Gap (GPS)

Q4 2010 Earnings Call

February 24, 2011 5:00 pm ET

Executives

Mark Webb -

Glenn Murphy - Chairman and Chief Executive Officer

Sabrina Simmons - Chief Financial Officer, Principal Accounting Officer and Executive Vice President of Finance

Analysts

Stacy Pak - Prudential

Michelle Tan - UBS

Betty Chen - Wedbush Securities Inc.

Adrienne Tennant - Janney Montgomery Scott LLC

John Morris - BMO Capital Markets U.S.

Tracy Kogan - Credit Suisse

Ike Boruchow

Samantha Panella - Raymond James & Associates, Inc.

Evren Kopelman - Wells Fargo Securities, LLC

Kimberly Greenberger - Morgan Stanley

Janet Kloppenburg - JJK Research

Presentation

Operator

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Previous Statements by GPS
» Gap CEO Discusses Q3 2010 Results - Earnings Call Transcript
» Gap CEO Discusses Q2 2010 Results - Earnings Call Transcript
» The Gap Inc. Q1 2010 Earnings Call Transcript

Good afternoon, ladies and gentlemen. My name is Marcel, and I will be your conference operator today. At this time, I would like to welcome everyone to the Gap Inc. Fourth 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 Fourth Quarter 2010 Earnings Conference Call. For those of you participating in the webcast, please turn to Slides 2 and 3.

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 gapinc.com. These forward looking statements are based on information as of February 24, 2011, and we assume no obligation to publicly update or revise our forward-looking statements.

Joining us on the call today are Chairman and CEO, Glenn Murphy, and Executive Vice President and CFO, Sabrina Simmons. Now, I'd like to turn the call over to Glenn.

Glenn Murphy

Thank you, Mark, and good afternoon, everybody. Before I hand the call over to Sabrina, let me give you some highlights from my perspective on 2010, and then we're going to take a few minutes to talk about 2011 and how we're continuing to build on our total strategy for Gap Inc. At our investor meeting in October, we talked about a range of performance on a comp level the business is trying to achieve, being between a flat and plus a five comp. We've now done that for six quarters in a row. And our total sales, our absolute total sales, were up 3% for the full year. That's a 200 basis point delta versus our comp. And in Q4, we had a 300 basis point delta versus our comp. So our total sales are starting to kick in. You're getting that from our Internet business, which has been very strong; from our franchise business, which is growing at a very nice rate; and from new stores that we've opened, either Outlet locations we've opened or new country openings in China and in Italy.

Our operating margin has gone from 12.8% to 13.4% in 2010, a 60 basis point improvement, and we're now starting to figure out the comfort zone for the company, which is growing EBIT dollars, which is important -- complement with our share buyback program gave us an EPS improvement of 19%. As you look at the last four years, Gap Inc. has had a CAGR improvement of 19% on EPS.

So from a financial perspective, I thought there was a continuation of very good performance in the bottom line, some comp performance, which has been absent in this business for far too long with our 1% comp in 2010, and we're using that to make sure our team's know here that this is the kind of company that needs to build every year and needs to start showing growth in its North American business. It's a really good accomplishment in 2010.

We continue with our real estate strategy. I think we did a good job in store consolidations, our remodeled programs, we did 200 stores at Old Navy in 2010 and we reduced almost 1 million square feet out of our fleet.

Our speed pipeline is now in place, so every one of our brands will be using that to get closer to their customers. The closer you get to the customer on product, the better it is for us when it comes to product acceptance.

China was a big opening for the company. We opened four stores in the fall and all of them are in the top 10% performance of our stores around the world. We opened up in Italy, in Milan. Great opening of a Banana Republic, complemented with a Gap beside it, and those two stores are in the top 10 stores around the world in each one of their brands. Our franchise business opened up in four countries. We're now in 23 countries, and we're seeing the momentum now. Franchisees are excited about Banana Republic and Gap. More stores in existing countries and more franchisees wanting more countries that they can be the master franchisee for.

Our online business went global in 2010. We now are shipping to 90 countries around the world. Just six months ago, we were shipping into one country, and we're now shipping into 90 countries around the world. Our global Outlet business has got a lot of momentum behind it. We've opened up in power centers now in Canada, we've opened up also in power centers in the U.K., and we've introduced our Gap outlet business to value centers in Japan.

Athleta opened up its first flagship store here in San Francisco. So there's now two Athleta stores, but that was a big milestone. We went from a catalog business to being online on the web to the universality platform with Gap Inc.'s family of brands, and now a physical presence with this very nice and well-received flagship store in San Francisco.

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