTOMERS ARE FEELING Shift to Hyper Casualization Seamless Omni Service Importance of Purpose & Values 8% >60% 50% CAGR growth in Active + Fleece of consumers expect sustained G
Slide 8: Broad Customer Appeal Gives Us Room to Grow in the $194 Billion US Apparel Market
Broad Customer Appeal Gives Us Room to Grow in the $194 Billion US Apparel Market(1) THE POWER OF OUR PORTFOLIO OTHER 2% Customer-Centric ~170M ATHLETA 6% known customers globally(3) BANANA REPUBLIC 15% OLD NAVY 49% $16B Multi-Branded Inclusive, by Design Largest Apparel Retail Company in Target and
Slide 9: Leading Omni Platform and Scaled Operations Allow Us to Win
Leading Omni Platform and Scaled Operations Allow Us to Win in a Changing Marketplace THE POWER OF OUR PLATFORM OUTLET CENTER 1% Scaled, Advantaged STREET 8% Fulfillment + Supply Chain • Substantial unit volumes deliver product and logistics cost advantage • Use of automation and technology for Lead
Slide 10: Gap Inc. has the Power to Deliver
Gap Inc. has the Power to Deliver OUR STRATEGY ENDURING LEAN & ADVANTAGED BRAND POWER CUSTOMER OMNI-EXPERIENCE PRODUCT LOVE TEAM & VALUES OPERATIONS RELATIONSHIPS 10
Slide 11: Gap Inc. has the Power to Deliver: Brand Power
Gap Inc. has the Power to Deliver OUR STRATEGY • Grow Old Navy to $10B • Transform Gap • Double Athleta • Reposition Banana Republic ENDURING LEAN & OMNI- BRAND POWER CUSTOMER PRODUCT LOVE ADVANTAGED TEAM & VALUES EXPERIENCE RELATIONSHIPS OPERATIONS 11
Slide 12: Gap Inc. has the Power to Deliver: Customer Relationships
Gap Inc. has the Power to Deliver OUR STRATEGY • Develop best-in-class loyalty program • Scale personalization, serving content and experiences across touchpoints LEAN & OMNI- BRAND POWER ENDURING CUSTOMER RELATIONSHIPS PRODUCT LOVE ADVANTAGED TEAM & VALUES EXPERIENCE OPERATIONS 12
Slide 13: Gap Inc. has the Power to Deliver: Omni-Experience
Gap Inc. has the Power to Deliver OUR STRATEGY • Frictionless, unique, and mobile-enabled experience • Double digital penetration to ~50% ENDURING LEAN & BRAND POWER CUSTOMER OMNI-EXPERIENCE PRODUCT LOVE ADVANTAGED TEAM & VALUES RELATIONSHIPS OPERATIONS 13
Slide 14: Gap Inc. has the Power to Deliver: Product Love
Gap Inc. has the Power to Deliver OUR STRATEGY • Grow share in right-to-win categories • Expand into new categories (e.g. Plus size, Gap Teen, Intimates, Personal Care) ENDURING LEAN & OMNI- BRAND POWER CUSTOMER PRODUCT LOVE ADVANTAGED TEAM & VALUES EXPERIENCE RELATIONSHIPS OPERATIONS 14
Slide 15: Gap Inc. has the Power to Deliver: Lean & Advantaged Operations
Gap Inc. has the Power to Deliver OUR STRATEGY • Cost Transformation through re-engineered capabilities, real estate restructure and scaled strategic partnerships ENDURING OMNI- BRAND POWER CUSTOMER PRODUCT LOVE LEAN & ADVANTAGED OPERATIONS TEAM & VALUES EXPERIENCE RELATIONSHIPS 15
Slide 16: Gap Inc. has the Power to Deliver: Team & Values
Gap Inc. has the Power to Deliver OUR STRATEGY • Performance culture anchored in creative excellence • Industry-leading impact across People, Planet and Community ENDURING LEAN & OMNI- BRAND POWER CUSTOMER PRODUCT LOVE ADVANTAGED TEAM & VALUES EXPERIENCE RELATIONSHIPS OPERATIONS 16
Slide 17: Power Plan 2023
Power Plan 2023 Power of our Brands Grow four purpose-driven, billion-dollar lifestyle brands Power of our Portfolio Extend our customer reach across every age, body and occasion through our collective power Power of our Platform Leverage our omni capabilities and scaled operations and extend our en
Slide 18: Today's Agenda
Today’s Agenda Power of our Brands Nancy Green – Head of Old Navy Mark Breitbard – Head of Gap / Representing Banana Republic Mary Beth Laughton – Head of Athleta - BREAK - Power of our Platform John Strain – Head of Digital + Technology Shawn Curran – Head of Operations Creating Shareholder Value K
Slide 19: Nancy Green, President & CEO, Old Navy
Nancy Green PRESIDENT & CEO, OLD NAVY
Slide 20: We believe in the democracy of style
We believe in the democracy of style. …and we aspire to be America’s Most Loved Brand. 20
Slide 21: Uniquely advantaged at the intersection of Value, Curated, and Fast sectors
Value Accessible pricing Uniquely advantaged at the intersection of Value, Curated, and Fast sectors Curated Fast Big fashion ideas with an Increasingly responsive edited point of view supply chain 21
Slide 22: Old Navy by the Numbers
Old Navy by the Numbers #2 45M Apparel Brand Market Share, Known Active #6 Apparel Retailer in the US (1) Customers(2) 4th 75% Largest Apparel Strip, Outlet and Lifestyle E-Comm Site (3) Locations; Highly Profitable Store Base (1) Source: The NPD Group / Consumer Tracking Service / U.S. Dollar Share
Slide 23: $8B brand today with a clear path to reach $10B by 2023
$8B brand today with a clear path to reach $10B by 2023 +5.7% $10 Net Sales CAGR +5.6% +2.6% $8.0 (1) $6.8 • Six straight years of sales growth $6.3 $B with acceleration since 2016 • Sustain CAGR 2019-2023 to reach $10B 2013 2016 2019 2023E (1) Net sales beginning in fiscal 2018 and beyond reflect t
Slide 24: Delivering the Democracy of Style
Delivering the Democracy of Style Win With Product Acquire and Engage Customers Enhance Omni-channel Experiences + Double E-commerce New Store Growth 24
Slide 25: We are the #2 Apparel Brand and #6 Apparel Retailer
We are the #2 Apparel Brand and #6 Apparel Retailer AT 2.9% MARKET SHARE WE HAVE SIGNIFICANT SHARE OPPORTUNITY #2 #6 APPAREL BRAND APPAREL RETAILER MARKET SHARE IN THE U.S.(1) MARKET SHARE IN THE U.S.(1) (1) Source: The NPD Group / Consumer Tracking Service / U.S. Dollar Share, 12 Months Ending July
Slide 26: Win with Product
Win with Product Accelerate Active, Kids & Baby, and new category growth MAINTAIN BRAND SHARE DISTORT SHARE GROWTH GROW ADJACENT CATEGORIES ~$70 Billion Addressable Market (1) ~$100 Billion Addressable Market (1) ~$116 Billion Addressable Market (2)(3) #1 #1 #1 #5 #2 Knit/Woven Tops Pants Shorts Act
Slide 27: Acquire and Engage Customers Through Loyalty
Acquire and Engage Customers Through Loyalty Global Known Active Customer File Value Pyramid (Yearly Spend/Customer) in millions +Card 45 alty 42 5.0X Loy 36 Yea +Multi-channel nd 28 rly 3.2X nt a Spe me nd + Emailable/Multi- age (2) Tender Loyalty Eng 1.2X FY End Single-Channel customer 2016 2017 2
Slide 28: Enhance Omni-channel Experiences + Double E-commerce
Enhance Omni-channel Experiences + Double E-commerce Leverage scale of stores, e-commerce, and customer file to create differentiated omni-channel experiences Digital Capabilities Convenience Personalized Experiences Create a faster, easier, more Increase convenience through Personalize experience a
Slide 29: New Store Growth
New Store Growth Focused On Underserved Small Markets and Omni Capabilities • ~1,200 stores with further long- term potential • Acquire highly valuable omni customers through new stores in Small Markets (pop <200K) • Target 30-40 new stores/yr. with minimal cannibalization and incrementality to onli
Slide 30: Old Navy: Powering the Future
Old Navy: Powering the Future $10B by 2023 via 6% Net Sales CAGR Growth through Online, New Stores and Key Product Categories Loyalty and Omni Capabilities to Drive Customer Lifetime Value 30
Slide 31: Mark Breitbard, President & CEO, Gap Brand
Mark Breitbard PRESIDENT & CEO, GAP BRAND
Slide 32: American Brand with Strong Customer Awareness
American Brand with Strong Customer Awareness $4.6B 23M FY19 Net Sales Known Active Customers(1) 80% 42 Brand Awareness(2) Countries(3) (1) R12 active global customer base as of February 2020 (2) Source: Gap Brand Equity Study by Ipsos, Gap Specialty, Women’s, Spring 2020 32 (3) As of Q2 2020
Slide 33: Modern American Optimism
Modern American Optimism We are champions of American style that bridges the gaps between individuals, generations and cultures. 33
Slide 34: Transforming our Business Model to Improve Profitability
Transforming our Business Model to Improve Profitability • Restructure our Fleet • Shift to Digital • Grow Market Share: Right Product, Right Time • Partner to Amplify 34
Slide 35: A Profitable Fleet for the Future
A Profitable Fleet for the Future • Complete the closure of ~175 North America Stores by end of 2021 Reduce North America Store Fleet by ~35% by end of 2023 (~220 stores) • ~80% of fleet in Off-Mall Locations by 2023 • Strategic review of Europe STORE COUNT 2019 YE 2021E 2023E 200 100 - Strip (1) Ma
Slide 36: Digitally Led
Digitally Led Continue to increase e-commerce penetration GAP GLOBAL E-COMMERCE (1) PENETRATION % (2) ~40% ~ 4 25% 0 23% % 2018 2019 2020E 2023E (1) E-commerce penetration is online net sales as a percentage of total net sales (2) Impact from COVID-19 pandemic contributed to the e-commerce penetrati
Slide 37: Grow Market Share: Right Product, Right Time
Grow Market Share: Right Product, Right Time Grow Share in Key Categories ~$100B Addressable Market (1) #7 KIDS & BABY #8 DENIM #13 ACTIVE & FLEECE Grow adjacent categories ~$15B addressable market (1) TEEN (8-13 year old) (1) Source: The NPD Group / Consumer Tracking Service / U.S. Dollar Share, 12
Slide 38: Partner to Amplify
Partner to Amplify Licensing Franchise & Wholesale Partnerships Launch new categories Leverage Franchise for Drive relevance and • 10 licensing agreements: international reach attract new customers babyGap Gear, GapHome • 400+ Stores in 35 Countries • YZY GAP launch 2021 beginning in second half • 1
Slide 39: Position Gap to Win
Position Gap to Win Profitable Fleet of the Future Shift to Digital Right Product, Right Time Partner to Amplify 39
Slide 40: Banana Republic
Slide 41: Mary Beth Laughton, President & CEO, Athleta
Mary Beth Laughton P R E S I D E N T & C E O, AT H L E TA
Slide 42: Athleta is a purpose-driven brand with a powerful mission
Athleta is a purpose- driven brand with a powerful mission Ignite a COMMUNITY of active, healthy, confident WOMEN AND GIRLS who EMPOWER each other to realize their limitless potential The power of the collective, POWER OF SHE 42
Slide 43: We are Well-Positioned in an Attractive Category
We are Well-Positioned in an Attractive Category Health & Wellness Versatile products that support her full life, from working out to working from home Female Empowerment Growth in U.S. Women’s Only major active brand that is for women, active apparel is outpacing by women total Women's apparel Sust
Slide 44: $1B Brand Today with a Clear Path to Reach $2B by 2023
$1B Brand Today with a Clear Path to Reach $2B by 2023 BRAND GROWING OMNI UNDERPENETRATED REAL SIGNIFICANT DIGITAL AWARENESS SHOPPERS ESTATE FOOTPRINT PRESENCE 53% among Spend 3.5 times more ~200 highly >50% penetration U.S. Active Women(1) than single-channel profitable store fleet and double-digit
Slide 45: Product is a Key Driver of our Growth
Product is a Key Driver of our Growth Hero Assortment Strategy • Key Product Franchises expected to drive 70% of volume • Drive customer loyalty • Maintain reg price model Exciting growth categories • Masks • Athleta Girl • 1x – 3x Inclusive Sizing 45
Slide 46: Digital Ecosystem Centered Around the Customer
Digital Ecosystem Centered Around the Customer Seamless and personalized journey across touchpoints Browses Shops on Instagram online Key focus areas: Customer Data & CRM Downloads Clienteling app Omni Loyalty Program in store Mobile App Personalized Shops follow-up email online again 46
Slide 47: Opportunity to Invest in New Touchpoints
Opportunity to Invest in New Touchpoints Real Estate Footprint Strategic Wholesale Form selective partnerships Open approx. 100 stores in U.S.; to increase awareness and 20-30 per year customer acquisition International Expansion Distributed Commerce Expand beyond current U.S. market Explore social
Slide 48: Significant potential for growth ahead
Significant potential for growth ahead Purpose-driven brand with permission to expand in multiple directions Well-positioned to meet customer needs in the “Don’t wait for the perfect time to high-growth Active category go after your dreams. Dream big and be relentless in your pursuit.” Reach $2B in
Slide 49: John Strain, Chief Digital & Technology Officer
John Strain C H I E F D I G I TA L & T E C H N O LO GY O F F I C E R
Slide 50: Leveraging the power of our platform to win in a changing marketplace
We’re leveraging the power of our platform to win in a changing marketplace. • Scale: Ranked #2 in U.S. apparel e-commerce sales.(1) • Passion: Strong brand recognition and love • Platform: Strength of omni capabilities, technology at scale and loyalty program (1) Source: The NPD Group / Consumer Tr
Slide 51: Our Customers Love Our Brands
Our Customers Love Our Brands (1) 14% INCREASE IN RETAIL NET PROMOTER SCORES YoY 69 70 digital retail post-purchase (1) post-purchase (1) (1) Q2 2020 Gap Inc. NPS Results provided by Medallia – includes Old Navy, Athleta, Gap, and Banana Republic 51
Slide 52: Healthy Customer File, Well-Positioned for Growth
Healthy Customer File, Well-Positioned for Growth THE POWER OF THE PORTFOLIO A great start ….. With growth opportunities in… Customer Reach Loyalty Pilot Omni ~595M 9.7M +50% YoY total multi tender overall BOPIS customer touchpoints in Q2 loyalty members as of Q2 volume increase in Q2 (3) ~170M 11M
Slide 53: Value Accelerators: Multi-Brand and Multi-Tier Customers
Value Accelerators: Multi-Brand and Multi-Tier Customers Cross-Brand Customer Customer Loyalty 9X Value Equation Value Tiering 7X 5.0X 5X 2.1X LE S 1.6X SA T H MULTI- ES T N E OW SAL VISIT NET WTH GR + GRO MULTI- MULTI- CHANNEL VISIT + + MULTI- ONE MULTI- MULTI- MULTI- NON- TENDER CREDIT CREDIT & DO
Slide 54: Leveraging Data Science to Target Product and Communication
Leveraging Data Science to Target Product and Communication TARGET + HALO SEGMENTS REPRESENT ~80% OF T H E $ 1 9 4 B A D D R E S S A B L E M A R K E T (1) Example Customer Segments 12 2-3 Target Customer Segments Segments Per Brand Customized Communications Focused Product Development Carpool Active
Slide 55: Personalization: Creating Enduring Customer Relationships
Personalization: Creating Enduring Customer Relationships CURRENT PERSONALIZATION COVERAGE Current coverage is strong, sophistication and coordination is our next opportunity 74% 80% 80% of website visits of emails contain of users experience see personalized personalized personalized product market
Slide 56: Ranked #2 in U.S. Apparel E-Commerce Sales
Ranked #2 in U.S. Apparel E-Commerce Sales U.S. APPAREL E-COMMERCE MARKET SHARE 2019 (1 ) Largest online retailers Additional competitors 16.1% Apparel 5.6% 5.5% 4.9% 4.8% E-comm Mkt. 4.3% Share 2.3% 2.1% 2.0% 1.9% 1.5% 1.3% 1.3% 1.2% 0.8% Gap Inc. Online (2) Penetration (1) 100% 25% 100% 30% 24% 37
Slide 57: Modern Cloud-Based Platform, Advantaged at Scale
Modern Cloud-Based Platform, Advantaged at Scale UNIQUE UNIVERSALITY CAPABILITIES 57
Slide 58: Every Sale is an Omni-Sale
Every Sale is an Omni-Sale Stores: Local BOPIS Ship-from-Store Market Presence Curbside Pickup Virtual Stylist Clienteling 58
Slide 59: Doubling Down Our Efforts in Mobile
Doubling Down Our Efforts in Mobile LEVERAGING THE SUCCESS OF OUR 4.9 STAR RATING 59
Slide 60: Doubling Down Our Efforts in Mobile
Doubling Down Our Efforts in Mobile LEVERAGING THE SUCCESS OF OUR 4.9 STAR RATING 60
Slide 61: Attract New Customers & Create Enduring Relationships
LOYA LT Y STRONG NPS ~170M Customer File x OMNI P E R S O N A L I Z AT I O N 1B I nteractions/Year S C A L E D P L AT F O R M + DATA S C I E N C E Attract New Customers & Create Enduring Relationships 61
Slide 62: Shawn Curran, Chief Operating Officer
Shawn Curran C H I E F O P E R AT I N G O F F I C E R
Slide 63: Winning through Speed, Flexibility, and Efficiency at Scale
Winning through Speed, Flexibility, and Efficiency at Scale Power of the Platform: • Scaled responsive Supply Chain • Leading automated distribution capability to meet digital and omni growth • Reducing operations cost by extending engineering capability 63
Slide 64: The Power of the Platform
The Power of the Platform LEVERAGED, SCALED, AND AGILE OPERATIONS ~30 330 620 1B+ 100M+ Sourcing Units Pairs of Mills(2) Factories(2) Countries(1) Produced(2) Denim(1) 650M 14 400K 100M+ 129K Yards of Distribution Store Parcels Global Fabric(1) Centers(1) Deliveries(1) Delivered(3) Employees(1) (1)
Slide 65: Scaled Responsive Supply Chain
Scaled Responsive Supply Chain Optimize inventory Engineer fit and margin through adoption of through flexibility and speed technology Speed + Flexibility Driving Profitability Continued digitalization Optimize local to reduce cost and increase assortment speed with vendor base with advanced AI 65
Slide 66: Leading Automated Distribution Capability to Meet Digital and Omni Growth
Leading Automated Distribution Capability to Meet Digital and Omni Growth SCALED CAPABILITES TO INCREASE SPEED AND REDUCE COST Scaled automation Leveraging ~3000 Top tier partnership Omni fulfillment competitive store network with UPS meeting customer advantage with for local delivery enabling cost-
Slide 67: Driving Lower Cost through Engineered Operations
Driving Lower Cost through Engineered Operations Restructure Fleet Re-engineering stores for Reducing overhead and improve Real an elevated customer through automation Estate economics experience and efficiency 67
Slide 68: Our Engineered Approach in Action
Our Engineered Approach in Action ~$225M+(1) IN MASKS AND COUNTING: Digitalized Product Development Digitally designed and developed leveraging vendor partnerships Customer-Centric Responsive Supply Chain Product-to-Market in 5 weeks; weekly demand reads and ongoing innovation to provide new feature
Slide 69: Katrina O'Connell, Chief Financial Officer
Katrina O’Connell CHIEF FINANCIAL OFFICER
Slide 70: Power Plan 2023: Creating Shareholder Value
Power Plan 2023: Creating Shareholder Value Drive value through: • Power of the Brands • Power of the Portfolio • Power of the Platform Leverage powerful economic model to drive strong cash flow Disciplined use of cash to drive top tier Shareholder Return 70
Slide 71: Leveraging Our Strengths To Build a Stronger Future
Leveraging Our Strengths To Build a Stronger Future Largest branded apparel retailer in O U R PAT H F O R WA R D : the U.S. at $ 1 6 B in revenue ( 1 ) Consistent sales growth Operating margin expansion Strong and consistent annual operating cash flow; $ 1 . 5 B More resilient & flexible business fi
Slide 72: Multi-Year Plan
Multi-Year Plan Base Covid-19 Return to Economic year Impact profitable Model growth 2019 2020 2021 2022+ 72
Slide 73: Economic Model
Economic Model FY2022 & BEYOND Sales Growth EBIT Margin Operating Return Cash to Top Tier Low to Mid + Expansion = Cash Flow + Shareholders = TSR Single Digit 10%+ EBIT Margin ~10% of Sales Annually by 2023 73
Slide 74: Drive Consistent Low to Mid Single Digit Sales Growth
Drive Consistent Low to Mid Single Digit Sales Growth THROUGH OUR POWER PLAN 2023 ENDURING LEAN & ADVANTAGED BRAND POWER CUSTOMER OMNI-EXPERIENCE PRODUCT LOVE TEAM & VALUES OPERATIONS RELATIONSHIPS Grow Old Navy to $10B Marketing Double Online Advantaged Categories Double Athleta to $2B (Active, Den
Slide 75: By 2023, ~70% Of Revenue From Old Navy and Athleta
By 2023, ~70% Of Revenue From Old Navy and Athleta SHIFT TOWARDS HIGHER GROWTH, HIGHER PROFIT BRANDS, WHILE REBUILDING GAP PROFITABLITY 2019 2023E OTHER OTHER BANANA REPUBLIC BANANA REPUBLIC OLD NAVY OLD NAVY Old Navy Old Navy and Athleta and Athleta ~55% GAP ~70% GAP ATHLETA ATHLETA 75
Slide 76: Significant GM% Improvement
Significant GM% Improvement ROD SAVING AND PRODUCT MARGIN GROWTH OFFSET RISING FULFILLMENT COSTS GROSS MARGIN COMPONENTS ACTIONS • North America closure strategy ROD leverage • Franchise partnerships Drive traffic and reduce discounting through: • Responsive inventory Higher product margins • Market
Slide 77: Close ~350 Gap and Banana Republic Stores in North America
Close ~350 Gap and Banana Republic Stores in North America 1,200 1216 • Close ~30% of Gap and Banana Republic stores by end of FY23 800 ~870 Banana Republic Gap • ~75% of North America closures 400 complete by end of FY21 - 2019 2023 • ~80% of revenue in 2023 from online & off-mall locations 400 201
Slide 78: Gap Inc. North America Fleet Transformation
Gap Inc. North America Fleet Transformation North America Fleet Closures result in: • Cash buyout impact expected at ~$210M with moderately positive P&L impact • Estimated annualized EBITDA benefit of ~$100M • Additional benefits from rent negotiations ~$45M annually 78
Slide 79: Leverage Successful Franchise Model
Leverage Successful Franchise Model PARTNERSHIP MODEL TO GROW OUTSIDE NORTH AMERICA Explore Strategic alternatives for Europe: Explore Partial Shift from Company Owned to Partner Model by 2021 • ~120 company operated stores(1) • E-commerce Site Leverage and Grow Strong Franchise Model • Reduces capi
Slide 80: More Variable Cost Structure Enables Demand Generation
More Variable Cost Structure Enables Demand Generation MEANINGFUL LEVERAGE IN SG&A Reduce Fixed Costs Demand Generation Investments Headcount Reductions Marketing Lower Store Expenses: Store Closure + Europe Loyalty Franchise R E A L L O C AT E Technology Engineered Store Labor Fulfillment Future of
Slide 81: Path to 2023 EBIT Margin
Path to 2023 EBIT Margin LEVERAGE ACROSS BOTH GROSS MARGIN AND SG&A 10%+ EBIT Margin achieved + _ _ by 2023: + 10%+ • Growth in higher margin Brands – Product Margin/ Yield Online Fixed Cost Investments Old Navy and Athleta become Channel Shift Productivity for Growth ~70% of total sales + • NA stor
Slide 82: Power Plan 2023: Reducing Volatility and Creating Resilience
Power Plan 2023: Reducing Volatility and Creating Resilience • A portfolio of four multi-billion-dollar brands • Digitally led with doubled e-commerce business • More variable cost structure: • Lower Mall-Based Specialty Store Exposure • Engineered fixed operating costs • Fueling investments in dema
Slide 83: Strong Cash Flow Discipline
Strong Cash Flow Discipline HISTORICAL VIEW Operating Cash Flow Dividend Yield 5.6% ($B) 1.6 1.7 4.1% 3.9% 3.7% 1.4 1.4 1.4 2.9% 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Cap Ex ($M) Share Repurchases CapEx % Net Sales 1,392 Cash Dividends 4.6% 4.6% 4.3% 4.3% ($M) 3.4% 676 771 726 731 705 70
Slide 84: Priorities for Cash
Priorities for Cash TARGET OPERATING CASH FLOW AT ~10% OF SALES CapEx with ROIC Focus Invest in profitable growth: brands and customer facing capabilities Restructure Fixed Cost Base Aggressive store closure plan and strategic review of Europe Return to Efficient Capital Structure Reduce debt levera
Slide 85: Capital Investments Focused on Improving ROIC
Capital Investments Focused on Improving ROIC EXPECT AVERAGE ANNUAL CAPITAL EXPENDITURES AT ~4-5% OF NET SALES FROM Capital Expenditures TO Low returning High growth, high investments 100% ROIC customer-facing (store assets and initiatives international markets) at 50% of CapEx 50% 0% FY15-19 FY21-2
Slide 86: Economic Model
Economic Model FY2022 & BEYOND Sales Growth EBIT Margin Operating Return Cash to Top Tier Low to Mid + Expansion = Cash Flow + Shareholders = TSR Single Digit 10%+ EBIT Margin ~10% of Sales Annually by 2023 86
Slide 87: Long term Investment Case
Long term Investment Case Drive Value Through: • Power of the Brands • Power of the Portfolio • Power of the Platform • Leverage powerful economic model to drive strong cash flow • Disciplined Use of Cash to Drive Top Tier Shareholder Return 87
Slide 88: Business as a Force for Good
Business as a Force for Good • Regenerating the environment through sustainable and circular practices • Advancing our employees and communities • Creating and maintaining stakeholder value through effective governance and risk oversight • Tracking progress using GRI and SASB standards 88
Slide 89: Commitment to Environmental, Social & Governance Performance
Commitment to Environmental, Social & Governance Performance E N V I R O N M E N TA L SOCIAL GOVERNANCE 11.2B Ranked 100% 5 of 12 liters of water in HRC’s Corporate Directors saved in manufacturing Equality Index are women since 2017 for the 14th year in a row 65% 92% Annual Global diversion rate of
Slide 90: Our Goals
Our Goals C R E AT E F O R A L L , W I T H A L L COMMUNITY Close the gap between our employees today 5% of new store hires from and the diversity of our customers This Way Ahead by 2025 Double representation of Black + Latinx employees Educate 1M Women through signature at all levels in our U.S. HQ
Slide 91: Power Plan 2023
Power Plan 2023 Power of our Brands Grow four purpose-driven, billion-dollar lifestyle brands Power of our Portfolio Amplify our superior customer reach and addressable market Power of our Platform Leverage our omni capabilities and scaled operations and extend our engineered approach to cost and gr