Gap Inc. Updates Investors on Strategic Plan for The Next Three to Five Years

NEW YORK – Gap Inc. (NYSE: GPS), one of the world’s largest specialty retailers, today updated investors on the company’s initiatives to increase its share of the $1.4 trillion global apparel market, through a combination of international and online expansion and improvements in the North American business.
“While never losing sight of our goal to gain market share in our North American businesses, our strong portfolio of brands combined with several powerful platforms such as outlet, online and franchise give us significant global runway,” said Glenn Murphy, chairman and CEO of Gap Inc. “We’re making the investments necessary to shift the balance of revenue over time to come increasingly from our online and international businesses.”
As the company aims to grow overall sales, it projects that by fiscal 2013, international and online sales will account for more than a quarter of its total net sales. Through its stores and online channels, including third-party partnerships, the company will be able to sell products to customers in more than 80 countries by the end of 2010, up from 25 at the start of this fiscal year. By the end of 2010, the company plans to open stores and offer online shopping in China and Italy, two of the top ten apparel markets in the world.
Gap Inc. is also taking steps to gain market share and drive modest, consistent sales improvements in North America. Among the top initiatives: Gap brand is evolving its product aesthetic, marketing and store experience for its target millennial customer; Old Navy is rolling out additional store remodels, with the goal of completing 35 percent of its fleet by the end of 2011; and Banana Republic is refining its marketing and testing new store formats.
“Our economic model is strong and allows us to generate significant cash for investors as we make our strategic growth investments,” said Sabrina Simmons, chief financial officer of Gap Inc. “We have demonstrated over the last three years our ability to deliver earnings growth as we improve return on invested capital.”
In the detailed business update, the company announced a range of initiatives aimed at increasing overall net sales, including the following: exploring opportunities to open Old Navy stores outside North America; leveraging the Gap brand store openings in China and Italy this fall to spur growth through its online channels and outlet stores; and doubling online net sales by 2015 as it expands Piperlime and Athleta and brings its online platform to Japan in 2011. The company also announced plans to double the number of franchise stores from 200 to 400 by 2015.
Several members of the Gap Inc. management team presented business updates, highlighted by:
Gap Brand: Marka Hansen, President, North America
With its accessible premium positioning, Gap is working towards gaining market share by evolving product to a more modern, current aesthetic and elevating the store experience for its 25 to 35 year old target customer. After reinventing key bottoms categories such as 1969 premium denim, men’s khakis and women’s black pants, Gap is focused on delivering more versatility across multiple occasions, including more feminine, emotional tops. To enhance the shopping experience, the brand continues to invest in its 1969 denim presentations and optimize the size of its fleet with smaller, more energetic store environments.
Banana Republic: Jack Calhoun, President, North America
With its affordable luxury position and a solid, healthy business, Banana Republic is focused on pursuing consistent top-line growth. After rebalancing the product assortment to offer customers versatility, the team is concentrating on driving traffic through marketing that showcases its modern, effortless style and brand-appropriate, innovative promotions, such as its popular “Mad Men” and “After 5” events. Following the positive response to a new store design, Banana Republic is opening four additional stores with the new look and service model this year.
Old Navy: Tom Wyatt, President, North America
With its clear customer target and a quarter of its fleet remodeled, Old Navy re-established itself as a fun, family brand offering compelling value in 2008, and is now focused on delivering consistent top line sales improvements. The brand is rebalancing its product assortment mix between basics, seasonal basics and fashion; being creative with its online marketing mix to reach more customers and testing growth opportunities such as accessories, licensing, and register lane strategy.
Gap Inc. Direct: Toby Lenk, President
After crossing the $1 billion threshold in net sales in fiscal 2008, Gap Inc. Direct is working to reach $2 billion in annual sales and $500 million in operating income by fiscal 2014. This growth will come from a variety of sources including increasing the base in the United States, building on the Canada ecommerce launch, and expanding into 10 countries in the European Union by the end of this year. After expanding its international reach from one country to 80 countries earlier this year, the division is exploring bringing Gap, Banana Republic and Old Navy online in Japan in 2011. To gain market share in North America, the company plans to test another Athleta store next year and continue driving the growth of Piperlime by adding more apparel, exclusive collections and men’s fashion.
Europe and International Strategic Alliances: Stephen Sunnucks, President
In the last five years, the company has doubled its store base of European company-owned stores and franchise stores from 165 to 335, and expanded from two to 24 countries. Building off this success, Gap Inc.’s international division is pursuing a multi-channel, multi-model and city-based expansion program.
The company is adding Banana Republic stores in the United Kingdom; opening Gap and Banana Republic stores in Milan by the end of 2010; launching online in Italy later this year; and opening its first stores in Rome in 2011. With franchise stores throughout Asia, Eastern Europe, Latin America, the Middle East and now Australia, the company will continue to enter other markets through franchise partnerships.
Investor Meeting Details
The Investor Meeting is being held on Thursday, October 14, 2010 in New York. The conference call and audio webcast will run from 8:45 a.m. to 11:30 a.m. Eastern time.
The webcast can also be accessed from the Conference Calls & Webcasts page in the Financials & Media section of gapinc.com at http://www.gapinc.com/public/Investors/inv_fin_conf_calls_and_webcast. htm.
A replay of these sessions will be made available for four weeks after the event and archived on gapinc.com.