Gap (GPS)

Q4 2011 Earnings Call

February 23, 2012 5:00 pm ET

Executives

Katrina O'Connell -

Glenn K. Murphy - Chairman and Chief Executive Officer

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

Analysts

Christine Chen - Needham & Company, LLC, Research Division

Michelle Tan - Goldman Sachs Group Inc., Research Division

Laura A. Champine - Collins Stewart LLC, Research Division

Roxanne Meyer - UBS Investment Bank, Research Division

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

Jeff Black - Citigroup Inc, Research Division

John D. Morris - BMO Capital Markets U.S.

Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division

Stacy W. Pak - Barclays Capital, Research Division

Paul Lejuez - Nomura Securities Co. Ltd., Research Division

Presentation

Operator

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Good afternoon, ladies and gentlemen. My name is Doris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Gap Inc. Fourth Quarter 2011 Conference call. [Operator Instructions] I would now like to introduce your host, Katrina O'Connell, Vice President of Investor Relations.

Katrina O'Connell

Good afternoon, everyone. Welcome to Gap Inc.'s Fourth Quarter 2011 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 23, 2012, 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 K. Murphy

Thank you, Katrina, and good afternoon, everybody. In a few minutes, I'll hand the conference call over to Sabrina, who'll take you through 2011 highlights and also talk to you about our guidance and some key metrics for 2012. So before we get to that, I want to take you through a couple of thoughts I had on this past year and also talk to you about where I see 2012 in terms of the company's strategic plan and what investments we see ourselves making in the upcoming year. In spite of 2011 earnings being below last year, we actually did make quite a bit of progress against our strategic plan. So we have 2 key initiatives that Gap Inc. has been pursuing for the last 4 years that make up our strategic plan.

The first key initiative is to reduce our dependency on our North American specialty bricks and mortar business. So we did accomplish quite a bit on that front in 2011. First off, we grew our online business of penetration to our total sales by 2 percentage points. The second thing we did is we reduced our specialty square footage by over 4%, while at the same time growing our outlet square footage domestically by 4%. We closed 65 stores domestically and we opened up 8 Athleta stores, very successful, I may add, and that makes us feel very good about our future for 2012 and beyond.

The second area which we made quite a bit of progress is our move to expand our brands internationally. At the beginning of the year, we operate in 31 countries, combination of franchised and company-owned stores, and we ended 2011 by operating in 39 countries. In China, we opened 10 stores. We finished the year with 14 stores and feel very good about the progress we're making in China, particularly in Hong Kong. And in 2012, we have a plan right now to open 30 stores. Franchise business, where we opened 50 stores and good performance were seen in our franchise business and we grew total year 2011 at greater than 40%, and we see an opportunity to open at least 50 stores in 2012. We added global outlet into Italy, in Japan, in the U.K. and we'll be taking our global outlet business to China in the fall of 2012.

And lastly, Banana Republic opened up in Paris, in the Champs-Élysées, and a beautiful store and that will be the beginning of Banana Republic expanding into France. As we come into 2012, our goal clearly is to advance our strategic plan in this fiscal year, while at the same time improving our sales and earnings profile of the corporation.

So in order to ensure success, one of my key mandates through 2011 was to make sure the business took appropriate corrective measures in some key areas to make sure we can deliver on that latter goal of improving our sales and earnings profile in 2012.

So there's 4 areas that we've been focused on in the last fiscal year: product; our assortment; our marketing; and our supply chain. So let me first talk about product. Probably the biggest change we made throughout the year in 2011 was the creation of the Gap Global Creative Center in New York City. That was the bringing together, from a domestic and international perspective, design, marketing and production to create one amazing hub of creativity at New York City for all of our stores around the world. Really, the first output from that team just showed up in our stores globally 2 weeks ago. I really like the progress I've seen that's come out under Pam Wallack's leadership in New York. The other changes have been quite a bit of investment in people, to make through the year and continue to make going forward. The first one that came out was the creation of this Creative Advisor role. Tracy Gardner joined us about 4 weeks ago. We just announced that Jill Stanton will be Creative Advisor at Old Navy. Jill has an amazing background in Next, Marks & Spencer and Nike globally.

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