GAP INC
For the period ended May 3, 2025. Filed May 30, 2025.
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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.
May 3, 2025 · Filed May 30, 2025
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 2024-11-02; filed 2024-11-26.
0000039911-24-000202
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-05-03; filed 2025-05-30.
0000039911-25-000079
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 88 previous paragraphs and 72 current paragraphs.
38 unchanged; 26 reworded; 8 added; 23 removed; 1 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 (8)
Current report
Macroeconomic factors, including uncertainty surrounding global geopolitical instability, inflationary pressures, foreign currency fluctuations, and changes in interest rates, duties, tariffs, tax laws, and other restrictions as a result of government fiscal, monetary, trade, and tax policies, continue to create a complex and challenging retail environment. The United States has recently enacted significant changes to its trade policy and imposed substantial tariffs on imported goods from a number of countries. Certain of these tariffs are currently paused. Changes in U.S. trade policy and uncertainty surrounding tariff rates have contributed to overall macroeconomic volatility, and the eventual outcome of the trade policy may increase the cost of our merchandise and therefore negatively impact our gross margins in future quarters.
Current report
The macroeconomic environment has had and may continue to have an impact on consumer behavior, and we anticipate continued uncertainty related to the macroeconomic environment during fiscal 2025. We will continue to monitor macroeconomic conditions and evaluate potential mitigating actions. For additional information on risks related to macroeconomic conditions and our supply chain, see the sections entitled “Risk Factors—Risks Related to Macroeconomic Conditions—Global economic conditions have and could continue to adversely affect our business, financial condition, and results of operations” and “Risk Factors—Risks Related to Our Business Operations—Trade matters may disrupt our supply chain,” in Part II, Item 1A, Risk Factors, of this Form 10-Q.
Current report
As of May 3, 2025 and May 4, 2024, the Company's franchise partners operated approximately 1,000 franchise stores.
Current report
Cost of goods sold and occupancy expenses decreased 0.6 percentage points as a percentage of net sales in the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024.
Current report
•Cost of goods sold was flat as a percentage of net sales in the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024. Changes in U.S. trade policy and uncertainty surrounding tariff rates have contributed to overall macroeconomic volatility, and the eventual outcome of the trade policy may increase cost of goods sold and therefore negatively impact our gross margins in future quarters.
Current report
•a decrease of $113 million related to accrued expenses and other current liabilities primarily due to higher payments for performance-based compensation during the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024; and
Current report
•a decrease of $56 million related to merchandise inventory in part due to timing of receipts during the first quarter of fiscal 2025.
Current report
Net cash used for financing activities increased $76 million during the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024, primarily due to $70 million in repurchases of common stock during the first quarter of fiscal 2025 compared with no repurchases during the first quarter of fiscal 2024.
Removed paragraphs (23)
Previous report
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 report
(1)The 89 Gap China stores that were transitioned to Baozun during the period are not included as store closures or openings for Company-operated and Franchise store activity. The ending balance for Gap Asia excludes Gap China stores and the ending balance for Franchise includes Gap China locations transitioned during the period.
Previous 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.
Previous 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.
Previous 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.
Previous report
•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 report
•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 report
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 report
•an increase in performance-based compensation; and
Previous report
•a gain on sale of building of $47 million that occurred during the first quarter of fiscal 2023; partially offset by
Previous report
•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 report
•a decrease in advertising expenses.
Previous report
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 report
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 report
Our voluntary SCF program provides certain suppliers with the opportunity to sell their receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. We are not a party to the agreements between our suppliers and the financial institutions and our payment terms are not impacted by whether a supplier participates in the SCF program. See Note 12 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on the Company's SCF program.
Previous report
Net Income
Previous report
•an increase in net income;
Previous report
Non-cash item
Previous report
•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 report
Change in operating assets and liabilities
Previous 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.
Previous report
•$76 million in net proceeds from the sale of a building during the first three quarters of fiscal 2023.
Previous report
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.
Reworded paragraphs (26)
Previous wording
We are a collection of lifestyle brands offering apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. We have Company-operated stores in the United States, Canada, Japan, and Taiwan. Our products are available to customers online through Company-owned websites and through third-party arrangements. We also have franchise agreements to operate Old Navy, Gap, Banana Republic, and Athleta throughout Asia, Europe, Latin America, the Middle East, and Africa. Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names. In addition to operating in the specialty, outlet, online, and franchise channels, we use our omni-channel capabilities to bridge the digital world and physical stores to further enhance our shopping experience for our customers. Our omni-channel services, including buy online pick-up in store, order-in-store, find-in-store, and ship-from-store, as well as enhanced mobile-enabled experiences, are tailored uniquely across our collection of brands. Most of the products sold under our brand names are designed by us and manufactured by independent sources.
Current wording
We are a house of iconic brands offering apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. Our products are available to customers both in stores and online, through Company-operated and franchise stores, websites, and third-party arrangements. We have Company-operated stores in the United States, Canada, Japan, and Taiwan. We also have franchise agreements to operate Old Navy, Gap, Banana Republic, and Athleta throughout Asia, Europe, Latin America, the Middle East, and Africa. Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names. In addition to operating in the specialty, outlet, online, and franchise channels, we use our omni-channel capabilities to bridge the digital world and physical stores. The shopping experience is further enhanced by our omni-channel services, including buy online pick-up in store, order-in-store, and ship-from-store, as well as enhanced mobile-enabled experiences, which allow our customers to shop seamlessly across our brands and channels. Our brands have shared investments in supply chain and inventory management, which allows us to optimize efficiency and responsiveness in our operations. Most of the products sold under our brand names are designed by us and manufactured by independent sources.
Previous wording
Financial results for the third quarter of fiscal 2024 are as follows:
Current wording
Financial results for the first quarter of fiscal 2025 are as follows:
Previous wording
•Net sales for the third quarter of fiscal 2024 increased 2 percent compared with the third quarter of fiscal 2023.
Current wording
•Net sales for the first quarter of fiscal 2025 increased 2 percent compared with the first quarter of fiscal 2024.
Previous 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.
Current wording
•Store and franchise sales for the first quarter of fiscal 2025 were flat compared with the first quarter of fiscal 2024, and online sales for the first quarter of fiscal 2025 increased 6 percent compared with the first quarter of fiscal 2024.
Previous 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.
Current wording
•Gross profit for the first quarter of fiscal 2025 was $1.45 billion compared with $1.40 billion for the first quarter of fiscal 2024. Gross margin for the first quarter of fiscal 2025 was 41.8 percent compared with 41.2 percent for the first quarter of fiscal 2024.
Previous wording
•Operating income for the third quarter of fiscal 2024 was $355 million compared with $250 million for the third quarter of fiscal 2023.
Current wording
•Operating income for the first quarter of fiscal 2025 was $260 million compared with $205 million for the first quarter of fiscal 2024.
Previous 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.
Current wording
•The effective income tax rate for the first quarter of fiscal 2025 was 26.6 percent compared with 24.0 percent for the first quarter of fiscal 2024.
Previous wording
•Net income for the third quarter of fiscal 2024 was $274 million compared with $218 million for the third quarter of fiscal 2023.
Current wording
•Net income for the first quarter of fiscal 2025 was $193 million compared with $158 million for the first quarter of fiscal 2024.
Previous 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.
Current wording
•Diluted earnings per share was $0.51 for the first quarter of fiscal 2025 compared with $0.41 for the first quarter of fiscal 2024.
Previous wording
•Merchandise inventory as of the third quarter of fiscal 2024 decreased 2 percent compared with the third quarter of fiscal 2023.
Current wording
•Merchandise inventory as of the first quarter of fiscal 2025 increased 7 percent compared with the first quarter of fiscal 2024.
Previous wording
We are focused on the following strategic priorities in the near term:
Current wording
While we continue to transform, we remain focused on the following strategic priorities in the near term:
Previous wording
•continuing to integrate social and environmental sustainability into business practices to support long-term growth.
Current wording
•continuing to integrate sustainability into business practices to support long-term growth.
Previous wording
Comp Sales include the results of Company-operated stores and sales through our online channel. The calculation of Comp Sales excludes the results of the franchise and licensing business.
Current wording
Comp Sales include the results of Company-operated stores and sales through our online channel. The calculation of Comp Sales excludes the results of the franchise and our licensing business.
Previous wording
Store count, openings, closings, and square footage for our stores are as follows:
Current wording
Store count, net openings/closings, and square footage for our stores are as follows:
Previous 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.
Current wording
Our net sales increased $75 million, or 2 percent, during the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024, driven primarily by an increase in online sales.
Previous 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.
Current wording
•Occupancy expenses decreased 0.6 percentage points as a percentage of net sales in the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024, primarily driven by an increase in online sales without a corresponding increase in occupancy expenses.
Previous 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:
Current wording
Operating expenses were relatively flat, but decreased 0.9 percentage points as a percentage of net sales during the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024, primarily due to an increase in net sales while maintaining operating discipline.
Previous 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.
Current wording
Interest income increased slightly during the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024, primarily due to higher cash balances, partially offset by lower interest rates.
Previous 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.
Current wording
The increase in the effective tax rate for the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024 is primarily due to less favorable impacts of stock-based compensation, as well as changes in the amount and mix of jurisdictional earnings.
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 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.
Current wording
In addition to our cash flows from operating activities, our primary sources of liquidity include cash and cash equivalents, short-term investments, and our ABL Facility. As of May 3, 2025, we had cash and cash equivalents of $1.98 billion and short-term investments of $244 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 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 May 3, 2025. See Note 4 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, for disclosures on our debt and credit facilities.
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, 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.
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. In addition, we may have dividend payments and share repurchases. The seasonality of our operations, in addition to the impact of macroeconomic factors, 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. These macroeconomic factors include uncertainty surrounding global geopolitical instability, inflationary pressures, foreign currency fluctuations, and changes in interest rates, duties, tariffs, tax laws, and other restrictions as a result of government fiscal, monetary, trade, and tax policies.
Previous wording
We believe our existing balances of cash, cash equivalents, and short-term investments, along with our cash flows from operations, and instruments mentioned above, provide sufficient funds for our business operations as well as capital expenditures, dividends, and other liquidity requirements associated with our business operations over the next 12 months and beyond.
Current wording
We believe our existing balances of cash, cash equivalents, and short-term investments, along with our cash flows from operations, and instruments mentioned above, provide sufficient funds for our business operations as well as capital expenditures, dividends, share repurchases, and other liquidity requirements associated with our business operations over the next 12 months and beyond.
Previous 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:
Current wording
Net cash used for operating activities was $140 million during the first quarter of fiscal 2025 compared with $30 million of net cash provided by operating activities during the first quarter of fiscal 2024, primarily due to the following:
Previous 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:
Current wording
Net cash used for investing activities decreased $218 million during the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024, primarily due to $198 million of net purchases of short-term investments during the first quarter of fiscal 2024.
Previous wording
In determining whether and at what level to declare a dividend, we consider a number of factors including sustainability, operating performance, liquidity, and market conditions.
Current wording
In determining whether and at what level to declare a dividend, our Board considers a number of factors including sustainability, operating performance, liquidity, and market conditions.
Previous 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.
Current wording
We paid a dividend of $0.165 per share during the first quarter of fiscal 2025. In May 2025, the Board authorized a dividend of $0.165 per share for the second quarter of fiscal 2025.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
•$246 million of net purchases of short-term investments during the first three quarters of fiscal 2024; and