Sabrina Simmons. Executive Vice President and Chief Financial Officer

Transcription

1 Sabrina Simmons Executive Vice President and Chief Financial Officer

2 Disclosure Statement Forward-Looking Statements This presentation contains forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of All statements other than those that are purely historical are forward-looking statements. Forward-looking statements include statements regarding future financial results, strategic initiatives and expansion plans, store closures and the financial impact, and returning cash to shareholders. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our actual results to differ materially from those in the forward-looking statements. Information regarding factors that could cause results to differ can be found in our June 16, 2015 press release regarding this investor conference and our Annual Report on Form 10-K for the fiscal year ended January 31, 2015, both of which are available on gapinc.com. These forward-looking statements are based on information as of June 16, We assume no obligation to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. SEC Regulation G This presentation includes the non-gaap measures free cash flow, adjusted debt to capital, earnings per share excluding estimated pre-tax costs, foreign exchange impact on operating income and earnings per share, and adjusted debt to EBITDAR. The description or reconciliation to GAAP of these measures is included in our June 16, 2015 press release, which is available on gapinc.com.

3 Agenda Financial performance and goals Gap brand actions Capital structure

4 Five Year Track Record: Sales growth of over $2 billion 13% earnings per share CAGR Generated about $6 billion in free cash flow Increased dividend per share 120% Distributed over $8.5 billion in cash Total shareholder return of about 140%

5 Economic Model Grow revenue Positive comps on ~$15 billion comp base Grow newer brands Focus on faster-growing channels, e.g., online Expand international business, especially Asia Healthy merchandise margins Leverage expenses Expand operating margin Deliver double-digit EPS growth

6 2015 Challenges West coast ports Foreign exchange Product acceptance at Gap brand

7 Foreign Exchange Headwinds More than 20% depreciation in Yen and CAD since 2013 On average ~$90 million negative operating income impact in 2013 and 2014 Significant negative operating income impact also expected in 2015

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9 Gap North America Fleet Optimization ~685 ~500 Gap Specialty ~275 ~ Goal: ~800 Total Gap North America Stores Increase in productivity and contribution rate 0 Gap Outlet 2014 YE 2018 Goal

10 Estimated One-Time Charges in 2015 $ Millions Estimated P&L Impact Estimated Cash Impact Lease Buyouts ~$40 ~$40 Asset Impairment* $50 - $70 - Inventory/Fabric Write-Off ~$25 ~$20 Employee-Related Costs* ~$25 ~$25 Total $140 - $160 ~$85 * Includes immaterial one-time charges related to potential impairment for certain non-gap brand assets and employee-related costs.

11 Other Metrics ~$25M Annualized Savings ~6 year payback $ $2.80 * Reaffirming 2015 Full Year EPS Guidance Excluding Estimated 2015 One-time Charges *Full-year 2015 diluted earnings per share guidance of $2.75 to $2.80 excludes estimated pre-tax charges of $140 million to $160 million (approximately $0.21 to $0.24 per diluted share) primarily related to the Gap brand fleet optimization effort.

12 Strong Cash Flow Profile Five year average $1.8B Annualized Average Operating Cash Flow $1.1B Annualized Average Free Cash Flow

13 Share Repurchases Driving Value +600M shares repurchased since 2005 ~$22 10 year average repurchase price ~90% YE 2014 price ~90% higher than 10 year average purchase price

14 Historical Dividend Annualized dividend per share $0.80 $0.88 $0.92 $0.40 $0.45 $ E ~$1.5 billion in dividends to shareholders from

15 Capital Structure Minimize the weighted average cost of capital Preserve sufficient access to low-cost funding Current capital structure balances these objectives

16 Leverage Ratios Adjusted Debt to Total Capital Adjusted Debt to EBITDAR Gap Inc. 34% Gap Inc. 2.0 L Brands 25% L Brands 2.6 Macy's 27% Macy's 2.1 Nordstrom 22% Nordstrom 1.9 Target 21% Target 2.0 T.J. Maxx 16% T.J. Maxx 1.5 Source: Bloomberg

17 Thank you