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Gap (GPS)

Q3 2010

Earnings Call

November 18, 2010 5:00 p.m. ET


Mark Webb – Vice President, Investor Relations

Glenn Murphy – Chairman and CEO

Sabrina Simmons – Executive Vice President and CFO


Betty Chen - Wedbush Securities

Jeff Klinefelter - Piper Jaffray

John Morris - Bank of Montreal

Edward Yruma – KeyBanc Capital Markets

Kimberly Greenberger - Morgan Stanley

John Morris - Bank of Montreal

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Good afternoon, ladies and gentlemen. At this time, I would like to welcome everyone to the Gap Inc. third quarter 2010 conference call. [Operator Instructions.] I would now like to introduce your host, Mark Webb, vice president of investor relations.

Mark Webb

Good afternoon, everyone. Welcome to Gap Inc.’s third quarter 2010 earnings conference call. For those of you participating in the webcast, please turn to slides two and three.

I’d like to remind you that the information made available on this webcast and conference call contains forward-looking statements. For information on factors that could cause our actual results to differ materially from the forward-looking statements, as well as reconciliations of measures we are required to reconcile to GAAP financial measures, please refer to today's press release, as well as our most recent annual report on Form 10-K and our most recent quarterly report on Form 10-Q, all of which are available on

These forward-looking statements are based on information as of November 18, 2010, and we assume no obligation to publicly update or revise our forward-looking statements. On the call today, we have Chairman and CEO Glenn Murphy and Executive Vice President and CFO Sabrina Simmons.

Now, I’ll turn the call over to Glenn.

Glenn Murphy

Thank you Mark, and good afternoon everyone. Before I hand the call over to Sabrina to take you through the financial results for Q3, I thought I'd spend a little bit of time giving you some updates from a meeting we had a month ago in New York in which myself and Sabrina and other senior executives from the company laid out our strategic plan for Gap Inc. going forward.

In that meeting, one of the key topics that I touched on was that our goal is to have our sales comp on a quarterly basis between zero and 5%, and in this quarter we had a flat comp in Q3 on the low end of the range, but within a range that we feel appropriate for the long-term view and where we want to take our business. By the way, that makes five quarters in a row that the corporation has been within that range.

Let me touch on the growth initiatives that we spoke about a month ago. So in the last week we have opened up our stores in China, which is very exciting for the business. We now have Gap brand operating in both Shanghai and Beijing, three stores open and our fourth store is going to open up in a couple of weeks.

What I'm actually most excited about when it comes to China is our online channel opened up simultaneously with our stores, and that is part of the company's long-term view and strategic approach to winning in all of our markets, opening up our brands and then complementing that with our online and our outlet business. I'm actually heading out on Friday to spend a few days in China visiting with the team and getting an update on our progress so far, but it's a milestone moment for the corporation.

Very quickly following on the heels of the China opening, we opened up Gap brand in Italy, our first store in Milan, and after that we'll be opening up Banana Republic also in Milan, so that's another great initiative for the corporation.

Our international franchise business just continues to get stronger and stronger. We opened up Sydney in Australia, which is our second store in Australia, followed on the heels of our most successful store opening ever for the franchise business, which was in Melbourne. We also opened up a new country in Croatia, and our total sales in the franchise business for Q3 were up 45%. And our store count year-to-date is up 20%, which really puts us on track for the target we set for ourselves, which is doubling our store count in the franchise business to 400 stores within the next five years.

Banana Republic in Europe opened up its fourth store. We now have four stores in London. This is the beginning of exposing Banana Republic, first with London, then followed by Milan, followed next year by Paris, and taking that brand out into the European market where Gap brand is already very strong.

Our Banana Republic factory stores - we now have four of those stores in Japan. We've had Gap outlet stores in Japan for many years, but this is the beginning of introducing Banana Republic factory stores into the Japanese market.

On the online business, let me just touch on one of our sub-brands, which is Piperlime. We introduced apparel just over a year ago. Now we're working with vendors to bring us some private label apparel and it's off to a very nice start. And we know this is the path that we have defined for Piperlime, so it's one step at a time, from its infancy four years ago as an online shoe retailer only to now being able to provide multiple categories and multiple price points for all the Piperlime customers.

Now here are two key initiatives - I don't feel that it's necessary to get into too much detail, because just a month ago we were together in New York and each one of the brand presidents, Marka, Jack, and Tom, spoke extensively about their strategies on product and other key initiatives. So I just want to update you on marketing effectiveness and how I'm feeling about consistent product execution.

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