Gap, Inc. (the) · NYSE:GAP
Gap, Inc. (the) — Gap Inc. Investor Conference 2014
27 slides from Gap, Inc. (the)'s conference presentation, Apr 16, 2014
Slide 1: Sabrina Simmons, EVP and Chief Financial Officer
Sabrina Simmons Executive Vice President and Chief Financial Officer
Slide 2: Disclosure Statement
Disclosure Statement Forward‐Looking Statements The investor conference, webcast, and related materials contain 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 forwa
Slide 3: 2013 accomplishments
2013 accomplishments Net sales grew to over $16.1B, up 5% on constant currency basis Revenue mix successfully shifting to higher return channels Operating margin expanded 90 bps EPS grew 18%
Slide 4: Five year track record
Five year track record Net sales increased $1.6 billion Operating margin expansion of about 260 basis points 15% earnings per share CAGR Generated about $6B in free cash flow Distributed nearly $8B in cash through share repurchases and dividends
Slide 5: Balanced approach to driving value
Balanced approach to driving value Grow sales Leverage with healthy + expenses margins Expand operating margin Grow earnings per share Distribute excess cash Excluding impact of foreign exchange
Slide 6: Leading the domestic competition
Leading the domestic competition 2013 Revenue 2013 Operating Margin 5 Year EPS CAGR $16.1B 13% 5% $2.7B 15% ‐38% US Peers Mean (ANF, ARO, AEO, ANN, PLCE, EXPR, URBN) Gap Inc.
Slide 7: Progress against global competition
Progress against global competition 2013 Operating Margin 2013 Revenue1 Expansion vs. 2012 5 Year EPS CAGR $18.4B 15% $16.1B 10% +90bps ‐170bps 1. International specialty retailers mean revenue based on revenue converted to USD per average London composite FX rate as of the Global Peers Mean Gap Inc
Slide 8: Total shareholder return
Total shareholder return $372 $241 Gap Inc. S&P 500 YE 2008 YE 2013 Assumes $100 investment on 1/31/2009
Slide 9: Capital expenditures: supporting future growth
Capital expenditures: supporting future growth ~$750M ~$430M Omni‐channel & supply chain Newer brands and international stores US specialty stores 2008 2014
Slide 10: Capital expenditures and ROIC
Capital expenditures and ROIC Capital expenditures ($ in millions) 2014 ROIC 2013 ~14% 2012 2011 2010 2009 2008 ~11% $200 $300 $400 $500 $600 $700 ROIC is defined as Net Operating Profit After Tax (NOPAT)/Average Invested Capital. NOPAT is adjusted for implied lease interest expense; Invested capita
Slide 11: Our competitive advantage: multi-channel
Our competitive advantage: multi‐channel Multiple brands Multiple channels Multiple geographies Global Specialty Operating in 48 countries Outlet Developing Online Future growth focused Franchise on Asia
Slide 12: Stores: shifting the mix
Stores: shifting the mix Store count growth (2008‐2013) US1 Specialty Newer brands International Global Outlet Specialty ~200 ~100 ~100 ~ 0.4M sqft ~ 1M sqft ~ 2M sqft ~400 ~ (6M) sqft 1. US Specialty includes Gap, Old Navy, and Banana Republic
Slide 13: Stores: focus of growth
Stores: focus of growth US Asia Global Outlet
Slide 14: Online: growing sales
Online: growing sales Online penetration to total sales Revenue ($ in billions) $2.5 14% $2.0 12% 11% $1.5 9% 7% 8% $1.0 $0.5 2008 2009 2010 2011 2012 2013
Slide 15: Online: healthy penetration growth
Online: healthy penetration growth 2008 2013 Change Online penetration 7% 14% 7pts Company‐owned ~$13.3 billion ~$13.5 billion ~$200 million store sales Total square footage ~39.5 million ~37.2 million (~2.3 million)
Slide 16: Online: 2013 penetration by region
Online: 2013 penetration by region North America: 16% Opportunity International: Opportunity 4%
Slide 17: Franchise: ample growth ahead
Franchise: ample growth ahead High return, low capital channel Launched in 2006, ended 2013 with 375 stores Expect to add 75 more stores in 2014 Ample growth ahead, especially with Old Navy launching stores Old Navy’s first franchise store: launched March 2014 in the Philippines
Slide 18: Balanced portfolio across channels
Balanced portfolio across channels Revenue mix 2008 Online, 2013 Online, Franchise Franchise & Outlet & Outlet 19% 31% Specialty Specialty
Slide 19: Revenue growth: #1 priority
Revenue growth: #1 priority Spread New stores (Global outlets, Asia, Athleta) Comp Franchise Total Sales Store productivity Online growth
Slide 20: Merchandise margin
Merchandise margin Our goal is to maintain healthy margins through: Product acceptance Supply chain initiatives Disciplined inventory management
Slide 21: Expenses
Expenses Rent, Occupancy, and Depreciation Operating Expenses Sales mix shift towards regions with higher Leverage SG&A as a rate of ROD costs (i.e. China) sales with revenue growth Threshold for ROD leverage likely higher going forward More modest leverage on each point of positive comp than in yea
Slide 22: Disciplined expense management
Disciplined expense management Sales vs. expense growth (2008‐2013) Sales $ Growth SG&A $ Growth ROD $ Growth $1.6B 110 bps leverage improvement 140 bps leverage improvement
Slide 23: Cash flow & shareholder distributions
Cash flow & shareholder distributions In billions 5 Year 2009 2010 2011 2012 2013 Average Operating Cash Flow $1.9 $1.7 $1.4 $1.9 $1.7 $1.7 Free Cash Flow $1.6 $1.2 $0.8 $1.3 $1.0 $1.2 Total Distributions $0.8 $2.2 $2.3 $1.3 $1.3 $1.6
Slide 24: Shareholder distributions
Shareholder distributions Our priorities for use of cash: 1 Invest 2 Maintain cash 3 Distribute in the on the balance excess cash business sheet to fund operating needs
Slide 25: Dividends
Dividends Annualized dividend per share $0.88 $0.09 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Slide 26: Share repurchases driving value
Share repurchases driving value 630M ~$21 ~84% shares repurchased 10 year average YE 2013 price since 2004, or repurchase price 84% higher than more than 50%* of 10 year average shares outstanding repurchase price * Calculated by comparing weighted‐average shares outstanding for FY13 with FY04
Slide 27: Thank you
Thank you