GAP INC
For the period ended Nov 2, 2024. Filed Nov 26, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Nov 2, 2024 · Filed Nov 26, 2024
GAP$21.48-4.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-08-03; filed 2024-08-30.
0000039911-24-000179
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-11-02; filed 2024-11-26.
0000039911-24-000202
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 91 previous paragraphs and 88 current paragraphs.
51 unchanged; 32 reworded; 5 added; 5 removed; 3 previous and 0 current paragraphs rearranged.
Tables are not compared: 8 previous and 8 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (5)
Current report
Cost of goods sold and occupancy expenses decreased 1.4 percentage points as a percentage of net sales in the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023.
Current report
•Cost of goods sold decreased 0.9 percentage points as a percentage of net sales in the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023, primarily driven by disciplined inventory management. The impact of commodity costs was relatively flat for the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023.
Current report
Cost of goods sold and occupancy expenses decreased 3.5 percentage points as a percentage of net sales in the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023.
Current report
Non-cash item
Current report
•a decrease of $339 million related to merchandise inventory due to the seasonal increase in inventory during the first three quarters of fiscal 2024 compared with no increase in the first three quarters of fiscal 2023 due to an elevated opening balance of inventory.
Removed paragraphs (5)
Previous report
Cost of goods sold and occupancy expenses decreased 5.0 percentage points as a percentage of net sales in the second quarter of fiscal 2024 compared with the second quarter of fiscal 2023.
Previous report
•Cost of goods sold decreased 4.1 percentage points as a percentage of net sales in the second quarter of fiscal 2024 compared with the second quarter of fiscal 2023, primarily driven by lower commodity costs, an increase in net sales due to the incremental income in the second quarter of fiscal 2024 related to our revenue sharing arrangement from our credit card agreement, and improved promotional activity.
Previous report
Cost of goods sold and occupancy expenses decreased 4.6 percentage points as a percentage of net sales in the first half of fiscal 2024 compared with the first half of fiscal 2023.
Previous report
Non-cash items
Previous report
•a decrease of $278 million related to merchandise inventory primarily due to a decrease in inventory levels during the first half of fiscal 2023.
Reworded paragraphs (32)
Previous wording
Financial results for the second quarter of fiscal 2024 are as follows:
Current wording
Financial results for the third quarter of fiscal 2024 are as follows:
Previous wording
•Net sales for the second quarter of fiscal 2024 increased 5 percent compared with the second quarter of fiscal 2023.
Current wording
•Net sales for the third quarter of fiscal 2024 increased 2 percent compared with the third quarter of fiscal 2023.
Previous wording
•Store and franchise sales for the second quarter of fiscal 2024 increased 4 percent compared with the second quarter of fiscal 2023 and online sales for the second quarter of fiscal 2024 increased 7 percent compared with the second quarter of fiscal 2023.
Current wording
•Store and franchise sales for the third quarter of fiscal 2024 decreased 2 percent compared with the third quarter of fiscal 2023 and online sales for the third quarter of fiscal 2024 increased 7 percent compared with the third quarter of fiscal 2023.
Previous wording
•Gross profit for the second quarter of fiscal 2024 was $1.58 billion compared with $1.33 billion for the second quarter of fiscal 2023. Gross margin for the second quarter of fiscal 2024 was 42.6 percent compared with 37.6 percent for the second quarter of fiscal 2023.
Current wording
•Gross profit for the third quarter of fiscal 2024 was $1.64 billion compared with $1.56 billion for the third quarter of fiscal 2023. Gross margin for the third quarter of fiscal 2024 was 42.7 percent compared with 41.3 percent for the third quarter of fiscal 2023.
Previous wording
•Operating income for the second quarter of fiscal 2024 was $293 million compared with $106 million for the second quarter of fiscal 2023.
Current wording
•Operating income for the third quarter of fiscal 2024 was $355 million compared with $250 million for the third quarter of fiscal 2023.
Previous wording
•The effective income tax rate for the second quarter of fiscal 2024 was 30.4 percent compared with negative 8.3 percent for the second quarter of fiscal 2023.
Current wording
•The effective income tax rate for the third quarter of fiscal 2024 was 24.1 percent compared with 12.8 percent for the third quarter of fiscal 2023.
Previous wording
•Net income for the second quarter of fiscal 2024 was $206 million compared with $117 million for the second quarter of fiscal 2023.
Current wording
•Net income for the third quarter of fiscal 2024 was $274 million compared with $218 million for the third quarter of fiscal 2023.
Previous wording
•Diluted earnings per share was $0.54 for the second quarter of fiscal 2024 compared with $0.32 for the second quarter of fiscal 2023.
Current wording
•Diluted earnings per share was $0.72 for the third quarter of fiscal 2024 compared with $0.58 for the third quarter of fiscal 2023.
Previous wording
•Merchandise inventory as of the second quarter of fiscal 2024 decreased 5 percent compared with the second quarter of fiscal 2023.
Current wording
•Merchandise inventory as of the third quarter of fiscal 2024 decreased 2 percent compared with the third quarter of fiscal 2023.
Previous wording
Fiscal 2024 consists of 52 weeks versus 53 weeks in fiscal 2023. Due to the 53rd week in fiscal 2023, in order to maintain consistency, Comp Sales for the second quarter of fiscal 2024 and the first half of fiscal 2024 are compared to the 13 and 26 weeks ended August 5, 2023.
Current wording
Fiscal 2024 consists of 52 weeks versus 53 weeks in fiscal 2023. Due to the 53rd week in fiscal 2023, in order to maintain consistency, Comp Sales for the third quarter of fiscal 2024 and the first three quarters of fiscal 2024 are compared to the 13 and 39 weeks ended November 4, 2023.
Previous wording
Our net sales increased $172 million, or 5 percent, during the second quarter of fiscal 2024 compared with the second quarter of fiscal 2023, driven primarily by an increase in Comp Sales at Old Navy Global and incremental income related to the revenue sharing arrangement from our credit card agreement for the quarter. Our net sales increased $284 million, or 4 percent, during the first half of fiscal 2024 compared with the first half of fiscal 2023, driven primarily by an increase in Comp Sales.
Current wording
Our net sales increased $62 million, or 2 percent, during the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023, driven primarily by an increase in online sales. Our net sales increased $346 million, or 3 percent, during the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023, driven primarily by an increase in Comp Sales.
Previous wording
•Occupancy expenses decreased 0.9 percentage points as a percentage of net sales in the second quarter of fiscal 2024 compared with the second quarter of fiscal 2023, primarily driven by an increase in net sales without a corresponding increase in occupancy expenses.
Current wording
•Occupancy expenses decreased 0.5 percentage points as a percentage of net sales in the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023, primarily driven by an increase in online sales without a corresponding increase in occupancy expenses.
Previous wording
•Cost of goods sold decreased 3.8 percentage points as a percentage of net sales in the first half of fiscal 2024 compared with the first half of fiscal 2023, primarily driven by lower commodity costs and improved promotional activity.
Current wording
•Cost of goods sold decreased 2.8 percentage points as a percentage of net sales in the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023, primarily driven by lower commodity costs and improved promotional activity.
Previous wording
•Occupancy expenses decreased 0.8 percentage points as a percentage of net sales in the first half of fiscal 2024 compared with the first half of fiscal 2023, primarily driven by an increase in net sales without a corresponding increase in occupancy expenses.
Current wording
•Occupancy expenses decreased 0.7 percentage points as a percentage of net sales in the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023, primarily driven by an increase in net sales without a corresponding increase in occupancy expenses.
Previous wording
Operating expenses increased $63 million, or 0.1 percentage points as a percentage of net sales during the second quarter of fiscal 2024 compared with the second quarter of fiscal 2023, primarily due to the following:
Current wording
Operating expenses decreased $26 million, or 1.3 percentage points as a percentage of net sales during the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023, primarily due to a decrease in advertising expenses.
Previous wording
Operating expenses increased $31 million, but decreased 1.0 percentage points as a percentage of net sales during the first half of fiscal 2024 compared with the first half of fiscal 2023, due to an increase in net sales as well as the following:
Current wording
Operating expenses increased $5 million, but decreased 1.1 percentage points as a percentage of net sales during the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023, due to an increase in net sales as well as the following:
Previous wording
•restructuring expenses of $84 million incurred during the first half of fiscal 2023 as a result of actions taken to simplify and optimize our operating model and structure; and
Current wording
•restructuring expenses of $89 million incurred during the first three quarters of fiscal 2023 as a result of actions taken to simplify and optimize our operating model and structure; and
Previous wording
Interest expense primarily includes interest on outstanding borrowings and obligations mainly related to our Senior Notes and tax-related interest expense. The interest expense for the second quarter of fiscal 2023 and the first half of fiscal 2023 also included a benefit from the reversal of previously recognized interest expense as a result of a U.S. transfer pricing settlement related to our sourcing activities.
Current wording
Interest expense primarily includes interest on outstanding borrowings and obligations mainly related to our Senior Notes and tax-related interest expense.
Previous wording
Interest income increased $10 million during the second quarter of fiscal 2024 compared with the second quarter of fiscal 2023 and increased $21 million during the first half of fiscal 2024 compared with the first half of fiscal 2023, primarily due to higher cash balances and higher interest rates.
Current wording
Interest income increased slightly during the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023, primarily due to higher cash balances, partially offset by a decrease in tax-related interest income. Interest income increased $22 million during the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023, primarily due to higher cash balances and higher interest rates during the first half of fiscal 2024, partially offset by a decrease in tax-related interest income.
Previous wording
The increase in the effective tax rate for the second quarter of fiscal 2024 compared with the second quarter of fiscal 2023 is primarily due to tax benefits recognized in the prior year from a U.S. transfer pricing settlement related to our sourcing activities, changes in valuation allowances in the prior year, current year increases to certain income tax reserves, and changes in the amount and mix of jurisdictional earnings.
Current wording
The increase in the effective tax rate for the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023 is primarily due to changes in valuation allowances in the prior year.
Previous wording
The increase in the effective tax rate for the first half of fiscal 2024 compared with the first half of fiscal 2023 is primarily due to tax benefits recognized in the prior year from a U.S. transfer pricing settlement related to our sourcing activities, changes in valuation allowances in the prior year, current year increases to certain income tax reserves, and changes in the amount and mix of jurisdictional earnings, partially offset by a favorable impact from stock-based compensation.
Current wording
The increase in the effective tax rate for the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023 is primarily due to tax benefits recognized in the prior year from a U.S. transfer pricing settlement related to our sourcing activities, changes in valuation allowances in the prior year, current year increases to certain income tax reserves, and changes in the amount and mix of jurisdictional earnings, partially offset by a favorable impact from stock-based compensation.
Previous wording
The Organization for Economic Co-operation and Development ("OECD") has introduced a new global minimum corporate tax of 15%, commonly referred to as Pillar Two. The rules, as they currently stand, did not have a material impact on the effective tax rate for the second quarter of fiscal 2024 or for the first half of fiscal 2024 and are not expected to have a material impact on our fiscal 2024 effective tax rate. We will continue to monitor U.S. and global legislative action related to Pillar Two for potential impacts.
Current wording
The Organization for Economic Co-operation and Development ("OECD") has introduced a new global minimum corporate tax of 15%, commonly referred to as Pillar Two. The rules, as they currently stand, did not have a material impact on the effective tax rate for the third quarter of fiscal 2024 or for the first three quarters of fiscal 2024 and are not expected to have a material impact on our fiscal 2024 effective tax rate. We will continue to monitor U.S. and global legislative action related to Pillar Two for potential impacts.
Previous wording
In addition to our cash flows from operating activities, our primary sources of liquidity include cash and cash equivalents, short-term investments, our Senior Notes, and our ABL Facility. As of August 3, 2024, we had cash and cash equivalents of $1.90 billion and short-term investments of $246 million. We hold our cash, cash equivalents, and short-term investments across a diversified set of reputable financial institutions and monitor the credit standing of those financial institutions. In addition, we have issued $1.5 billion aggregate principal amount of our Senior Notes, and are also able to supplement near-term liquidity, if necessary, with our ABL Facility or other available market instruments. There were no borrowings under the ABL Facility as of August 3, 2024. See Note 4 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on the Senior Notes and ABL Facility.
Current wording
In addition to our cash flows from operating activities, our primary sources of liquidity include cash and cash equivalents, short-term investments, our Senior Notes, and our ABL Facility. As of November 2, 2024, we had cash and cash equivalents of $1.97 billion and short-term investments of $250 million. We hold our cash, cash equivalents, and short-term investments across a diversified set of reputable financial institutions and monitor the credit standing of those financial institutions. In addition, we have issued $1.5 billion aggregate principal amount of our Senior Notes, and are also able to supplement near-term liquidity, if necessary, with our ABL Facility or other available market instruments. There were no borrowings under the ABL Facility as of November 2, 2024. See Note 4 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on the Senior Notes and ABL Facility.
Previous wording
Our largest source of operating cash flows is cash collections from the sale of our merchandise. Our primary uses of cash include merchandise inventory purchases, lease and occupancy costs, personnel-related expenses, purchases of property and equipment, shipping costs, and payment of taxes. The seasonality of our operations may lead to fluctuations in certain cash inflows and outflows between fiscal year-end and subsequent interim periods.
Current wording
Our largest source of operating cash flows is cash collections from the sale of our merchandise. Our primary uses of cash include merchandise inventory purchases, lease and occupancy costs, personnel-related expenses, purchases of property and equipment, shipping costs, and payment of taxes. The seasonality of our operations, in addition to the impact of global economic conditions such as the uncertainty surrounding global inflationary pressures, acts of terrorism or war, global credit and banking markets, and the geopolitical landscape including new legislation and the potential impacts of recent elections, may lead to significant fluctuations in certain asset and liability accounts as well as cash inflows and outflows between fiscal year-end and subsequent interim periods.
Previous wording
Net cash provided by operating activities increased $51 million during the first half of fiscal 2024 compared with the first half of fiscal 2023, primarily due to the following:
Current wording
Net cash provided by operating activities increased $38 million during the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023, primarily due to the following:
Previous wording
•an increase of $47 million due to a gain that occurred during the first half of fiscal 2023 resulting from the sale of a building;
Current wording
•an increase of $47 million due to a gain that occurred during the first three quarters of fiscal 2023 resulting from the sale of a building;
Previous wording
Changes in operating assets and liabilities
Current wording
Change in operating assets and liabilities
Previous wording
Net cash used for investing activities increased $313 million during the first half of fiscal 2024 compared with the first half of fiscal 2023, primarily due to the following:
Current wording
Net cash used for investing activities increased $373 million during the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023, primarily due to the following:
Previous wording
•$243 million of net purchases of short-term investments during the first half of fiscal 2024; and
Current wording
•$246 million of net purchases of short-term investments during the first three quarters of fiscal 2024; and
Previous wording
•$76 million in net proceeds from the sale of a building during the first half of fiscal 2023.
Current wording
•$76 million in net proceeds from the sale of a building during the first three quarters of fiscal 2023.
Previous wording
Net cash used for financing activities decreased $185 million during the first half of fiscal 2024 compared with the first half of fiscal 2023, primarily due to $200 million for repayments of ABL Facility borrowings during the first half of fiscal 2023.
Current wording
Net cash used for financing activities decreased $323 million during the first three quarters of fiscal 2024 compared with the first three quarters of fiscal 2023, primarily due to $350 million for repayments of revolving credit facility borrowings during the first three quarters of fiscal 2023.
Previous wording
We paid a dividend of $0.15 per share during the second quarter of fiscal 2024. In August 2024, the Board authorized a dividend of $0.15 per share for the third quarter of fiscal 2024.
Current wording
We paid a dividend of $0.15 per share during the third quarter of fiscal 2024. In November 2024, the Board authorized a dividend of $0.15 per share for the fourth quarter of fiscal 2024.
Rearranged previous paragraphs (3)
Previous report — wording carried elsewhere
•an increase in performance-based compensation; partially offset by
Previous report — wording carried elsewhere
•a decrease in advertising expenses; and
Previous report — wording carried elsewhere
•restructuring expenses of $13 million incurred during the second quarter of fiscal 2023 as a result of actions taken to simplify and optimize our operating model and structure.