Q2 2025 The Gap Inc Earnings Call

August 29, 2024

Good afternoon ladies and gentlemen.

Unknown Executive: Second Quarter, 2024, Earnings Conference Call. At this time, all participants earn a listen-only mode. For those analysts who wish to participate in the question-and-answer session after the presentation, you may now press star one to enter the Q&A queue.

Speaker Change: I would like to welcome everyone to the gap in 2nd quarter 2024 earnings conference call. At this time, all participants are in a listen only mode.

Speaker Change: For those analysts who wish to participate in the question and answer session after the presentation, you may now press star 1 to enter the Q&A queue.

Unknown Executive: As a reminder, please limit your questions to one per participant. If anyone should require assistance during the call, please press the star key followed by the zero key on your touchtone phone.

Speaker Change: As a reminder, please limit your questions to one per participant.

Speaker Change: If anyone should require assistance during the call, please press the star key followed by the zero key on your touch tone phone. I would now like to introduce your host, Whitney Notaro, head of Investor Relations.

Whitney Notaro: I would now like to introduce your host, Whitney Notaro, Head of Investor Relations. Thank you and good afternoon, everyone. Welcome to Gap Inc. Second Quarter, Fiscal 2024, Earnings Conference Call.

Whitney Notaro: Thank you, and good afternoon everyone. Welcome to Gap Inc. 2nd quarter fiscal 2024 earnings conference call. Before we begin, I'd like to remind you that the information made available on this conference call contains forward-looking statements. There are subjects to risks that could cause our actual results to be materially different.

Whitney Notaro: Before we begin, I'd like to remind you that the information made available on this conference call contains forward-looking statements. They're subject to risks that could cause our actual results to be materially different. For information on factors that could cause our actual results to differ materially from any forward-looking statements, please refer to the cautionary statements contained in our latest earnings release. The risk factors described in the company's annual report on Form 10-K filed with the Securities and Exchange Commission on March 19, 2024, and any subsequent filings with the Securities and Exchange Commission, all of which are available on GapInc.com.

Whitney Notaro: For information on factors that could cause our actual results to differ materially from any forward-looking statements, please refer to the cautionary statements contained in our latest earnings release.

Whitney Notaro: The risk factors described in the company's annual report on Form 10K filed with the Securities and Exchange Commission on March 19, 2024, and any subsequent filings with the Securities and Exchange Commission, all of which are available on gapping.com.

Whitney Notaro: These forward-looking statements are based on information as of today, August 29, 2024, and we assume no obligation to publicly update or revise our forward-looking statements.

Whitney Notaro: These four-looking statements are based on information as of today, August 29, 2024, and we assume no obligation to publicly update or revise our four-looking statements.

Whitney Notaro: Our latest earnings release and the accompanying materials available on GapInc.com also include descriptions and reconciliation of any financial measures not consistent with generally accepted accounting principles.

Whitney Notaro: Our latest earnings release and the accompanying materials available on gapping.com Also include descriptions and reconciliation of any financial measure is not consistent which generally accepted accounting principles.

Whitney Notaro: Joining me on the call today are Chief Executive Officer Richard Dickson and Chief Financial Officer Katrina O'Connell.

Speaker Change: Joining me on the call today, our chief executive officer, Richard Dickson, and chief financial officer, Katrina O'Connell. With that, I'll turn the call over to Richard.

Richard Dickson: With that, I'll turn the call to thank you for joining us. Gap Inc. delivered another successful quarter that exceeded financial expectations, and we gained market share for the sixth consecutive quarter. In comparison to where we were only one year ago, we are in a stronger position across key metrics that matter, including net sales, margins, and our cash position. And we're making consistent progress in the reinvigation of our brands.

Richard Dickson: Good afternoon and thank you for joining us.

Richard Dickson: Gap Inc. delivered another successful quarter that exceeded financial expectations and we gain market share for the 6th consecutive quarter.

Speaker Change: in comparison to where we were only one year ago, we are in a stronger position across key metrics that matter, including net sales, margins, and our cash position, and we're making consistent progress in the reinvigoration of our brands.

Richard Dickson: These results give me confidence that we are on our way to unlocking Gap Inc.'s full potential. On today's call, I'll provide an update on our second quarter performance and progress in the context of our four strategic priorities: maintaining and delivering financial and operational rigor, the reinvigoration of our brands, strengthening our operating platform, and energizing our culture.

Speaker Change: These results give me confidence that we are on our way to unlocking Gap Inks full potential.

Speaker Change: On today's call, I'll provide an update on our second quarter performance and progress in the context of our four strategic priorities, maintaining and delivering financial and operational rigor, the reinvigoration of our brands.

Whitney Notaro: 2nd quarter, 2024, Earnings Conference call. At this time, all participants earn a listen only mode. For those analysts who wish to participate in the question and answer session after the presentation, you may now press star 1 to enter the Q&A queue.

Speaker Change: Strengthening our operating platform and energizing our culture.

Richard Dickson: Then Katrina will walk you through our detailed financial results and share our outlook before we open the call for questions. Let's start with financial and operational rigor. As we said in the first quarter, this is becoming the fabric of our work, which we will continue to reinforce through better processes and cultural accountability and a focus on effectiveness and efficiency.

Speaker Change: Then Katrina will walk you through our detailed financial results and share our outlook before we open the call for questions.

Whitney Notaro: As a reminder, please limit your questions to one per participant. If anyone should require assistance during the call, please press the star key followed by the zero key on your touchtone phone.

Katrina O'connell: Let's start with financial and operational rigor.

Katrina: As we said in the first quarter this is becoming the fabric of our work, which we will continue to reinforce through better processes and cultural accountability and a focus on effectiveness and efficiency.

Whitney Notaro: I would now like to introduce your host, Whitney Notaro, Head of Investor Relations. Thank you. Good afternoon, everyone. Welcome to Gap Inc. 2nd quarter, fiscal 2024, Earnings Conference call. Before we begin, I'd like to remind you that the information made available on this conference call contains forward-looking statements. They're subject to risks that could cause our actual results to be materially different. For information on factors that could cause our actual results to differ materially from any forward-looking statements, please refer to the cautionary statements contained in our latest earnings release.

Richard Dickson: Gap Inc. Net sales were up 5% in the second quarter, and comps were up 3%, reflecting our continued focus on this important priority. Old Navy posted comps up 5%, representing four consecutive quarters of positive growth. Gap comps were up 3%, driven by 5 consecutive quarters of share gains. Banana Republic comps were flat as the brand continues to gain clarity on fixing the fundamentals, and as planned, Athletes comps were down 4% as we laughed heavy discounting. We expanded gross margin by 500 basis points, with SGNA largely in line with our expectations, delivering operating income of 293 million and an operating margin of 7.9%, an increase of 490 basis points versus last year's reported operating margin.

Speaker Change: Gap Inc., net sales were up 5% in the second quarter and comps were up 3% reflecting our continued focus on this important priority.

Whitney Notaro: The risk factor is described in the company's annual report on Form 10K filed with the Securities and Exchange Commission on March 19, 2024 and any subsequent filings with the Securities and Exchange Commission, all of which are available on Gap Inc.com. These forward-looking statements are based on information as of today, August 29, 2024, and we assume no obligation to publicly update or revise our forward-looking statements.

Speaker Change: Old Navy posted coms up 5% representing 4 consecutive quarters of positive growth.

Speaker Change: Gapcomps were up 3% driven by 5 consecutive quarters of share games.

Speaker Change: The nanorepublic calms were flat as the brand continues to gain clarity on fixing the fundamentals and as planned, athletic calms were down 4% as we laughed heavy discounting.

Speaker Change: We expanded gross margin by 500 basis points with SGA largely in line with our expectations.

Speaker Change: Delivering Operating Income of $293 million at an operating margin of 7.9% and increase of 490 basis points versus last year's reported operating margin.

Richard Dickson: EPS was 54 cents, up from 32 cents of reported EPS in the second quarter of 2023. We are maintaining inventory discipline, with Q2 levels down 5% year over year, and we ended the quarter with a strong cash balance of $2.1 billion and generated nearly $400 million in free cash flow.

Whitney Notaro: Our latest earnings release and the accompanying materials available on Gap Inc.com also include descriptions and reconciliation of any financial measure if not consistent, would generally accept it accounting principles.

Speaker Change: EPS was 54 cents up from 32 cents of reported EPS in the second quarter of 2023.

Speaker Change: We are maintaining inventory discipline with Q2 levels down 5% year over year and we ended the quarter with a strong cash balance of $2.1 billion and generated nearly $400 million in free cash flow

Whitney Notaro: Joining me on the call today are Chief Executive Officer Richard Dixon and Chief Financial Officer Katrina O'Connell. With that, I'll turn the call over to Richard. Good afternoon, and thank you for joining us.

Richard Dickson: Turning to our next strategic priority, we remain focused on driving relevance and revenue by executing on our brand reinvigoration playbook, which I've referenced over the last few quarters. We are building stronger brand identities supported by trend-right products amplified through more compelling storytelling with an innovative medium mix that is translating to greater cultural relevance. We are working to provide our customers with a more engaging army channel experience and aim to execute with excellence. Each brand is at a different point in the process, and I'm encouraged by the improvements we are driving across the portfolio.

Richard Dickson: Gap Inc, delivered another successful quarter that exceeded financial expectations and we gained market share for the sixth consecutive quarter. In comparison to where we were only one year ago, we are in a stronger position across key metrics that matter, including net sales, margins, and our cash position, and we're making consistent progress in the reinvigoration of our brands. These results give me confidence that we are on our way to unlocking Gap Inc's full potential.

Speaker Change: Turning to our next strategic priority, we remain focused on driving relevance and revenue by executing on our brand re-invigoration playbook which I've referenced over the last few quarters.

Speaker Change: We are building stronger brand identities supported by trend-right products, amplified through more compelling storytelling with an innovative media mix that is translating to greater cultural relevance.

Speaker Change: We are working to provide our customers with a more engaging, on-me-channel experience and aim to execute with excellence.

Richard Dickson: On today's call, I'll provide an update on our second quarter performance and progress in the context of our four strategic priorities, maintaining and delivering financial and operational rigor, the reinvigoration of our brands, strengthening our operating platform, and energizing our culture. Then Katrina will walk you through our detailed financial results and share our outlook before we open the call for questions. Let's start with financial and operational rigor. As we said in the first quarter, this is becoming the fabric of our work, which we will continue to reinforce through better processes and cultural accountability and a focus on effectiveness and efficiency.

Speaker Change: Each brand is at a different point in the process and I'm encouraged by the improvements we are driving across the portfolio.

Richard Dickson: I'll take you through how these elements are showing up at each one of our brands, starting with Old Navy. Over the past year, our operational rigor has enabled us to strengthen Old Navy's foundation and brand identity. We are winning in key categories with more clarity in pricing and in-store navigation, connecting our customers with products they want and compelling storytelling. As a result, we are driving market share gains and positive comps. Our trend-right product is driving share growth in women's, which is important as she's a gateway to the family. Our strategic pursuit to lead in the active category is paying off with sizeable market share gains, and we are leading again with dresses as we regain the number one position in the category according to Serkana.

Speaker Change: I'll take you through how these elements are showing up at each one of our brands starting with Old Navy.

Speaker Change: Over the past year, our operational rigor has enabled us to strengthen old Navy's foundation and brand identity.

Speaker Change: We are winning in key categories with more clarity in pricing and in store navigation, connecting our customers with products they want and compelling storytelling. As a result, we are driving market share gains and positive comps.

Speaker Change: Our trend-right product is driving share growth in women's, which is important as she's a gateway to the family.

Richard Dickson: Gap Inc, net sales were up 5% in the second quarter and comps were up 3% reflecting our continued focus on this important priority. Old Navy posted comps up 5%, representing four consecutive quarters of positive growth. Gap comps were up 3% driven by 5 consecutive quarters of share gains. Banana Republic comps were flat as the brand continues to gain clarity on fixing the fundamentals and as planned, Athletes comps were down 4% as we laughed heavy discounting.

Speaker Change: Our strategic pursuit to lead in the active category is paying off with sizable market share gains and we are leading again with dresses as we regain the number one position in the category according to Sarkana.

Richard Dickson: We also see an opportunity to lean further into denim with an expanded offering, a dynamic in-store and online experience supported by a new campaign expressing our evolving brand identity work. Old Navy's marketing is becoming more relevant as evidenced by the impact of the Summering campaign. This successful campaign featured Tracy Ellis Ross and Yara Shahidi, who exuded a carefree spirit of summer, dressed in on-brand stylish offerings. It was a great indication of our new and exciting creative for Old Navy.

Speaker Change: We also see an opportunity to lean further into denim with an expanded offering, a dynamic in-store and online experience supported by a new campaign expressing our evolving brand identity work.

Speaker Change: Well, maybe's marketing is becoming more relevant as evidenced by the impact of the Summary Campaign.

Richard Dickson: We expanded Gross Margin by 500 basis points with SGNA largely in line with our expectations, delivering operating income of 293 million and an operating margin of 7.9%, an increase of 490 basis points versus last year's reported operating margin. EPS was 54 cents up from 32 cents of reported EPS in the second quarter of 2023. We are maintaining inventory discipline with Q2 levels down 5% year over year and we ended the quarter with a strong cash balance of $2.1 billion and generated nearly $400 million in free cash flow.

Speaker Change: This successful campaign featured Tracy Ellis Ross and Yarsha Heady, who exuded a carefree spirit of summer dressed in on-brand, stylish offerings, it was a great indication of our new and exciting creative for Old Navy.

Richard Dickson: We are a stronger Old Navy than we were a year ago, and we will continue to operate with this level of rigor as we execute our brand reinvigoration playbook.

Speaker Change: We are a stronger old Navy than we were a year ago, and we will continue to operate with this level of rigor as we execute our brand reinvigoration playbook.

Richard Dickson: Now let's turn to Gats. We are focused on reigniting Gap's leadership in trend-right products and creative expression through big ideas and culturally relevant messaging, returning to our roots as a pop culture brand. While we've achieved great progress with five consecutive quarters of share gains for the brand and seven consecutive quarters of share gains in women, we continue to be relentlessly pursuing better. The response to our linen moves campaign has been fantastic. As we've become a destination for linen, our focus going forward is on repeating these types of creative expressions that leverage our heritage rooted in music and dance and declare a trend statement.

Speaker Change: Now let's turn to Gab.

Speaker Change: We are focused on reigniting gaps leadership in trend-right products and creative expression through big ideas and culturally relevant messaging Returning to our roots as a pop culture brand.

Richard Dickson: Turning to our next strategic priority, we remain focused on driving relevance and revenue by executing on our brand reinvigoration playbook which I've referenced over the last few quarters. We are building stronger brand identities supported by trend-right products amplified through more compelling storytelling with an innovative media mix that is translating to greater cultural relevance. We are working to provide our customers with a more engaging army channel experience and aim to execute with excellence.

Speaker Change: While we've achieved great progress with five consecutive quarters of share games for the brand and seven consecutive quarters of share games in women's, we continue to be relentlessly pursuing better.

Speaker Change: The response to our linen moves campaign has been fantastic as we've become a destination for linen.

Speaker Change: Our focus going forward is on repeating these types of creative expressions that leverage our heritage rooted in music and dance and declare a trend statement.

Richard Dickson: We've continued to extend our methodology through the Get Loose campaign that we launched last week, featuring Troy Savon and Dance Company CDK, declaring Gap as the destination for the baggy and oversized trend. Building on our momentum and share gains in kids, Gap recently launched one of the strongest back to school campaigns we believe we have had in years. We are taking a more innovative approach to kids as we embrace a new media mix model focusing on driving kid demand through mom-approved messaging. Collaborations continue to amplify Gap. We were pleased with the strength of our doughing collaboration that drove relevance and revenue.

Richard Dickson: Each brand is at a different point in the process and I'm encouraged by the improvements we are driving across the portfolio. I'll take you through how these elements are showing up at each one of our brands starting with Old Navy. Over the past year, our operational rigor has enabled us to strengthen Old Navy's foundation and brand identity. We are winning in key categories with more clarity in pricing and in-store navigation connecting our customers with products they want and compelling storytelling.

Speaker Change: We've continued to extend our methodology through the Get-Lose campaign that we launched last week, featuring Troy Savon and Dan's company CDK, declaring gap as the destination for the baggy and oversized trend.

Speaker Change: Building on our momentum and share gains in kids, Gap recently launched one of the strongest back-to-school campaigns we believe we had in years.

Speaker Change: We are taking a more innovative approach to kids as we embrace a new media mix model, focusing on driving kid demand through mom-approved messaging.

Richard Dickson: As a result, we are driving market share gains and positive comps. Our trend-right product is driving share growth in women's which is important as she's a gateway to the family. Our strategic pursuit to lead in the active category is paying off with sizeable market share gains and we are leading again with dresses as we regain the number one position in the category according to Serkana. We also see an opportunity to lean further into denim with an expanded offering a dynamic in-store and online experience supported by a new campaign expressing our evolving brand identity work.

Speaker Change: Collaborations continue to amplify Gap. We were pleased with the strength of our doughing collaboration that drove relevance and revenue, as well as frequency from loyal Gap customers.

Richard Dickson: As well as frequency from loyal Gap customers. Our mad happy collaboration enabled us to broaden our reach to a new customer base and is generating notable buzz.

Speaker Change: Our Mad Happy Collaboration enabled us to broaden our reach to a new customer base and is generating notable buzz.

Richard Dickson: Gap, our namesake brand, embodies symbolic cultural importance both internally and externally. We are excited to see the progress to date and believe we are well on our way to revitalizing this iconic American brand.

Speaker Change: Gap our namesake brand embodies symbolic, cultural importance both internally and externally. We are excited to see the progress to date and believe we are well on our way to revitalizing this iconic American brand.

Richard Dickson: Now let's turn to Banana Republic. Here we are focused on re-establishing this brand to thrive in the premium lifestyle space. We have more clarity around fixing the fundamentals with a sort of an architecture, pricing adjustments, and operational improvements. There is still significant work to be done, but we are continuing to perform while we transform Banana Republic into a stronger brand. At this stage, we are encouraged to see more stability across our men's business with improved depth of wardrobe and a more distinctive style. We are working to win in women's with better assortment planning, a focus on key items, and improved fit.

Speaker Change: Now, let's turn to Banana Republic.

Richard Dickson: Old Navy's marketing is becoming more relevant as evidenced by the impact of the summering campaign. This successful campaign featured Tracy Ellis Ross and Yara Shahidi who exuded a carefree spirit of summer dressed in on-brand stylish offerings. It was a great indication of our new and exciting creative for Old Navy. We are a stronger Old Navy than we were a year ago and we will continue to operate with this level of rigor as we execute our brand reinvigoration playbook.

Speaker Change: Here we are focused on re-establishing this brand to thrive in the premium lifestyle space.

Speaker Change: We have more clarity around fixing the fundamentals with a sort and architecture, pricing adjustments and operational improvements.

Speaker Change: There is still significant work to be done, but we are continuing to perform while we transform the Nano Republic into a stronger brand.

Speaker Change: At this stage, we're encouraged to see more stability across our men's business with improved depth of wardrobe and a more distinctive style.

Richard Dickson: Now, let's turn to Ga- We are focused on re-igniting Gap's leadership in trend-right products and creative expression through big ideas and culturally relevant messaging, returning to our roots as a pop culture brand. While we've achieved great progress with five consecutive quarters of share gains for the brand and seven consecutive quarters of share gains in women, we continue to be relentlessly pursuing better. The response to our linen moves campaign has been fantastic.

Speaker Change: We are working to win in women's with better assortment planning, a focus on key items and improved fit.

Richard Dickson: Across men's and women's, our customers continue to see more trend-right products through our BR classics and finest fabrics. Our refreshed flagship Soho store open in June and is an outstanding example of the brand's new expression celebrating the brand's heritage with a modern point of view.

Speaker Change: A crossmen's and women's are customers continue to see more trend-right products through our BR classics and finest fabrics.

Speaker Change: Our refreshed flagship Soho store opened in June and is an outstanding example of the brand's new expression. Celebrating the brand's heritage with a modern point of view.

Richard Dickson: And we are actively underway with the process to recruit the next leader for the brand.

Richard Dickson: As we've become a destination for linen, our focus going forward is on repeating these types of creative expressions that leverage our heritage rooted in music and dance and declare a trend statement. We've continued to extend our methodology through the Get Loose campaign that we launched last week featuring Troy Savon and Dance Company CDK declaring Gap as the destination for the baggy and oversized trend. Building on our momentum and share gains in kids, Gap recently launched one of the strongest back to school campaigns we believe we have had in years.

Speaker Change: and we are actively underway with the process to recruit the next leader for the brand.

Richard Dickson: Shifting to Athleta, we are resetting the brand, which has significant growth potential and a distinct brand identity rooted in the power of she. On the world stage in Paris where the power of she was prominently demonstrated, the cultural relevance of the Athleta brand was proudly represented. The athletes featured in our Anthem collection marketing campaign, including gold medalists Simone Biles and Katie Ledecky, who partner with Athleta not only for the superior product but for the celebration and empowerment of women that is core to our brand purpose. We are successfully broadening our customer base, seeing better sell through at full price.

Letta: Shifting to Ask Letta.

Letta: We are resetting the brand, which has significant growth potential and a distinct brand identity rooted in the power of she.

Letta: On the world's stage in Paris, where the power of she was prominently demonstrated, the cultural relevance of the athletic brand was proudly represented.

Letta: The athletes featured in our Anthem Collection Marketing Campaign, including gold medalists, Simone Biles and Katie LaDecchi, who partner with Athleta, not only for the superior product, but for the celebration and empowerment of women that is core to our brand purpose.

Richard Dickson: We are taking a more innovative approach to kids as we embrace a new media mix model focusing on driving kid demand through mom approved messaging. Collaborations continue to amplify Gap. We were pleased with the strength of our doughing collaboration that drove relevance and revenue. As well as frequency from loyal Gap customers. Our mad happy collaboration enabled us to broaden our reach to a new customer base and is generating notable buzz. Gap, our namesake brand embodies symbolic cultural importance both internally and externally. We are excited to see the progress to date and believe we are well on our way to revitalizing this iconic American brand.

Speaker Change: We are successfully broadening our customer base, seeing better self-through at full price. Our marketing execution is gaining traction. Our inventory position is cleaner and fashion products are resonating driven by new merchandising.

Richard Dickson: Our marketing execution is gaining traction. Our inventory position is cleaner, and fashion products are resonating, driven by new merchandising. We are gaining more confidence and excitement around the team's work to unlock athletic is incredible growth potential.

Speaker Change: We are gaining more confidence and excitement around the team's work to unlock athletic incredible growth potential.

Richard Dickson: As we move past headwinds in the first half, we expect the brand to return to positive comps for the remainder of the year.

Speaker Change: As we move past headwinds in the first half, we expect the brand to return to positive comes for the remainder of the year.

Richard Dickson: Moving to the third strategic priority, our operating platform. Last quarter, I spoke to you about opportunities to drive scale and efficiencies across our organization and to better support our brands through platform functions, including media and technology. In Q3, we have begun working with our new media agency partner, Omnicom, and are modernizing our capabilities. In addition to gaining leverage from this new partnership, we are excited about the opportunity for our media mix to become a growth engine for our brands over time. We are evolving from a promotional media mix focused on performance to a full funnel strategy in order to be more effective with our marketing spend.

Speaker Change: Moving to the 3rd Strategic Priority, our operating platform.

Speaker Change: Last quarter, I spoke to you about opportunities to drive scale and efficiencies across our organization, and to better support our brands through platform functions, including media and technology.

Richard Dickson: Now let's turn to Banana Republic. Here we are focused on reestablishing this brand to thrive in the premium lifestyle space. We have more clarity around fixing the fundamentals with a sort of an architecture pricing adjustments and operational improvements. There is still significant work to be done but we are continuing to perform while we transform Banana Republic into a stronger brand. At this stage we are encouraged to see more stability across our men's business with improved depth of wardrobe and a more distinctive style.

Speaker Change: In Q3, we have begun working with our new media agency partner, Amnacom, and our modernizing our capabilities. In addition to gaining leverage from this new partnership, we are excited about the opportunity for our media mix to become a growth engine for our brand's overtime.

Speaker Change: We are evolving from a promotional medium mix focused on performance to a full funnel strategy in order to be more effective with our marketing spend.

Richard Dickson: We are focused on becoming more consumer led, using data and optimization to a higher degree and implementing best practices in our execution.

Speaker Change: We are focused on becoming more consumer-led, using data and optimization to a higher degree, and implementing best practices in our execution.

Richard Dickson: This is a game-changing endeavor. We are early in our execution, but believe this will improve the economics of our marketing spend and change how we show up to our consumer.

Richard Dickson: We are working to win in women's with better assortment planning of focus on key items and improved fit. Across men's and women's our customers continue to see more trend right products through our BR classics and finest fabrics. Our refreshed flagship Soho store open in June and is an outstanding example of the brand's new expression celebrating the brand's heritage with a modern point of view. And we are actively underway with the process to recruit the next leader for the brand.

Speaker Change: This is a game-changing endeavor. We are early in our execution, but believe this will improve the economics of our marketing spend and change how we show up to our consumer.

Richard Dickson: In terms of technology, during the quarter, we announced spend grigets as cheap technology officer, recognizing the central and growing importance of digital in our business and for our customers. It's important that we move quickly to a way of thinking and working with technology embedded at our core to drive value, solve problems, and serve our customers. We are evaluating and assessing our infrastructure, talent, and capabilities as we focus on becoming a digital first, high performing apparel company.

Sven Gergett: In terms of technology, during the quarter we announced Sven Gergett, as chief technology officer, recognizing the central and growing importance of digital in our business and for our customers.

Sven Gergett: It's important that we move quickly to a way of thinking and working with technology embedded at our core, to drive value, solve problems, and serve our customers.

Richard Dickson: Shifting to athletic we are resetting the brand which has significant growth potential and a distinct brand identity rooted in the power of she. On the world stage in Paris where the power of she was prominently demonstrated the cultural relevance of the athletic brand was proudly represented. The athletes featured in our anthem collection marketing campaign including gold medalists Simone Biles and Katie Ladecki who partner with Athleta not only for the superior product but for the celebration and empowerment of women that is core to our brand purpose.

Sven Gergett: We are evaluating and assessing our infrastructure, talent, and capabilities as we focus on becoming a digital first, high-performing a parallel company.

Richard Dickson: Now, turning to our fourth strategic priority, energizing our culture. A great strategy can only go so far without a culture that is united and mobilized behind it. So I've been highly focused on this priority and intentional about visiting stores across the country to engage, listen, and learn from our store associates and the customers we serve, and to reinforce that every store matters and every person matters.

Sven Gergett: Now, turning to our fourth strategic priority, energizing our culture.

Sven Gergett: A great strategy can only go so far without a culture that is united and mobilized behind it.

Sven Gergett: So I've been highly focused on this priority and intentional about visiting stores across the country to engage, listen and learn from our store associates and the customers we serve and to reinforce that every store matters and every person matters.

Richard Dickson: We are successfully broadening our customer base, seeing better sell through it full price. Our marketing execution is gaining traction. Our inventory position is cleaner and fashion products are resonating driven by new merchandising. We are gaining more confidence and excitement around the team's work to unlock athletic is incredible growth potential. As we move past headwinds in the first half, we expect the brand to return to positive comps for the remainder of the year.

Richard Dickson: In April, we introduced our new vision, mission, purpose, and values, which have begun to unify our culture and set a standard for how we work. We believe we have a shared responsibility to our customers, communities, and each other to work with purpose and center our values in everything we do. When expressed consistently, this is what will energize and define our culture, our company, our brand. Our people are the gateway to the relentless pursuit of becoming better, and this work is central to the path we're on to achieve our vision.

Sven Gergett: In April, we introduced our new vision, mission, purpose and values, which have begun to unify our culture and set a standard for how we work.

Sven Gergett: We believe we have a shared responsibility to our customers, communities, and each other, to work with purpose and center our values in everything we do.

Sven Gergett: When expressed consistently, this is what will energize and define our culture, our company, our brand.

Richard Dickson: Moving to the third strategic priority, our operating platform. Last quarter, I spoke to you about opportunities to drive scale and efficiencies across our organization and to better support our brands through platform functions, including media and technology. In Q3, we have begun working with our new media agency partner Omnacom and are modernizing our capabilities. In addition to gaining leverage from this new partnership, we are excited about the opportunity for our media mix to become a growth engine for our brands over time.

Sven Gergett: Our people are the gateway to the relentless pursuit of becoming better, and this work is central to the path we're on to achieve our vision.

Richard Dickson: Last August, in my first remarks to you as CEO, I told you that I was intent on leading an exciting new chapter for Gaping. One that celebrates our past as we pioneer an extraordinary future. The potential of our brand portfolio was clear to me, as was the need to reposition the company for sustainable, profitable growth. Since then, we've defined our strategic priorities, including our brand re-immigration playbook. We have introduced a new sense of clarity that is empowering our people, helping attract world-class talent and partners, and we have driven meaningful financial progress.

Speaker Change: Last August, in my first remarks to you as CEO, I told you that I was intent on leading an exciting new chapter for Gapping. One that celebrates our past as we pioneer an extraordinary future.

Richard Dickson: We are evolving from a promotional media mix focused on performance to a full funnel strategy in order to be more effective with our marketing spend. We are focused on becoming more consumer led using data and optimization to a higher degree and implementing best practices in our execution. This is a game changing endeavor. We are early in our execution, but believe this will improve the economics of our marketing spend and change how we show up to our consumer.

Speaker Change: The potential of our brand portfolio was clear to me as was the need to reposition the company for sustainable, profitable growth.

Speaker Change: Since then, we've defined our strategic priorities, including our brand-ream migration playbook, we have introduced a new sense of clarity that is empowering our people, helping attract world-class talent and partners, and we have driven meaningful financial progress.

Richard Dickson: To be clear, we have work to do, because transformation of this scale takes time, but we are on our way, as our teams rise to the occasion; our Q2 results are yet another proof point.

Speaker Change: To be clear, we have work to do, because transformation of this scale takes time, but we are, on our way, as our team's rise to the occasion, our Q2 results are yet another proof point.

Richard Dickson: In terms of technology, during the quarter, we announced spend grigets as cheap technology officer, recognizing the central and growing importance of digital in our business and for our customers. It's important that we move quickly to a way of thinking and working with technology embedded at our core to drive value, solve problems and serve our customers. We are evaluating and assessing our infrastructure, talent and capabilities as we focus on becoming a digital first, high performing apparel company.

Richard Dickson: And finally, I'd like to take a moment to recognize our global team for their dedication and hard work. They epitomize the very best of gapping, as we continue our journey to unlock the full potential of our future.

Speaker Change: and finally, I'd like to take a moment to recognize our global team for their dedication and hard work. They epitomize the very best of gapping as we continue our journey to unlock the full potential of this extraordinary portfolio.

Richard Dickson: The potential of this extraordinary portfolio.

Katrina O'connell: I'll now turn the call to Katrina for a closer look at our financials. Thank you, Richard, and thanks everyone for joining us this afternoon. We are pleased to report second quarter results ahead of our expectations, with another quarter of positive sales growth and market share gains. In addition, we remain focused on the discipline we've created around margin expansion, expense and inventory management, and maintaining a strong balance sheet, which resulted in further operating profit expansion and strong free cash flow. As Richard mentioned, the rigor we've developed is becoming core to how we operate and is enabling us to perform as we transform.

Speaker Change: I'll now turn the call to Katrina for a closer look at our fine-adjustals.

Katrina: Thank you, Richard and thanks everyone for joining us this afternoon. We are pleased to report second quarter results ahead of our expectations with another quarter of positive sales growth and market share gains.

Richard Dickson: Now, turning to our fourth strategic priority, energizing our culture. A great strategy can only go so far without a culture that is united and mobilized behind it. So I've been highly focused on this priority and intentional about visiting stores across the country to engage, listen and learn from our store associates and the customers we serve and to reinforce that every store matters and every person matters. In April, we introduced our new vision, mission, purpose and values which have begun to unify our culture and set a standard for how we work.

Katrina: In addition, we remained focused on the discipline we've created around margin expansion, expense and inventory management, and maintaining a strong balance sheet, which resulted in further operating profit expansion and strong free cash flow.

Speaker Change: As Richard mentioned, the rigor we've developed is becoming core to how we operate and is enabling us to perform as we transform.

Katrina O'connell: Some key highlights from the second quarter include the following. Net sales and comparable sales were up 5% and 3%, respectively, with continued strength at Old Navy and Gap, stabilized sales at Banana Republic, and performance in line with our expectations at Athleta. We delivered approximately 500 basis points of gross margin expansion and managed SG&A dollars roughly in line with our expectations. This resulted in an operating margin of 7.9% for Q2, a 490 basis point improvement versus last year's reported operating margin. And we ended the quarter with 2.1 billion dollars of cash, cash equivalent, and short-term investments on the balance sheet, and generated nearly 400 million dollars in free cash flow year to date.

Richard Dickson: Some key highlights from the second quarter include the following.

Richard Dickson: Net sales and comparable sales were up 5% and 3% respectively, with continued strengths at Old Navy and Gap, stabilized sales at Banana Republic, and performance in line with our expectations at Athleta.

Richard Dickson: We believe we have a shared responsibility to our customers, communities and each other to work with purpose and center our values in everything we do. When expressed consistently, this is what will energize and define our culture, our company, our brand. Our people are the gateway to the relentless pursuit of becoming better and this work is central to the path we're on to achieve our vision.

Richard Dickson: We delivered approximately 500 basis points of gross margin expansion and managed SGNA dollars roughly in line with our expectations.

Richard Dickson: This resulted in an operating margin of 7.9% for Q2, a 490 basis point improvement versus last year's reported operating margin.

Richard Dickson: Last August, in my first remarks to you as CEO, I told you that I was intent on leading an exciting new chapter for gaping. One that celebrates our past as we pioneer an extraordinary future. The potential of our brand portfolio was clear to me, as was the need to reposition the company for sustainable, profitable growth. Since then, we've defined our strategic priorities, including our brand re-immigration playbook. We have introduced a new sense of clarity that is empowering our people, helping attract world-class talent and partners, and we have driven meaningful financial progress. To be clear, we have work to do, because transformation of this scale takes time, but we are on our way, as our teams rise to be occasion, our Q2 results are yet another proof point.

Richard Dickson: And we ended the quarter with $2.1 billion of cash, cash equivalents, and short-term investments on the balance sheet, and generated nearly $400 million in free cash flow year to date.

Katrina O'connell: The progress we've continued to make on our four strategic priorities is driving consistency in our results and set to strong foundation to deliver long-term shareholder value. The continued strength in our performance is giving us the confidence to reaffirm our revenue and SGNA outlook for fiscal 2024 and raise our outlook for gross margin and operating income growth compared to our prior outlook.

Richard Dickson: The progress we've continued to make on our four strategic priorities is driving consistency in our results, and set to strong foundation to deliver long-term shareholder value.

Richard Dickson: The continued strengths in our performance is giving us the confidence to reaffirm our revenue and SGNA outlook for fiscal 2024 and raise our outlook for gross margin and operating income growth compared to our prior outlook.

Katrina O'connell: Turning to the detailed results for the quarter. Net sales of 3.7 billion dollars increased 5% versus last year, with comparable sales up 3%. Net sales growth in the quarter benefited from approximately 2 percentage points of incremental revenue that was specific to the second quarter and related to the structure of our credit card agreement. Aditionally, the quarter benefited from approximately one point due to the weekly shift related to the 53rd week dynamic. By brand, starting with Old Navy, net sales were $2.1 billion, up 8% versus last year, with comparable sales up 5%. We are pleased to see that the recent brand reinvigoration efforts have resulted in positive comp sales for the last three quarters, driven by strong marketing and product execution.

Richard Dickson: Turning to the detailed results for the quarter.

Richard Dickson: Net sales of $3.7 billion increased 5% versus last year with comparable sales up 3%.

Richard Dickson: Net sales growth in the quarter benefited from approximately two percentage points of incremental revenue that was specific to the second quarter and related to the structure of our credit card agreement.

Richard Dickson: Additionally, the quarter-benecited from approximately one point due to the weekly shift related to the 53rd week dynamic.

Katrina O'connell: I'll now turn the call to Katrina for a closer look at our financials. Thank you, Richard, and thanks everyone for joining us this afternoon. We are pleased to report second quarter results ahead of our expectations with another quarter of positive sales growth and market share gains. In addition, we remained focused on the discipline we've created around margin expansion, expense and inventory management, and maintaining a strong balance sheet, which resulted in further operating profit expansion and strong free cash flow. As Richard mentioned, the rigor we've developed is becoming core to how we operate and is enabling us to perform as we transform.

Richard Dickson: By brand, starting with old Navy, net sales were $2.1 billion up 8% versus last year, with comparable sales up 5%.

Richard Dickson: This represented the fourth consecutive quarter of positive concepts of brand, with their continued focus on operational rigor and brand reinvigoration driving consistency in performance.

Richard Dickson: Turning to Gapbrandt, net sales of $766 million were up 1% versus last year, and comparable sales were up 3%.

Richard Dickson: We are pleased to see that the recent brand reinvigoration efforts have resulted in positive compounds for the last three quarters, driven by strong marketing and product execution.

Katrina O'connell: Some key highlights from the second quarter include the following. Net sales and comparable sales were up 5% and 3% respectively with continued strength at Old Navy and Gap, stabilized sales at Banana Republic, and performance in line with our expectations at Athleta. We delivered approximately 500 basis points of gross margin expansion and managed SGNA dollars roughly in line with our expectations. This resulted in an operating margin of 7.9% for Q2 of 490 basis point improvement versus last year's reported operating margin.

Katrina O'connell: Banana Republic net sales of $479 million were flat year over year, with comparable sales also flat. As Richard mentioned, we are working to reestablish Banana Republic and improve the fundamentals of the brand. While it's still early in the journey, we're pleased by the progress as the brand continues to focus on execution. Athleta net sales of $338 million decreased 1% versus last year; comparable sales were down 4%, which was in line with our expectations as the brand laughed the last of the prior year's heavy discounting. As the headwinds related to discounting diminish in the second half and progress continues as we fix the fundamentals, we expect athletic to return to positive comps for the remainder of the year.

Richard Dickson: But now, a republic net sales of $479 million were flat year over year. With comparable sales also flat.

Richard Dickson: As Richard mentioned, we are working to re-establish banana republic and improve the fundamentals of the brand. While it's still early in the journey, we're pleased by the progress as the brand continues to focus on execution.

Speaker Change: Athleta net sales of $338 million decreased 1% versus last year. Comparable sales were down 4% which was in line with our expectations as the brand laughed the last of the prior years heavy discounting.

Katrina O'connell: And we ended the quarter with 2.1 billion dollars of cash, cash equivalence and short term investments on the balance sheet and generated nearly 400 million dollars in free cash flow year to date. The progress we've continued to make on our four strategic priorities is driving consistency in our results and set to strong foundation to deliver long term shareholder value. The continued strength in our performance is giving us the confidence to reaffirm our revenue and SGNA outlook for fiscal 2024 and raise our outlook for gross margin and operating income growth compared to our prior outlook.

Speaker Change: As the headwinds related to discounting diminished in the second half, and progress continues as we fix the fundamentals, we expect Fletta to return to positive cops for the remainder of the year.

Katrina O'connell: Now turning to gross margin in the quarter, gross margin of 42.6% expanded 500 basis points versus last year's gross margin. Merchandise margin expanded 410 basis points, with the remaining 90 basis points from raw leverage. The merchandise margin expansion was driven by an estimated 170 basis points of lower commodity costs, which was modestly below our prior expectation due to higher air freight utilized to navigate supply chain congestion. The remaining 240 basis points were driven by higher sales from the incremental credit card revenue and improved promotional activity.

Speaker Change: Now turning to gross margin in the quarter.

Speaker Change: Gross margin of 42.6% expanded 500 basis points versus last year's gross margin.

Speaker Change: Merchandized Margin expanded 410 basis points with the remaining 90 basis points from Rod Leverage.

Speaker Change: The merchandise margin expansion was driven by an estimated 170 basis point of lower commodity costs, which was modestly below our prior expectation due to higher air freight utilized to navigate supply chain congestion.

Katrina O'connell: Turning to the detailed results for the quarter net sales of 3.7 billion dollars increased 5% versus last year with comparable sales up 3%. Net sales growth in the quarter benefited from approximately 2 percentage points of incremental revenue that was specific to the second quarter and related to the structure of our credit card agreement. Aditionally, the quarter benefited from approximately one point due to the weekly shift related to the 53rd week dynamic.

Speaker Change: The remaining 240 basis points were driven by higher sales from the incremental credit card revenue and improved promotional activity.

Katrina O'connell: Now let me turn to SGNA. SG&A was $1.3 billion in the quarter, roughly in line with our prior outlook. SG&A as a percentage of net sales was 34.7%. Deleveraging 10 basis points versus last year's reported rate and 50 basis points versus last year's adjusted rate, primarily due to the timing of incentive compensation accruals. Second quarter operating margin of 7.9% improved 490 basis points compared to last year's reported operating margin and 450 basis points versus last year's adjusted operating margin.

Speaker Change: Now, let me turn to S.Tune.

Speaker Change: SUNA was $1.3 billion in the quarter, roughly in line with our prior outlook.

Speaker Change: S. G.A. is a percentage of net sales was 34.7%. The leveraging 10 basis points versus last year's reported rate and 50 basis points versus last year's adjusted rate. Primarily due to the timing of incentive compensation accruals.

Katrina O'connell: By brand, starting with Old Navy, net sales were $2.1 billion up 8% versus last year, with comparable sales up 5%. This represented the fourth consecutive quarter of positive comps at the brand with their continued focus on operational rigor and brand reinvigoration driving consistency in performance. Turning to Gap brand, net sales of $766 million were up 1% versus last year, and comparable sales were up 3%. We are pleased to see that the recent brand reinvigoration efforts have resulted in positive comp sales for the last three quarters driven by strong marketing and product execution.

Speaker Change: 2nd quarter operating margin of 7.9% improved 490 basis points compared to last year's reported operating margin and 450 basis points versus last year's adjusted operating margin.

Katrina O'connell: Earnings per share in the quarter were 54 cents, up 69% versus last year's reported earnings per share of 32 cents, and up 59% versus last year's adjusted earnings per share of 34 cents. Now turning to the balance sheet and cash flow, we maintained disciplined inventory management, ending Q2 with levels down 5% year-a-year. We remain confident that we will maintain this discipline in Q3, with inventory expected to be down low single digits versus last year. As I mentioned earlier, we ended the quarter with cash, cash equivalents, and short-term investments of $2.1 billion, an increase of 59% from last year.

Speaker Change: earnings per share in the quarter were 54 cents, up 69% versus last year's reported earnings per share of 32 cents, and up 59% versus last year's adjusted earnings per share of 34 cents.

Speaker Change: Now turning to the balance sheet and cash flow.

Katrina O'connell: Banana Republic net sales of $479 million were flat year over year, with comparable sales also flat. As Richard mentioned, we are working to reestablish Banana Republic and improve the fundamentals of the brand, while it's still early in the journey were pleased by the progress as the brand continues to focus on execution. Athleta net sales of $338 million decreased 1% versus last year, comparable sales were down 4%, which was in line with our expectations as the brand laughed the last of the prior year's heavy discounting. As the headwinds related to discounting diminish in the second half, and progress continues as we fix the fundamentals, we expect Athleta to return to positive comps for the remainder of the year.

Speaker Change: We maintained a disciplined inventory management, ending Q2 with levels down 5% year over year.

Speaker Change: We remain confident that we will maintain this discipline in Q3 with inventory expected to be down low single digits versus last year.

Speaker Change: As I mentioned earlier, we ended the quarter with cash, cash equivalents, and short-term investments of $2.1 billion, an increase of 59% from last year.

Katrina O'connell: Net cash from operating activities with $579 million year-to-date, driven by higher operating profit. And our free cash flow of $397 million year-to-date demonstrates the rigor we have put into managing the business.

Speaker Change: Netcash from operating activities was $579 million a year today, driven by higher operating profit. And our free cash flow of $397 million a year to date demonstrates the rigor we have put into managing the business.

Katrina O'connell: We remain committed to delivering an attractive quarterly dividend as a core component of total shareholder returns. During the quarter, we paid a dividend of $0.15 per share. Year-to-date, we will have returned $112 million to shareholders in the form of dividends. On August 13, our board approved maintaining that $0.15 dividend for the third quarter of fiscal 2024.

Speaker Change: We remain committed to delivering an attractive, quarterly dividend as a core component of total shareholder returns.

Speaker Change: During the quarter we paid a dividend of 15 cents per share. Year to date we will have returned $112 million to shareholders in the form of dividends.

Katrina O'connell: Now turning to Gross margin in the quarter. Gross margin of 42.6% expanded 500 basis points versus last year's Gross margin. Merchandise margin expanded 410 basis points with the remaining 90 basis points from raw leverage. The Merchandise margin expansion was driven by an estimated 170 basis points of lower commodity costs, which was modestly below our prior expectation due to higher air freight utilized to navigate supply chain congestion. The remaining 240 basis points were driven by higher sales from the incremental credit card revenue and improved promotional activity.

Speaker Change: On August 13th, our board approved maintaining that 15 cent dividend for the third quarter of fiscal 2024.

Katrina O'connell: As I reflect on our second quarter results, I'm encouraged by the consistency we're seeing in our financial performance, enabled by continued focus, discipline, and rigor across our organization. This consistency begins to put us on the path to becoming a high-performing company.

Speaker Change: As I reflect on our second quarter results, I'm encouraged by the consistency we're seeing in our financial performance, enabled by continued focus, discipline and rigor across our organization.

Speaker Change: This consistency begins to put us on the path to becoming a high performing company.

Katrina O'connell: Now, let me provide some details on our updated outlook. Starting with full year 2024, our strong second quarter results give us the confidence to reaffirm our revenue and SG&A outlook for fiscal 2024, and raise our outlook for gross margin and operating income growth compared to our prior outlook. Regarding fiscal 2024 revenue, we continue to expect full-year net sales to be up slightly year-to-year, excluding the 53rd week. Our underlying assumptions related to the 53rd week, which I will describe in more detail in a moment, remain unchanged. While the global economic environment and consumer dynamics remain fluid, our general view of the consumer and macroeconomic conditions largely remains the same.

Speaker Change: Now, let me provide some details on our updated outlook.

Speaker Change: Starting with full year 2024, our strong second quarter results give us the confidence to reaffirm our revenue and SGA outlook for fiscal 2024 and raise our outlook for gross margin and operating income growth compared to our prior outlook.

Katrina O'connell: Now let me turn to SGNA. SGNA was $1.3 billion in the quarter, roughly in line with our prior outlook. SGNA as a percentage of net sales was 34.7%. The leveraging 10 basis points versus last year's reported rate and 50 basis points versus last year's adjusted rate, primarily due to the timing of incentive compensation accruals. Second quarter operating margin of 7.9% improved 490 basis points compared to last year's reported operating margin and 450 basis points versus last year's adjusted operating margin.

Speaker Change: Regarding fiscal 2024 revenue, we continue to expect full-year net sales to be up slightly, year over year, excluding the 53rd week.

Speaker Change: Our underlying assumptions related to the 53rd week, which I will describe in more detail in a moment remain unchanged.

Speaker Change: Well, the global economic environment and consumer dynamics remain fluid, our general view of the consumer and macroeconomic conditions largely remain the same.

Katrina O'connell: We have deep confidence in the work our teams are doing, and are focused on executing with excellence in the back half as we lap tougher revenue compares as a result of early reinvigoration efforts, particularly at Old Navy. As a reminder, 2024 is a 52-week year, but will be compared in total to a 53-week year in 2023. To reiterate, the loss of the 53rd week results in a detrimental impact of approximately $160 million to fiscal 2024 net sales.

Katrina O'connell: Earnings per share in the quarter were 54 cents, up 69% versus last year's reported earnings per share of 32 cents, and up 59% versus last year's adjusted earnings per share of 34 cents. Now, turning to the balance sheet and cash flow, we maintained Disciplined Inventory Management, ending Q2 with levels down 5% year-a-year. We remain confident that we will maintain this discipline in Q3 with inventory expected to be down low single digits versus last year.

Speaker Change: We have deep confidence in the work our teams are doing and are focused on executing with excellence in the back half as we lap tougher revenue compares as a result of early reinvigoration efforts, particularly at Old Navy.

Speaker Change: As a reminder, 2024 is a 52 week year, but will be compared in total to a 53 week year in 2023.

Speaker Change: To reiterate the loss of the 53rd week results in a detrimental impact of approximately $160 million to fiscal 2024 net sales.

Katrina O'connell: And I would like to provide more detail on the impact of the quarterly cadence of net sales in the year. As a reminder, the first quarter 2024 net sales benefited by approximately 2 percentage points, and the second quarter net sales benefited by approximately 1 percentage point compared to last year due to the timing shifts associated with the loss of the 53rd week. We expect the third quarter to also benefit by approximately 1 percentage point due to shifts in time. We expect net sales in the fourth quarter to have a negative impact of approximately seven percentage points or $300 million compared to last year due to both the timing shift as well as the loss of the 53rd week.

Katrina O'connell: As I mentioned earlier, we ended the quarter with cash, cash equivalence, and short term investments of $2.1 billion, an increase of 59% from last year. Net cash from operating activities was $579 million a year to date, driven by higher operating profit. And our free cash flow of $397 million a year to date demonstrates the rigor we have put into managing the business. We remain committed to delivering an attractive quarterly dividend as a core component of total shareholder returns.

Speaker Change: and I would like to provide more detail on the impact of the quarterly cadence of net sales in the year.

Speaker Change: As a reminder, the first quarter, 2024, Net Sales benefited by approximately 2 percentage points, and the second quarter Net Sales benefited by approximately 1 percentage point. Compared to last year, due to the timing shifts associated with the loss of the 53rd week.

Speaker Change: We expect the third quarter to also benefit by approximately 1% at point due to shifts in timing.

Speaker Change: We expect net sales in the fourth quarter to have a negative impact of approximately 7 percentage points or $300 million compared to last year due to both the timing shift as well as the loss of the 53rd week.

Katrina O'connell: During the quarter, we paid a dividend of $0.15 per share. Year to date, we will have returned $112 million to shareholders in the form of dividends. On August 13, our board approved maintaining that $0.15 dividend for the third quarter of fiscal 2024.

Katrina O'connell: We also expect approximately one percentage point of raw delivery in the fourth quarter due to the lower sales volume.

Speaker Change: We also expect approximately 1 percentage point of raw due leverage in the fourth quarter due to the lower sales volume.

Katrina O'connell: Moving to gross margin, we have raised our outlook and now expect gross margin expansion of approximately 200 basis points for the full year compared to fiscal 2023's gross margin of 38.8%. Our gross margin outlook contemplates the following factors. We continue to expect the commodity cost tailwinds in the first half to become largely neutral in the second half of the year, resulting in approximately 100 basis points of benefit from commodity costs for the full year. The rigor we've utilized to manage inventories with discipline is expected to deliver the balance of the Gross Margin expansion versus last year, and we expect raw as a percentage of sales to be relatively neutral on a year-or-year basis.

Speaker Change: Moving to Gross Margin, we have raised our outlook and now expect Gross Margin expansion of approximately 200 basis points for the full year compared to fiscal 2023's Gross Margin of 38.8%.

Speaker Change: Our gross margin outlook contemplates the following factors.

Katrina O'connell: Now, let me provide some details on our updated outlook. Starting with full year 2024, our strong second quarter results give us the confidence to reaffirm our revenue and SGNA outlook for fiscal 2024 and raise our outlook for gross margin and operating income growth compared to our prior outlook. Regarding fiscal 2024 revenue, we continue to expect full year net sales to be up slightly year-to-year excluding the 53rd week. Our underlying assumptions related to the 53rd week, which I will describe in more detail in a moment, remain unchanged.

Speaker Change: We continue to expect the commodity cost tailwinds in the first half to become largely neutral in the second half of the year, resulting in approximately 100 basis points of benefit from commodity costs for the full year.

Speaker Change: The rigor we've utilized to manage inventories with discipline is expected to deliver the balance of the gross margin expansion versus last year.

Rod: and we expect Rod as a percentage of sales to be relatively neutral on a year-over-year basis.

Katrina O'connell: Regarding SGNA, we continue to expect full year SGNA of approximately $5.1 billion, with roughly $1.3 billion expected in Q3 and Q4, respectively. We are actively focused on cost efficiency. Our full year 2024 SGNA outlook reflects the substantial savings actions we've taken over the last 18 months, which are expected to result in lower spend and increased leverage year-to-year, demonstrating our expense focus and rigor.

Rod: Regarding SGA, we continue to expect familiar SGA of approximately $5.1 billion, with roughly $1.3 billion expected in Q3 and Q4 respectively.

Katrina O'connell: While the global economic environment and consumer dynamics remain fluid, our general view of the consumer and macro economic conditions largely remain the same. We have deep confidence in the work our teams are doing and are focused on executing with excellence in the back half as we lap tougher revenue compares as a result of early reinvigoration efforts, particularly at Old Navy. As a reminder, 2024 is a 52 week year, but will be compared in total to a 53 week year in 2023. To reiterate the loss of the 53rd week results in a detrimental impact of approximately $160 million to fiscal 2024 net sales.

Rod: We are actively focused on cost efficiency.

Rod: Our full year 2024, S.J.A. Outlook reflects the substantial savings actions we've taken over the last 18 months, which are expected to result in lower spend and increased leverage year over year, demonstrating our expense focused and rigor.

Katrina O'connell: That said, we acknowledge that our annual expense rate to sales is still higher than our aspiration, and we are deeply engaged in identifying the next phase of savings to drive value creation over the long term.

Rod: That said, we acknowledge that our annual expense rate to sales is still higher than our aspiration, and we are deeply engaged in identifying the next phase of savings to drive value creation over the long term.

Katrina O'connell: We are raising our full year 2024 operating income growth outlook to be in the mid to high 50% growth range compared to last year's adjusted operating income of $606 million. This represents significant progress towards returning to historical operating profit levels over time.

Rod: We are raising our full year 2024 operating income growth outlook to be in the mid to high 50% growth range compared to last year's adjusted operating income of 66 million dollars.

Rod: This represents significant progress towards returning to historical operating profit levels over time.

Katrina O'connell: Now, let me share some additional color on our outlook for the third quarter of fiscal 2024. We are pleased with trends quarter to date and are planning for net sales in Q3 to be up slightly versus last year. As it relates to third quarter gross margin, we expect approximately 50 to 75 basis points of improvement versus last year's gross margin of 41.3%, primarily related to lower promotional activity. As I mentioned in the third quarter, we expect SG&A to be approximately $1.3 billion.

Rod: Now, let me share some additional color on our outlook for the third quarter of fiscal 2024.

Rod: We are pleased with trends quarter to date and are planning for net sales in Q3 to be up slightly versus last year.

Rod: As it relates to third quarter gross margin, we expect approximately 50 to 75 basis points of improvement versus last year's gross margin of 41.3%. Primarily related to lower promotional activity.

Katrina O'connell: We expect net sales in the fourth quarter to have a negative impact of approximately 7 percentage points or $300 million compared to last year due to both the timing shift as well as the loss of the 53rd week. We also expect approximately 1 percentage point of raw deliverage in the fourth quarter due to the lower sales volume. Moving to Gross Margin, we have raised our outlook and now expect Gross Margin expansion of approximately 200 basis points for the full year compared to fiscal 2023's Gross Margin of 38.8%.

Rod: As I mentioned in the third quarter, we expect SGNA to be approximately $1.3 billion.

Katrina O'connell: In closing, we were pleased to deliver another quarter of strong financial results. The financial and operational rigor that we've worked to develop and will continue to pursue is enabling us to focus on reinvigorating our brands with the goal of generating sustainable, profitable growth and delivering value for our shareholders over the long term. Transformations like this take time, and each of our brands is in a different stage, but the progress is encouraging, and we continue to lay the groundwork for the next chapter.

Rod: In closing, we were pleased to deliver another quarter of strong financial results.

Rod: The financial and operational rigor that we've worked to develop and will continue to pursue is enabling us to focus on re-invigorating our brands, with the goal of generating sustainable profitable growth and delivering value for our shareholders over the long term.

Katrina O'connell: Our Gross Margin outlook contemplates the following factors. We continue to expect the commodity cost tailwinds in the first half to become largely neutral in the second half of the year, resulting in approximately 100 basis points of benefit from commodity costs for the full year. The rigor we've utilized to manage inventories with discipline is expected to deliver the balance of the Gross Margin expansion versus last year, and we expect raw as a percentage of sales to be relatively neutral on a year or year basis.

Rod: Trance formations like this take time and each of our brands is in a different stage. But the progress is encouraging and we continue to lay the groundwork for the next chapter.

Whitney Notaro: With that, we'll open the line for questions, operator. Thank you.

Speaker Change: With that we'll open the line for questions. Operator?

Whitney Notaro: Ladies and gentlemen, I will now hand it over to Whitney Natharo before moving into the question-and-answer session. Before we open it up for Q&A, I want to briefly address the earlier-than-planned posting of our Q2 financial results to our website this morning, which is due to an administrative error. As soon as we saw the error, we immediately rectified it and notified the NYSE. We issued our earnings press release as promptly as possible, rather than waiting until after the market closed to ensure widespread access to our results.

Speaker Change: Thank you. Ladies and gentlemen, I will now hand it over to Whitney Nataro before moving into the question and answer session.

Whitney Nataro: Before we open it up for Q&A, I want to briefly address the earlier than planned posting of our Q2 financial results to our website this morning, which is due to an administrative error.

Katrina O'connell: Regarding SGNA, we continue to expect full year SGNA of approximately $5.1 billion with roughly $1.3 billion expected in Q3 and Q4 respectively. We are actively focused on cost efficiency. Our full year 2024 SGNA outlook reflects the substantial savings actions we've taken over the last 18 months, which are expected to result in lower spend and increased leverage year every year. Demonstrating our expense focus and rigor. That said, we acknowledge that our annual expense rate to sales is still higher than our aspiration, and we are deeply engaged in identifying the next phase of savings to drive value creation over the long term.

Speaker Change: As soon as we saw the air, we immediately rectified it and notified the NYSE. We issued our earnings press release as promptly as possible, rather than waiting until after the market closed to ensure widespread access to our results. With that, I'll turn it over to Richard and Katrina to begin the Q&A session.

Whitney Notaro: With that, I'll turn it over to Richard and Katrina to begin the Q&A session.

Unknown Executive: Operator.

Unknown Executive: Thank you. As a reminder, for those analysts who wish to participate in the question-and-answer session after the presentation, you may now press star one to enter the Q&A.

Speaker Change: Operator? As a reminder for those analysts who wish to participate in the question and answer session after the presentation, you may now press star 1 to enter the Q&AQ.

Robert Drbul: Our first session will come from Bob Durball with Guggenheim. Please go ahead.

Speaker Change: Our first trip in will come from Bob Durbull with Guggenheim. Please go ahead.

Unknown Executive: Hi, good afternoon.

Richard Dickson: On the morning release, a little bit earlier, and an 830 call, I think would work for many of us, just an observation. The two questions, if I could. The first one is, Richard, can you just talk to whether the momentum at Gap brand and Old Navy can continue? And then the second one is, can you guys address just back the school trends so far? Thank you very much.

Bob Durbull: Hi, good afternoon and just on the morning release a little bit earlier in an 830 call, I think with would work for many of us.

Speaker Change: Just an observation.

Speaker Change: The two questions, if I could, the first one is Richard Dickson.

Speaker Change: Can you just talk to whether the momentum at Gapbrandt and Old Navy can continue? And then the second one is, can you guys address just back to school trends so far? Thank you very much.

Richard Dickson: Yeah, thanks, Bob. First off, in general, we had another successful quarter. We exceeded our expectations; net sales up 5%. That's great growth, especially when you consider we're operating on 5% less inventory, 500 basis points of gross margin expansion, and we also expanded operating margin by 490 basis points.

Speaker Change: Yeah, thanks Bob. First off, you know, in general we had another successful quarter. We exceeded our expectations, net sales up 5% that's great growth, especially when you consider we're operating on 5% less inventory.

Speaker Change: 500 basis points of gross margin expansion and we also expanded operating margin by 490 basis points.

Richard Dickson: Important to note also, this was our six consecutive quarters that we grew market share. It's a real indication that customers are responding well to our brand reinvigoration efforts. As you ask, Old Navy and Gap, in particular, each of them posted quarterly positive comps, and it's a real demonstration of the continued consistency in the results that these brands are showing up with. On Old Navy, we saw a particular strength in women's, as the team is really focusing on reasserting Old Navy's style authority, and we're dialing up fashion. We're also seeing broad strength across important categories: denim, dresses, kids, and baby.

Speaker Change: Important to note also, this was our six consecutive quarter that we grew market share.

Katrina O'connell: In closing, we were pleased to deliver another quarter of strong financial results. The financial and operational rigor that we've worked to develop and will continue to pursue is enabling us to focus on reinvigorating our brands with the goal of generating sustainable, profitable growth and delivering value for our shareholders over the long term. Transformations like this take time and each of our brands is in a different stage, but the progress is encouraging and we continue to lay the groundwork for the next chapter.

Speaker Change: It's a real indication that customers are responding well to our brand reinvigoration efforts.

Speaker Change: As you ask old Navy and Gap in particular, each of them posted quarterly positive comments.

Speaker Change: and it's a real demonstration of the continued consistency in the results that these brands are showing up with.

Speaker Change: On Old Navy, we saw particular strengths in women's.

Speaker Change: As the team is really focusing on reasserting old maybe style authority and we're dialing up fashion. We're also seeing broad strength across important categories, denim, dresses.

Whitney Notaro: With that, we'll open the line for questions. Operator? Thank you.

Richard Dickson: Our marketing is resonating, much more clear on our pricing strategy, in-store navigation. There's certainly compelling storytelling. Team is doing a great job, executing with excellence, and we are going to be continuing to deliver consistent results.

Speaker Change: Kids and Baby, our marketing is resonating much more clear on our pricing strategy, in store navigation, there's certainly compelling storytelling.

Whitney Notaro: Ladies and gentlemen, I will now hand it over to Whitney Netaro before moving into the question and answer session. Before we open it up for Q&A, I want to briefly address the earlier than planned posting of our Q2 financial results to our website this morning, which is due to an administrative error. As soon as we saw the error, we immediately rectified it and notified the NYSE. We issued our earnings press release as promptly as possible rather than waiting until after the market closed to ensure widespread access to our results.

Speaker Change: Team is doing a great job, executing with excellence, and we are going to be continuing to deliver consistent results.

Richard Dickson: Does it relate to Gap's similar story? We're building on the success of our linen campaign that we really were incredibly excited about. This is about relentless repetition. You'll see that in our Get Loose campaign, which just launched last week. We're declaring Gap as the destination for the baggy and oversized trend. We've had terrific results from collaborations like Doughin and Mad Happy. Collaborations will also remain a key part of the strategy to broaden reach, strength, and relevance, and we'll be sharing more collaboration news shortly. But I'm very excited with the progress to date. Again, team is executing really well, and we're on our way to revitalizing this iconic brand.

Speaker Change: is a similar story. We're building on the success of our linen campaign that we really were incredibly excited about. This is about relentless repetition. You'll see that in our get loose campaign, which just launched last week.

Whitney Notaro: With that, I'll turn it over to Richard and Katrina to begin the Q&A session. Operator? As a reminder, for those analysts who wish to participate in the question and answer session after the presentation, you may now press star 1 to enter the Q&A queue.

Speaker Change: We're declaring gap as the destination for the baggy and oversized trend. We've had terrific results from collaborations like Donwyn and Mad Happy. Collaborations will also remain a key part of the strategy.

Speaker Change: to broaden reach, strengthen relevance, and we'll be sharing more collaboration news shortly.

Bob Drbul: Our first session will come from Bob Derbal with Guggenheim. Please go ahead. Hi. Good afternoon. And just on the morning release, a little bit earlier in the Q830 call, I think, would work for many of us, just an observation. Two questions, if I could. The first one is, Richard, can you just talk to whether the momentum at Gap brand and old Navy can continue? And then the second one is, can you guys address just back the school trends so far?

Speaker Change: but I'm very excited with the progress to date. Again, team is executing really well and we're on our way to revitalizing this iconic brand.

Richard Dickson: Bob, your question back to school, which clearly is obviously we're in the throes of it right now. Hopefully you've seen the advertising that we have this year with some great product. Old Navy and Gap launched a great marketing campaign that was primarily grounded in our brand re-invigoration playbook. We are very pleased with early results. I would say denim is having a moment in kids as well as adults, trends like loose fit, wide leg, fleece, classics, always back to school, cargo, khaki, zero is in style. Most importantly, recognizing that Old Navy is the number one kids and baby brand in the US.

Speaker Change: Bob, your question on back to school, which clearly is obviously we're in the throes of it right now. Hopefully you've seen the advertising that we have this year with some great product, old Nadie and Gap launched a great marketing campaign that was primarily grounded.

Speaker Change: in our brand reinvigoration playbook. We are very pleased with early results.

Bob Drbul: Thank you very much. Yeah, thanks, Bob. First off, in general, we had another successful quarter. We exceeded our expectations, net sales up 5%. That's great growth, especially when you consider we're operating on 5% less inventory. 500 basis points of gross margin expansion, and we also expanded operating margin by 490 basis points. Important to note also, this was our six consecutive quarter that we grew market share. The real indication that customers are responding well to our brand reinvigration efforts.

Speaker Change: I would say denim is having a moment in kids as well as adult, trends like loose fit, wide leg, fleece.

Speaker Change: Classics, always back to school, cargo, khaki, zeroes and style. Most importantly, recognizing that old Navy is the number one kids in baby brand in the U.S.

Richard Dickson: The overall market was up about 5% in the quarter. And we gain share in both Old Navy and Gap. So I think we believe we have an opportunity to accelerate in the kids and baby space, become an even more important player. And you'll see that as the quarter's roll by, but anyway, thank you for the question. Pretty comprehensive, un-gapanal, maybe, and clearly we're in the throes of back to school.

Speaker Change: The overall market was up about 5% in the quarter and we gained share in both old Navy and GAP. So I think, you know, we believe we have an opportunity to accelerate in the kids in baby space, become an even more important player. And you'll see that as...

Bob Drbul: As you ask Old Navy and Gap in particular, each of them posted quarterly positive comps. And it's a real demonstration of the continued consistency in the results that these brands are showing up with. On Old Navy, we saw a particular strength in women's. As the team is really focusing on reasserting Old Navy's style authority and we're dialing up fashion. We're also seeing broad strength across important categories, denim dresses, kids and baby.

Speaker Change: The court is rolled by, but anyway, thank you for the question, pretty comprehensive on Gappinall may be clearly wearing the throws of back to school.

Alexandra Straton: Thank you. Our next question comes from Alex Stratton with Morgan Stanley.

Speaker Change: Thank you.

Unknown Executive: Please go ahead. Great. Thanks, Lauper, taking the question.

Speaker Change: Our next question comes from Alex Stratton with Morgan Stanley. Please go ahead.

Katrina O'connell: Congrats on a great quarter. Maybe one for Katrina, then one for Richard. So Katrina, I'm just trying to understand the third quarter guidance on sale. I think it's just up slightly, which seems to be like, you know, a bit of a slowdown from the second quarter level.

Alex Stratton: Great, thanks, Lopper, taking the question from Gratz on a great quarter. Maybe one for Katrina and one for Richard. Katrina, I'm just trying to understand the third quarter ride in some sales. I think it's just up slightly, which seems to be like...

Bob Drbul: Our marketing is resonating, much more clear on our pricing strategy, in-store navigation. There's certainly compelling storytelling. Team is doing a great job, executing with excellence, and we are going to be continuing to deliver consistent results. As it relates to Gap, a similar story. We're building on the success of our linen campaign that we really were incredibly excited about. This is about relentless repetition. You'll see that in our Get Loose campaign, which just launched last week.

Richard Dickson: So can you just kind of give some color around what's driving that guy by banner and maybe what you're seeing so far. And then just for Richard on Athleta, this return to positive comp growth for the rest of the year. Can you just talk about where that brand's at? And it's transformation story. I feel like it's a big margin lever. So I'm just curious, kind of how you're feeling there. Thanks a lot. Yeah, sure.

Speaker Change: You know, a bit of a slow down from the second quarter level, so he just kind of give some color around what's driving that guide by banner, maybe what you're seeing so far. And then just for Richard on that led up this return to positive comp girls for the rough to the year.

Speaker Change: Can you talk about where that brand is at and its transformation story? I feel like it's a big margin lover or something curious kind of how you're feeling there. Thanks a lot.

Katrina O'connell: So I'll take the first one, Alex. I'm really glad you asked this. There's a few drivers. First of all, I would start by saying we're very confident in the brand re-invigoration work that we're doing. But we remain balanced in our view of the consumer, as well as the macroeconomic environment in which we operate as we head into the second half of the year. I think more specifically, and to get into more detail, just a reminder, we did experience about two percentage points of incremental sales. Both growth year-of-a-year from the credit card agreement that was specific to Q2.

Speaker Change: Yeah, sure so I'll take the first one, Alex. I'm really glad you asked this. There's a few drivers. First of all, I would start by saying we're very confident in the brand reinvigoration work that we're doing. But we remain balanced in our view of the consumer, as well as the macro economic environment in which we operate as we head into the second half.

Bob Drbul: We're declaring Gap as the destination for the baggy and oversized trend. We've had terrific results from collaborations like doughin and mad happy. Collaborations will also remain a key part of the strategy. To broaden reach strength and relevance, and we'll be sharing more collaboration news shortly. But I'm very excited with the progress to date. Again, the team is executing really well, and we're on our way to revitalizing this iconic brand. Bob, your question back to school, which clearly is, obviously, we're in the throes of it right now.

Speaker Change: of the year.

Speaker Change: I think more specifically and to get into more detail, just a reminder, we did experience about 2 percentage points of incremental sales growth year or a year from the credit card agreement that was specific to Q2.

Richard Dickson: Second, we do begin to lap our better performance from the early re-invigration efforts in the third quarter at Old Navy in particular. And then third, while we expect to return to positive comps, as we said at Athleta, the magnitude of the third quarter recovery has a range of outcomes. So we'll see where that lands. And then, you know, year to date, as you said, talk about sort of comments by brand. We've seen really strong performance at Old Navy and Gap. And I think it's, I just said, you know, we are lapping some of those re-invigration efforts in Q3.

Speaker Change: Second, we do begin to laugh our better performance from the early re-indiguration efforts in the third quarter at Old Navy in particular.

Bob Drbul: Hopefully, you've seen the advertising that we have this year with some great product. Old Navy and Gap launched a great marketing campaign that was primarily grounded in our brand re-invigoration playbook. We are very pleased with early results. I would say denim is having a moment in kids as well as adults, trends like loose fit, wide leg, fleece, classics, always back to school, cargo, khaki, zeroes and style. Most importantly, recognizing that old Navy is the number one kids and baby brand in the US.

Speaker Change: and then third, while we expect to return to positive campuses, we said, at Avaleta, the magnitude of the third quarter recovery has a range of outcomes, so we'll see where that lands.

Speaker Change: And then, you know, year to date, as you said, talk about sort of comments by brand. We've seen really strong performance at Old Navy and Gap. And I think, as I just said, you know, we are lapping some of those reinvigoration efforts in Q3.

Katrina O'connell: Banana is focused on fixing the fundamentals. We talked about that.

Richard Dickson: And I think I'll let Richard talk a little bit about as we exit lapping this highly promotional environment. How, how we're feeling about Athleta.

Richard Dickson: The Nana is focused on fixing the fundamentals we talked about that and I think I'll let Richard talk a little bit about as we exit lapping this highly promotional environment how we're feeling that out.

Richard Dickson: Yeah. Thanks, Alex. You know, we're gaining much more confidence in Athleta as net sales in the quarter were down 1%, constown 4%, but really important to remind that we're lapping a period of very heavy discounting last year. And there is a lot of good progress being made. We've successfully brought our consumer base. We're seeing much better sell-throughs at full price. Our marketing, which has been totally refreshed, is gaining traction. And most importantly, our fashion product is resonating.

Bob Drbul: The overall market was up about 5% in the quarter, and we gain share in both old Navy and Gap. So, I think, you know, we believe we have an opportunity to accelerate in the kids and baby space, become an even more important player. And you'll see that as.., the quarters roll by. But anyway, thank you for the question. Pretty comprehensive on Gap and Old Navy. Clearly, we're in the throws of back to school. Thank you.

Richard Dickson: Yeah.

Richard Dickson: Thanks Alex, you know we're gaining much more confidence in Athleta.

Richard Dickson: As a net sales in the quarter would down 1% constant for percent but really important to remind that we're laughing a period of very heavy discounting last year and there is a lot of good progress being made. We've successfully brought our consumer base.

Richard Dickson: We're seeing much better cell-throughs at full price.

Alexandra Straton: Our next question comes from Alex Stratton with Morgan Stanley. Please go ahead. Great. Thanks, Lopper, taking the questions and graphs on a great quarter. Maybe one for Katrina, then one for Richard. Katrina, I'm just trying to understand the third quarter guidance on sales. I think it's just up slightly, which seems to be like, you know, a bit of a slowdown from the second quarter level. So can you just kind of give some color around what's driving that guide by banner and maybe what you're seeing so far?

Richard Dickson: Our marketing which has been totally refreshed is gaining traction and most importantly our fashion product is resonating

Richard Dickson: And given the success that we're seeing with our new product, notably in core bottoms and the limited edition drops that we've been doing, we now expect to see positive comps for the remainder of the year. The team has been focused on resetting the brand and setting the brand up for sustainable growth in the long term. And we're very excited about the progress in the future of the brand. Thanks a lot. Good luck.

Richard Dickson: and given the success that we're seeing with our new product, notably in core bottoms and the limited edition drops that we've been doing. We now expect to see positive counts for the remainder of the year.

Richard Dickson: The team has been focused on resetting the brand and setting the brand up for sustainable growth in the long-term and we're very excited about the progress in the future of the brand.

Unknown Executive: Thank you.

Alexandra Straton: And then just for Richard on Athleta, this return to positive comp growth for the rest of the year. Can you just talk about where that brands at? And it's transformation story. I feel like it's a big margin lever. So I'm just curious kind of how you're feeling there. Thanks a lot. Yeah, sure. So I'll take the first one, Alex. I'm really glad you asked this. There's a few drivers. First of all, I would start by saying we're very confident in the brand re-invigoration work that we're doing.

Speaker Change: Thank you.

Matthew Boss: Our next question comes from Matthew Boss with JP Morgan.

Unknown Executive: Please go ahead. Great, thanks.

Speaker Change: Our next question comes from Matthew Boss with JP Morgan. Please go ahead.

Richard Dickson: Still Richard, on your targeted consistency, can you elaborate on maybe the structural changes that you've made across merchandising and marketing at Old Navy and the Gap that you see driving sustainable, profitable growth in the back half and then into next year? Thanks, Matt. You know, I would focus our answer to that on our strategic priorities. We have been incredibly disciplined in maintaining focus around our four strategic priorities, and the execution of that, I believe, is really showing up in the metrics that matter. Maintaining financial and operational rigor, as I've said in my opening remarks, is really becoming the way in which we work: better processes, much more cultural accountability, and again, as you see the performance that we have in the quarter and consistently, it's really do in the context of how we're working with much more discipline process.

Matthew Boss: Great thanks. Still Richard, on your targeted consistency. Can you elaborate on maybe the structural changes that you've made across merchandising and marketing, Edald Navy and the Gap that you see driving sustainable, profitable growth in the back cap and then into next year?

Alexandra Straton: But we remain balanced in our view of the consumer as well as the macroeconomic environment in which we operate as we head into the second half of the year. I think more specifically and to get into more detail, just a reminder, we did experience about two percentage points of incremental sales growth year-of-a-year from the credit card agreement that was specific to Q2. Second, we do begin to lap our better performance from the early re-invigoration efforts in the third quarter at Old Navy in particular.

Speaker Change: Thanks Matt, you know, I would focus our answer to that on our strategic priorities.

Richard Dickson: We have been incredibly disciplined in maintaining focus around our four strategic priorities and the execution of that I believe is really showing up in the metrics that matter.

Speaker Change: Maintaining Financial and Operational Rigger, as I've said in my opening remarks, is really becoming the way in which we work.

Speaker Change: Better Processes, Much More Cultural Accountability, and again, as you see the performance that we have in the quarter and consistently, it's really due in the context of how we're working with much more disciplined process. That is really enabling the second priority, which is reinvigorating our brands.

Alexandra Straton: And then third, while we expect to return to positive comps, as we said at Athleta, the magnitude of the third quarter recovery has a range of outcomes. So we'll see where that lands. And then year to date, as you said, talk about sort of comments by brand. We've seen really strong performance at Old Navy in Gap. And I think as I just said, we are lapping some of those re-invigoration efforts in Q3.

Richard Dickson: That is really enabling the second priority, which is reinvigorating our brands. We've spoken a lot about our playbook and ultimately driving relevance and revenue to be on this journey to become a high performing house of iconic brands that really shape culture. Our two biggest brands, which we've noted, Old Navy and Gap, are furthest along multiple quarters of positive comps and market share gains. And I'm encouraged, as I've said, with the improvements that we're making on banana and athletic. The third piece strengthening our platform, you know, we've talked a lot about the greater value of our capabilities and leverage that we have to drive individual brand growth.

Speaker Change: We've spoken a lot about our playbook and ultimately driving relevance and revenue to be on this journey to become a high-performing house of iconic brands that really shaped culture.

Alexandra Straton: The NANA is focused on fixing the fundamentals. We talked about that. And I think I'll let Richard talk a little bit about as we exit lapping this highly promotional environment, how we're feeling about Athleta. Thanks, Alex. We're gaining much more confidence in Athleta. As net sales in the quarter were down 1%, constant 4%, but really important to remind that we're lapping a period of very heavy discounting last year. And there is a lot of good progress being made.

Speaker Change: Um, our two biggest brands, which we've noted old Navy and Gap, are furthest along, multiple quarters of positive camps and market share gains. And I'm encouraged as I've said with the improvements that we're making on banana and athletic.

Speaker Change: The third piece, strengthening our platform, you know we've talked a lot about the greater value of our capabilities and leverage that we have to drive individual brand growth.

Richard Dickson: A particular note I mentioned our new media partner on the com is going to help us really drive efficiencies and effectiveness and amplify these brand narratives and become a strategic differentiator. As we drive more culturally relevant conversations and a much more innovative medium mix, those examples will start to really show up in the second half. And then the last piece I talk about is our culture. You know, we're seeing really strong signs across our organization and notably in our recent employee survey, which received nearly twice the engagement that we had compared to last year. I talk often about our people and our talent.

Speaker Change: A particular note I mentioned are new media partner on the calm. It's going to help us really drive efficiencies and effectiveness and amplify these brand narratives and become a strategic differentiator as we drive.

Alexandra Straton: We've successfully brought our consumer base. We're seeing much better sell-throughs at full price. Our marketing, which has been totally refreshed is gaining traction. And most importantly, our fashion product is resonating. And given the success that we're seeing with our new product, notably in core bottoms, and the limited edition drops that we've been doing, we now expect to see positive comps for the remainder of the year. The team has been focused on resetting the brand and setting the brand up for sustainable growth in the long term. And we're very excited about the progress in the future of the brand. Thanks a lot, good luck. Thank you.

Speaker Change: More culturally relevant conversations and a much more innovative media mix.

Speaker Change: Those examples would start to really show up in the second half.

Speaker Change: and then the last piece I'd talk about is our culture.

Speaker Change: We're seeing really strong signs across our organization and notably in our recent employee survey, which received nearly twice the engagement that we had compared to last year.

Richard Dickson: They're really the gateway to the pursuit of our vision and ultimately, really driving better work. And we're working as a company around new values, new vision, new mission. We've been added with precision, new talent. There's extraordinary talent within the company, and together that makes us really driving executing with excellent. So all in all, I'm very pleased with the progress. We have a lot more work to do, but teams are really focused on executing, and certainly this quarter shows up on the scoreboard. That's great.

Speaker Change: I talk often about our people and our talent. They're really the gateway to the pursuit of our vision and ultimately really driving better work.

Matthew Boss: Our next question comes from Matthew Boss with JP Morgan. Please go ahead. Great, thanks.

Speaker Change: and we're working as a company around new values, new vision, new mission.

Richard Dickson: Still Richard, on your targeted consistency, can you elaborate on maybe the structural changes that you've made across merchandising and marketing at Old Nevy and the Gap that you see driving sustainable, profitable growth in the back cap and then into next year? Thanks Matt, you know I would focus our answer to that on our strategic priorities. We have been incredibly disciplined in maintaining focus around our four strategic priorities and the execution of that I believe is really showing up in the metrics that matter, maintaining financial and operational rigor as I've said in my opening remarks is really becoming the way in which we work better processes much more cultural accountability and again as you see the performance that we have in the quarter and consistently it's really do in the context of how we're working with much more disciplined process.

Speaker Change: We've been added with precision, new talent, there's extraordinary talent within the company, and together that makes us really driving, executing with excellent. So, all in all, I'm very pleased with the progress. We have a lot more work to do, but teams are really focused on executing and certainly this quarter shows up on the scoreboard.

Katrina O'connell: Maybe Katrina to that point.

Katrina O'connell: Could you elaborate on just further areas of potential efficiency across the expense structure or just help us to rank multi-year leverage opportunity across whether it's technology, marketing, or corporate. Yeah, thanks for that question. So after the last, you know, two years or over the last two years, we've really worked on increasing the financial rigors we've talked about, and we've actioned about $550 million in cost reduction. We know that the $5.1 billion of SGNA that we guided to this year does reflect lower nominal dollars versus last year and is leveraging, and that's all despite higher incentive compensation accrual.

Katrina: That's great. Maybe Katrina, it's to that point. Could you elaborate on just further areas of potential efficiency across the expense structure or just help us to rank multi-year leverage opportunity across whether it's technology, marketing, or corporate?

Katrina: Yeah, thanks for that question. So after the last, you know, two years or over the last two years we've really worked on increasing the financial rigor as we've talked about and we've worked on about $550 million in cost reductions.

Katrina: We know that the $5.1 billion of SGA that we guided to this year does reflect.

Katrina: Lower nominal dollars versus last year in his leveraging, and that's all despite higher incentive compensation accrual. So, you know, we're pleased with the progress, but as you say, we do realize that SGA is a percentage is still high.

Richard Dickson: That is really enabling the second priority, which is reinvigorating our brands. We've spoken a lot about our playbook and ultimately driving relevance and revenue to be on this journey to become a high performing house of iconic brands that really shape culture. Our two biggest brands which we've noted Old Nevy and Gap are furthest along multiple quarters of positive comps and market share gains and I'm encouraged as I've said with the improvements that we're making.

Katrina O'connell: So, you know, we're pleased with the progress. But, as you say, we do realize that SGNA is a percentage, is still high. And we believe our cost structure can become more efficient. So we're deeply engaged in identifying the next phase of savings to drive value creation over the long term.

Katrina: and we believe our cost structure can become more efficient. So we're deeply engaged and identifying the next phase of savings to drive value creation over the long term. So we'll look forward to getting back to you when we have a more articulated plan, but we are deeply focused on efficiencies for the future.

Katrina O'connell: So, we'll look forward to getting back to you when we have a more articulated plan. But we are deeply focused on efficiencies for the future.

Unknown Executive: Great color. Best of luck.

Richard Dickson: We're making on banana and athletic. The third piece, strengthening our platform, you know we've talked a lot about the greater value of our capabilities and leverage that we have to drive individual brand growth, a particular note I mentioned our new media partner on the com. It's going to help us really drive efficiencies and effectiveness and amplify these brand narratives and become a strategic differentiator as we drive more culturally relevant conversations. We have a much more innovative media mix.

Unknown Executive: Thank you.

Speaker Change: Great color best of luck.

Irwin Boruchow: Our next question comes from Ike Boruchow with Wells Fargo.

Speaker Change: Thank you.

Unknown Executive: Please go ahead. Hey, everyone, congrats.

Speaker Change: Our next question comes from Ike Borytow with Wells Fargo. Please go ahead.

Richard Dickson: I guess I'll take Bob's question to take a little bit more detail just because I know the ships are in there and it's a little hard to tell. But Richard, can you say specifically if now that you have the tougher compares coming up specifically at Old Navy, do you expect Old Navy to continue to comp positively and do you expect the company to continue to comp positively as we get into the back half.

Ike Borytow: Hey everyone, congrats.

Ike Borytow: I guess I'll take Bob's question to take a little bit more detail because I know the ships are in there and it's a little hard to tell but Richard can you say specifically if now that you have the tougher compares coming up specifically at Old Navy do you expect Old Navy to continue to comp positively and do you expect the company to continue to comp positively as we get into the back-app?

Katrina O'connell: And a follow-up question for Katrina just on the rod line. You can see the operating lease costs and the red cost. Those continue to go up by a decent amount, but the rod dollars are going down, and you're getting good leverage. What exactly is going on on the occupancy line that you guys have done to create a more leverageable model, and how sustainable is that? Thanks.

Richard Dickson: Those examples will start to really show up in the second half. And then the last piece I talk about is our culture. We're seeing really strong signs across our organization and notably in our recent employee survey which received nearly twice the engagement that we had compared to last year. I talk often about our people and our talent. They're really the gateway to the pursuit of our vision and ultimately really driving better work.

Speaker Change: and a follow-up question for Katrina just on the robeline, you can see with the operating lease cost and the red cost, those continue to go up.

Speaker Change: By a decent amount, but the raw dollars are going down and you're getting good leverage. What exactly is going on on the occupancy line that you guys have done to create a more leverageable model and how sustainable is that? Thanks.

Richard Dickson: Yeah, so I'm happy to talk more specifically to the comp in the back half. So we did guide to sales in the Q3 time frame up slightly. What I would say in general is I would think about a spread that is sort of relatively neutral. So we'll let you do the math on whether or not that means positive comp, but particular to Old Navy and Gap. We feel very good about where we are in the brand reinvigoration process. And I think, as Richard said, there's lots of really exciting things happening from a product and marketing standpoint as we head into the back half.

Speaker Change: Yeah.

Speaker Change: So I'm happy to talk more specifically to the comp in the back half, so we did.

Richard Dickson: And we're working as a company around new values, new vision, new mission. We've even added with precision, new talent. There's extraordinary talent within the company and together that mix is really driving executing with excellence. So all in all, I'm very pleased with the progress. We have a lot more work to do but teams are really focused on executing and certainly this quarter shows up on the scoreboard.

Katrina O'connell: That's great.

Speaker Change: Guide to sales in the Q3 timeframe, up slightly.

Speaker Change: What I would say in general is I would think about...

Richard Dickson: A spread that is sort of relatively neutral. So we'll let you do the math on whether or not that means positive Comments, but particular to old Navy and Gap, we feel very good about where we are in the brand reinvigoration process. And I think as Richard said, there's lots of really exciting things happening from a product and marketing standpoint as we head into the back half. They've been most consistent in their performance. So we'll see where that lands us, but we feel very good about those two brands. Thank you.

Katrina O'connell: Maybe Katrina to that point. Could you elaborate on just further areas of potential efficiency across the expense structure or just help us to rank multi year leverage opportunity across whether it's technology marketing or corporate. Yeah, thanks for that question. So after the last two years or over the last two years, we've really worked on increasing the financial rigour as we've talked about and we've actioned about $550 million in cost reduction. We know that the $5.1 billion of SGNA that we guided to this year does reflect lower nominal dollars versus last year and is leveraging.

Katrina O'connell: They've been most consistent in their performance. So we'll see where that lands us, but we feel very good about those two brands as it relates to rod. Right now, Rod leverages on about flat to modestly positive sales growth.

Richard Dickson: Right now, Rod leverages on about flat to modestly positive sales growth, and as you know, we've done a lot of work in the...

Katrina O'connell: And as you know, we've done a lot of work in the store part of the business where we've closed over 350 stores as we went through the pandemic, primarily at Gap. And that has given us a lot more flexibility in that line to save not only rent and occupancy dollars, but to get leverage on much lower sales. So that's been a real benefit.

Richard Dickson: Store part of the business where we've closed over 350 stores as we went through the pandemic, primarily at Gap. And that has given us a lot more flexibility in that line to save not only rent and not keep and see dollars, but to get leverage on much lower sales, so that's been a real benefit.

Katrina O'connell: And that's all despite higher incentive compensation accrual. So, you know, we're pleased with the progress. But as you say, we do realize that SGNA is a percentage is still high. And we believe our cost structure can become more efficient. So we're deeply engaged in identifying the next phase of savings to drive value creation over the long term.

Lorraine Hutchinson: Our next question comes from Lorraine Hutchinson with Bank of America Global Research. Please go ahead.

Richard Dickson: What?

Katrina O'connell: So, we'll look forward to getting back to you when we have a more articulated plan, but we are deeply focused on efficiencies for the future.

Speaker Change: Our next question comes from Lorraine Hutchinson with Bank of America Global Research. Please go ahead.

Unknown Executive: Thank you.

Katrina O'connell: Good afternoon. I just want to focus on Old Navy for a minute and the profitability. Where do you see the largest opportunity to improve margins that Old Navy? And is this one of your key goals in terms of improving consistency?

Lorraine Hutchinson: Thank you, good afternoon. I just wanted to focus on the old movie for a minute and the profitability, but where do you see the largest opportunity to improve margins at old maybe? And if this one of your key goals in terms of improving consistency?

Katrina O'connell: Great color best of luck.

Katrina O'connell: Thank you.

Ike Boruchow: Our next question comes from Ike Boruchow with Wells Fargo. Please go ahead. Hey, everyone, congrats.

Richard Dickson: I guess I'll take Bob's question to take a little bit more detail just because I know the ships are in there and it's a little hard to tell, but Richard, can you say specifically if now that you have the tougher compares coming up specifically at old Navy, do you expect old Navy to continue to comp positively and do you expect the company to continue to comp positively as we get into the back half. And a follow up question for Katrina, just on the rod line, you can see the operating lease costs and the red cost those continue to go up by a decent amount, but the rod dollars are going down and you're getting good leverage. What exactly is going on on the occupancy line that you guys have done to create a more leverageable model and how sustainable is that thanks.

Katrina O'connell: I'll start, and Richard can pile on. I think in general, the rigor that we're putting in place across the company around inventory management, expanding gross margins, being prudent about SG&A and overall growing operating margins, I think is leading us to impact all of our brands. So we're focused on driving profitability across our portfolio. Old Navy obviously is the biggest brand in the portfolio is quite important on that journey. I think overall when you look at the company and you think about the guidance that we've put out, our gross margins for the year are approaching historical high.

Richard Ken: I'll start in Richard Ken.

Richard Ken: I think in general, the rigor that we're putting in place across the company around inventory management.

Speaker Change: Expanding Gross Margins

Speaker Change: being prudent about SGA and overall growing operating margins. I think is leading us to impact all of our brands. So we're focused on driving profitability across our portfolio. Old Navy obviously is the biggest brand in the portfolio is quite important on that journey.

Speaker Change: I think overall when you look at the company and you think about the guidance that we put out our gross margins for the year are approaching historical highs.

Katrina O'connell: Yeah, so I'm happy to talk more specifically to the comp in the back half. So we did guide to sales in the Q3 timeframe up slightly. What I would say in general is I would think about a spread that is sort of relatively neutral. So we'll let you do the math on whether or not that means positive comp, but particular to old Navy and gap. We feel very good about where we are in the brand reinvigoration process.

Richard Dickson: And so, you know, we feel very good that we've made a lot of progress around gross margins for the company, and our bigger focus, I think we talked about just a minute ago, is really turning our attention to further work we can do around the expense structure of the company. You know, right now, I'll just add, you know, we're running a fundamentally stronger business, and obviously the metrics that we're posting are indicative of the efforts that we've been making. But a particular note, you know, we're driving, you know, a 5% net sales growth on 5% less inventory. We've been working on our inventory and inventory management for quite some time.

Speaker Change: And so, you know, we feel very good that we've made a lot of progress around gross margins for the company. And our bigger focus, I think we talked about just a minute ago, is really turning our attention to further work we can do around the expense structure of it.

Speaker Change: Welcome.

Speaker Change: You know, Lorraine, I'll just add, you know, we're running a fundamentally stronger business and obviously the metrics that we're posting are indicative of the efforts that we've been making but of particular note.

Lorraine Hutchinson: We're driving, you know, a 5% net sales growth on 5% less inventory.

Katrina O'connell: And I think as Richard said, there's lots of really exciting things happening from a product and marketing standpoint as we head into the back half, they've been most consistent in their performance. So we'll see where that lands us, but we feel very good about those two brands.

Richard Dickson: The composition that we have is much stronger; we have better product, better sell through in general at full price and therefore less discounting, and obviously the impact on margin is there. As we continue to drive consistent deliverables on Old Navy, Gap, and across our portfolio, we expect that type of rigor to remain consistent. And this is our fourth consecutive quarter of positive comps for Old Navy. It's the sixth consecutive quarter of market share gains as well for Old Navy and for the company. Again, as a reminder, it's also the seventh consecutive quarter of women's gain share in Gap.

Lorraine Hutchinson: We've been working on our inventory and inventory management for quite some time.

Lorraine Hutchinson: is the composition that we have is much stronger, we have better product.

Lorraine Hutchinson: Better sell through in general at full price and therefore less discounting and obviously the impact on margin is there.

Katrina O'connell: As it relates to rod right now, rod leverages on about flat to modestly positive sales growth. And as you know, we've done a lot of work in the store part of the business where we've closed over 350 stores as we went through the pandemic primarily at gap. And that has given us a lot more flexibility in that line to save not only rent and occupancy dollars, but to get leverage on much lower sales. So that's been a real benefit.

Lorraine Hutchinson: As we continue to drive consistent deliverables on Old Navy, Gap, and across our portfolio, we expect that type of rigor to remain consistent. This is our fourth consecutive quarter of positive pumps.

Lorraine Hutchinson: For Old Navy, it's the 6th consecutive quarter of market share gains as well for Old Navy and for the company. Again as a reminder, it's also the...

Lorraine Hutchinson: 7th consecutive quarter of women's gain share in Gaff. So, consistently doing what we say we're going to do, driving leaner, more inventory that is precise and better storytelling and we're getting that resonance with consumers.

Richard Dickson: So consistently doing what we say we're going to do, driving leaner, more inventory that is precise and better storytelling, and we're getting that resonance with consumers.

Lorraine Hutchinson: Our next question comes from Lorraine Hutchinson with Bank of America Global Research. Please go ahead. Thank you. Good afternoon. I just want to focus on old Navy for a minute and the profitability. Where do you see the largest opportunity to improve margins at old Navy? And is this one of your key goals in terms of improving consistent?

Unknown Executive: Thank you.

Lorraine Hutchinson: [inaudible]

Adrian Yee: Our next question comes from Adrian Yee with Barclays. Please go ahead.

Lorraine Hutchinson: Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Adrian Yee with Barclays. Please go ahead.

Unknown Executive: Great, thank you. Congratulations on the progress. Richard, I can appreciate very much the market share gains at the Gap brand.

Adrian Yee: Great. Thank you. Congratulations on the progress.

Richard: Richard, I can appreciate very much the Marcus Served Games at the Gap brand.

Richard Dickson: I was wondering after a year with the camp over a year, can you talk about kind of the descriptors for what is the core target demographic, the core market for Gap because they feel like that is the one brand that maybe has moved around a bit over the past decade.

Katrina O'connell: I'll start and Richard can pile on. I think in general, the rigor that we're putting in place across the company around inventory management, expanding gross margins, being prudent about SGNA and overall growing operating margins. I think is leading us to impact all of our brands. So we're focused on driving profitability across our portfolio. Old Navy obviously is the biggest brand in the portfolio is quite important on that journey. I think overall when you look at the company and you think about the guidance that we've put out, our gross margins for the year are approaching historical highs.

Adrian Yee: I was wondering after a year with the camp over a year.

Speaker Change: Can you talk about kind of the descriptors for what is...

Speaker Change: The core target demographic, the core market from doubt because they feel like that is the one brand.

Katrina O'connell: And then secondly, Katrina, just some clarification on the one-time benefit of the credit card revenue to percentage points to sales that you said. I think you said 240 basis points to the merge margin. So should we just net, should we take that out of the operating margin and think about it that way for an adjusted basis. Thank you.

Speaker Change: that maybe has moved around a bit over the past decade. And then, secondly, to turn a just some clarification on the one-time benefit of the credit card revenue, 2% points to sales, but you said, I think you said 240 basis points to the Merch Martins.

Speaker Change: So should we just net, should we take that out of the operating margin and think about that way for an adjusted basis? Thank you.

Richard Dickson: Thanks, Adrian, for the question and in particular on the Gap brand, which we're so proud of the progress that we made. As I mentioned, I really do believe we're well on our way to revitalizing this iconic American brand. And it's also important to note, you know, the brand is 55 years old or young. You know, we just celebrated our 55th anniversary, and I think in the context of what that represents, it's a multi-generational brand. And we've been focusing on returning to our roots as a pop culture brand and so trend-right products and creative expression that is supported by big ideas and culturally relevant messaging.

Katrina O'connell: And so we feel very good that we've made a lot of progress around gross margins for the company. And our bigger focus, I think we talked about just a minute ago, is really turning our attention to further work we can do around the expense structure of the company. Lorraine, I'll just add, we're running a fundamentally stronger business and obviously the metrics that we're posting are indicative of the efforts that we've been making, but a particular note, we're driving a 5% net sales growth on 5% less inventory.

Speaker Change: Thanks Adrian for the question, and in particular on the Gap brand, which

Speaker Change: We're so proud of the progress that we made, and as I mentioned, I really do believe we're well on our way to revitalizing this iconic

Speaker Change: American brand. It's also important to note, you know, the brand is 55 years.

Speaker Change: Older Young, we just celebrated our 55th anniversary and I think in the context of what that represents, it's a multi-generational brand.

Speaker Change: and we've been focusing on returning to our roots as a pop culture brand.

Katrina O'connell: We've been working on our inventory and inventory management for quite some time. The composition that we have is much stronger. We have better product, better sell through in general at full price. And therefore less discounting and obviously the impact on margin is there as we continue to drive consistent deliverables on old Navy gap and across our portfolio, we expect that type of rigor to remain consistent.

Speaker Change: and so trend-right products and creative expression that is supported by big ideas and culturally relevant messaging.

Richard Dickson: It's less about age and more about brand persona and brand identity, and I've been really pleased that the brand has delivered these consistent results in the quarter. You know, net sales up 1%, concept 3%, gaining market share for the fifth consecutive quarter across the women's, men's, kids, and baby. These are real indications that we're starting to get it right. Our get loose campaign, which is out there now, just launched last week. It's a declaration as gap as a destination for trend, baggy and oversized trend, but when you talk to different consumers in different age brackets, they're all really enthusiastically excited about gap narrative and about where we can potentially go with this brand and a heritage.

Speaker Change: It's less about age and more about brand persona and brand identity.

Speaker Change: and I've been really pleased that the brand has delivered these consistent results in the quarter.

Speaker Change: In that sales, up 1% comes up 3% gaining market share for the fifth consecutive quarter.

Richard Dickson: This is our fourth consecutive quarter of positive comps for old Navy. It's the sixth consecutive quarter of market share gains as well for old Navy and for the company again as a reminder, it's also the seventh consecutive quarter of women's gain share in gap. So consistently doing what we say we're going to do driving leaner more inventory that is precise and better storytelling and we're getting that resonance with consumers.

Speaker Change: Across the women's men's kids in baby.

Speaker Change: is these are real indications that we're starting to get it right.

Lorraine Hutchinson: Thank you.

Speaker Change: Are Get-Lose campaign, which is out there now just launch last week. It's a declaration as a destination for trend, baggy and oversized trend, but when you talk to different consumers in different age brackets, they're all really enthusiastically excited.

Speaker Change: About Gap Narrative and about where we can potentially go with this brand and a heritage.

Richard Dickson: As mentioned again, the collaborations Dough and Mad Happy. It's a key part of our brand strategy. It's broadening our reach, it's strengthening our cultural relevance, it's opening up considerations for generations that might not have considered gap. So it's a multi multi-tiered approach. I'm very confident in how the, you know, the progress is delivering to date, and there's a lot more to share in the future.

Speaker Change: As mentioned again, the collaborations go in, Mad Happy.

Adrian Yee: Our next question comes from Adrian Yee with Barclays. Please go ahead. Great. Thank you. Congratulations on the progress. Richard, I can appreciate very much the market share gains at the gap brand. I was wondering after a year with the camp over a year.

Speaker Change: If we keep part of our brand strategy, it's broadening our reach.

Speaker Change: Strengthening our cultural relevance, it's opening up consideration for generations that might not have considered gap, so it's a multi-ture approach.

Speaker Change: I'm very confident in how the progress is delivering to date and there's a lot more to share.

Unknown Executive: Thank you, super helpful.

Adrian Yee: Can you talk about kind of the descriptors for what is the core target demographic, the core market for gap because they feel like that is the one brand that maybe has moved around a bit over the past decade. And then secondly, Katrina just some clarification on the one time benefit of the credit card revenue to percentage points to sales that you said, I think you said 240 basis points to the merge margin.

Katrina O'connell: Oh, sure. As it relates to the head of card benefit, yeah, so it was about two points to net sales year over year. And that was driven by incremental revenue related to the credit card agreement.

Speaker Change: and the future.

Speaker Change: Thank you super helpful. Oh, sure. As a relates to the credit card benefit.

Speaker Change: Yeah, so it was about two points to net sales year over year, and that was driven by

Katrina O'connell: And it was basically we have contract provisions within the arrangement of our credit card agreement that impacts the timing of how we recognize certain revenues. So it was unique to the quarter.

Speaker Change: In criminal revenue related to the credit card agreement, and it was basically we have contract provisions within the arrangement of our credit card agreement that impacts the timing of how we recognize certain revenues so as unique to the quarter.

Katrina O'connell: As it relates to the margin piece. However, we did break down the merch margin into 410 basis points of benefit. We said 170 was commodities, and 240 is actually about half the credit card dynamic. And the other half is actually better promotional performance. So I wouldn't take all of that. You can use about half as an example to adjust for that one-time benefit. Super, okay. Thank you so much. I appreciate it. That's the luck for holiday.

Adrian Yee: So should we just net should we take that out of the operating margin and think about it that way for an adjusted basis. Thank you. Thanks Adrian for the question and in particular on the gap brand, which we're so proud of the progress that we made and as I mentioned, I really do believe we're well on our way to revitalizing this iconic American brand. It's also important to note, you know, the brand is 55 years old or young, you know, we just celebrated our 55th anniversary and I think in the context of what that represents.

Speaker Change: As it relates to the margin piece, however, we did break down the merge margin into 410 basis points of benefit. We said one 70 was commodities and 240 is actually about half.

Speaker Change: The credit card dynamic and the other half is actually better promotional performance. So I wouldn't take all of that to find out. You can use about half as an example to adjust for that one time benefit.

Unknown Executive: Thanks, Adrienne.

Speaker Change: Cooper, okay, thank you so much. I appreciate it. That's what's the holiday. Sure.

Mark Altzweger: Our next question comes from Mark Altzweger with Baird.

Adrian Yee: It's a multi generational brand and we've been focusing on returning to our roots as a pop culture brand and so trend right products and creative expression that is supported by big ideas and culturally relevant messaging. It's less about age and more about brand persona and brand identity. And I've been really pleased that the brand has delivered these consistent results in the quarter. You know, net sales up 1%, concept 3%, gaining market share for the fifth consecutive quarter across women's men's kids and baby.

Unknown Executive: Please go ahead.

Speaker Change: Our next question comes from Mark Oltzleger with Beard. Please go ahead.

Richard Dickson: Good afternoon. Thank you for taking my question. So, you know, we look across the apparel space here. We've seen several examples in the last couple of months about how value is really taking share with consumers in this backdrop. Old Navy, clearly known for value, well positioned there.

Mark Oltzleger: Good afternoon. Thank you for taking my question.

Speaker Change: So we look across the apparel space here, we've seen several examples in the last couple months about how value.

Speaker Change: is really taking care of what consumers in the backdrop.

Speaker Change: Old Navy clearly known for value, well positioned there.

Richard Dickson: So I wonder if you just sort of speak your opportunity to lean into that over holiday with your marketing messaging and just also what are your expectations more broadly for the promotional backdrop for the holiday season. Thank you. Thanks, Mark. You know, as far as we're concerned, we haven't seen anything that would warrant any changes or new factors that are influencing our outlook for the year. As always, you know, our job is to create the interest and demand and capture consumers' attention. And we've been really encouraged specifically to see growth across all income cohorts. That's really a reflection of the strong value proposition across all our brands, not just Old Navy.

Speaker Change: So, I'm wondering if you just sort of speak your opportunity to lean into that over holiday with your marketing messaging and just also what are your expectations, more broadly for the promotional backdrop for the holiday season. Thank you.

Adrian Yee: These are real indications that we're starting to get it right. Our get loose campaign, which is out there now just launched last week, it's a declaration as gap as a destination for trend baggy and oversized trend. But when you talk to different consumers in different age brackets, they're all really enthusiastically excited about gap narrative and about where we can potentially go with this brand and a heritage. As mentioned again, the collaborations, dough and mad happy.

Mark Oltzleger: Thanks Mark.

Speaker Change: You know, as far as we're concerned, we haven't seen anything that would warrant any changes or new factors that are influencing.

Speaker Change: You know, our outlook for the year. As always, you know, our job is to create the interest in demand and capture consumer's attention. And we've been really encouraged specifically to see growth across all income cohorts.

Speaker Change: Um, that's really a reflection of the strong value proposition across all our brands.

Richard Dickson: Traffic remains similar to last year, and our strength in the quarter has really been driven by the average transaction, as customers are responding really well to our products. And customers react to newness, innovation, and great storytelling. The apparel market, as you know, is down 2% the quarter, and Gap Inc. and our brands gain share. And it was strength that can category such as denim, active, and kids and baby, which have been strategically really well intended, and it indicates that our reinvigoration is resonating with consumers. You know that this conversation around, you know, trading down, we haven't necessarily seen evidence of trade down.

Adrian Yee: It's a key part of our brand strategy, it's broadening our reach, it's strengthening our cultural relevance, it's opening up considerations for generations that might not have considered gap. So it's a multi tiered approach. I'm very confident in how the progress is delivering to date and there's a lot more to share in the future. Thank you, super helpful. Oh, sure. As it relates to the head of card benefit, yeah, so it was about two points to net sales year over year.

Speaker Change: Not just old Navy. Traffic remains similar to last year and our strength in the quarter has really been driven by the average transaction. Customers are responding really well to our products.

Speaker Change: and customers react to newness, innovation and great storytelling.

Speaker Change: The apparel market, as you know, is down 2% the quarter and gap ink in our brand's gain share. And it was strength and category as such as denim, active, and kids in baby, which have been strategically really well intended, and it indicates that our reinvigoration is resonating with consumers.

Adrian Yee: And that was driven by incremental revenue related to the credit card agreement. And it was basically we have contract provisions within the arrangement of our credit card agreement that impacts the timing of how we recognize certain revenues. So it was unique to the quarter. As it relates to the margin piece. However, we we did break down the merch margin into 410 basis points of benefit. We said 170 was commodities and 240 is actually about half the credit card dynamic and the other half is actually better promotional performance.

Speaker Change: You know, this conversation around, you know, trading down, we haven't necessarily seen evidence of trade down.

Richard Dickson: Customers are continuing to have a positive response when they're offered the right price at the right style, at the right value equation. Our portfolio, we believe, is really well positioned and particularly with Old Navy as the largest brand in the value space. And so if there is a flight to value, Old Navy is there with a welcome that. Thank you.

Speaker Change: Customers are continuing to have positive response when they're offered the right price at the right style at the right value equation.

Speaker Change: are portfolio we believe is really well positioned and particularly with Old Navy as the largest brand in the value space and so if there is a flight to value, Old Navy is there with a welcome man.

Jonah Kim: Our next question comes from Jonah Kim with PD Cowen.

Speaker Change: Thank you.

Adrian Yee: So I wouldn't take all of that. You can use about half as an example to adjust for that one time benefit. Super, okay, thank you so much. I appreciate it. That's the luck for holiday. Thanks, Adrienne.

Speaker Change: Thank you.

Katrina O'connell: Please go ahead. Thanks for taking my question. I would love more color around how your promotional strategy now is structurally different from before and just related to our merchandise margin.

Speaker Change: Our next question comes from Jonah Kim with TD Cowan. Please go ahead.

Jonah Kim: Thanks for taking my question. I would love more color on how your promotional strategy now is truck-related from before.

Katrina O'connell: If we should start to see moderation in the promotional benefit and how we should think about that as we model as well. Thank you very much.

Mark Altzweger: Our next question comes from Mark Altzweger with Beard. Please go ahead. Good afternoon. Thank you for taking my question. So, you know, we look across the apparel space here. We've seen several examples in the last couple of months about how value is really taking share with consumers in this backdrop. Old Navy clearly known for value well position there.

Speaker Change: and it's related to our merchandise margin if we should.

Speaker Change: in the start to see moderation in the promotional benefit and how we should think about that as we model, as well. Thank you very much.

Katrina O'connell: Yeah, sure. So I think it's we think about what's happening in the industry overall. It appears the industry is controlling inventory as well. And generally, that helps make for a more rational promotional environment. I think more particularly to us. Our inventory is well controlled, and we're very focused on executing our reinvigoration playbook. Again, as we think about the second quarter, we had very strong beats in gross margin; you know, a portion of that driven by commodities. And as we just talked about a portion of that driven by the credit card activity, but also by better performance in gross margin.

Speaker Change: Yeah, sure, so I think as we think about what's happening in the industry, overall it appears the industry is controlling inventory as well and generally that helps make for a more rational promotional environment. I think more particular lead to us.

Richard Dickson: So, I wonder if you just sort of speak your opportunity to lean into that over holiday with your marketing messaging and just also what are your expectations more broadly for the promotional backdrop for the holiday season. Thank you. Thanks, Mark. You know, as far as we're concerned, we haven't seen anything that would warrant any changes or new factors that are influencing. You know, our outlook for the year as always, you know, our job is to create the interest and demand and capture consumers attention.

Speaker Change: Our inventory is well controlled and we're very focused on executing our reinvigoration.

Speaker Change: Playback.

Speaker Change: Again, as we think about the second quarter, we had very strong beats in Gross Margin.

Speaker Change: You know, a portion of that driven by commodities and as we just talked about a portion of that driven by the credit card activity but also by better performance.

Katrina O'connell: As we think about the year-to-date performance for the company, we've gained about 450 basis points in gross margin overall due to strong recovery and commodity costs, as well as better inventory management. So we feel very good about the progress that we are making in being able to control inventories, offer better assortment, and really generate less promotional volume. I think in addition to that, we see continued benefits heading into Q3. We just provided an outlook that shows a range of possible outcomes around margin, which could grow somewhere in the 50 to 75 basis point range. And we attributed that upside to really improved promotional activity as we head into the third quarter.

Speaker Change: in Gross Margin.

Speaker Change: As we think about the year-to-date performance for the company, we've gained about 450 basis points in gross margin overall due to strong recovery and commodity costs as well as better inventory management. So we feel very good about the progress.

Richard Dickson: And we've been really encouraged specifically to see growth across all income cohorts. That's really a reflection of the strong value proposition across all our brands, not just old Navy. Traffic remains similar to last year and our strength in the quarter has really been driven by the average transaction as customers are responding really well to our products and customers react to newness innovation and great storytelling. The apparel market, as you know, is down 2% the quarter and gap ink in our brands gain share.

Speaker Change: that we are making in being able to control inventory's offer better assortment.

Speaker Change: and really generate less promotional volume. I think in addition to that.

Speaker Change: We see continued benefits heading into Q3. We just provided an outlook that shows a range of possible outcomes around margin which could grow somewhere in the 50 to 75 basis point range. And we attributed that upside to really improved promotional activity as we head into third quarter.

Richard Dickson: And it was strength that can category such as denim active and kids and baby, which have been strategically really well intended. And it indicates that our reinvigoration is resonating with consumers. You know, this conversation around, you know, trading down, we haven't necessarily seen evidence of trade down. Customers are continuing to have positive response when they're offered the right price at the right style at the right value equation. Our portfolio, we believe, is really well positioned and particularly with old Navy as the largest brand in the value space. So if there is a flight to value, old Navy is there with a welcome that. Thank you.

Katrina O'connell: So when you take the first half performance and our third quarter raised outlook, we've actually raised our full year outlook on gross margin again. And we now expect gross margins to be up about 200 basis points a year, every year.

Speaker Change: So when you take the first half performance and our third quarter raised outlook, we've actually raised our full year outlook on gross margin again.

Speaker Change: and we now expect those margins to be up about 200 basis points a year over year. So all of that, I think, is a reflection of the rigor we've put into the inventory management side as well as the reinvigoration work that the brands are doing to offer great product, a great value through great marketing.

Katrina O'connell: So all of that I think is a reflection of the rigor we've put into the inventory management side, as well as the reinvigoration work that the brands are doing to offer great product, a great value through great marketing. Thank you for the follow.

Corey Tarlowe: Thank you. Our next question comes from Corey, Tarlo with Jeffries.

Speaker Change #100: Thank you for your time.

Speaker Change #101: Thank you.

Unknown Executive: Please go ahead. Great. Thanks.

Speaker Change #102: Our next question comes from Corey Tarlow with Jeffries. Please go ahead.

Richard Dickson: Good afternoon. And thank you for taking a question. I wanted to ask about the right way to think about what potential evit margin or profile of the business could be given. And I think this is the first time in the first half of gap fiscal year in a very long time, if ever, that you've had gross margin average over 41%. So curious to hear how you think about the additional levers that you can pull the drive fire evit margins sustainably for longer. Yeah, first of all, you know, I think we're proving with the consistent deliverables quarter after quarter that we do what we say we're going to do.

Corey Tarlow: Great, thanks. Good afternoon and thank you for taking that question. I wanted to ask about the right way to think about what the potential EBIT margin or profile of a business could be.

Jonah Kim: Our next question comes from Jonah Kim with PD Cowan. Please go ahead. Thanks for taking my question.

Katrina O'connell: I would love more color around how your promotional strategy now is structurally different from before and just relate it to our merchandise margin if we should start to see moderation in the promotional benefit and how we should think about that as we model as well. Thank you very much. Yeah, sure. So, I think as we think about what's happening in the industry overall, it appears the industry is controlling inventory as well and generally that helps make for a more rational promotional environment.

Speaker Change #104: I think this is the first.

Speaker Change #105: in the first half of Gap's fiscal year, in a very long time, if ever you've had gross margins average over 41%. So, curious to hear how you think about the additional levers that you can pull.

Speaker Change #106: the drive by our EBIT margins sustainably for longer.

Katrina O'connell: I think more particularly to us, our inventory is well controlled and we're very focused on executing our reinvigoration playbook. Again, as we think about the second quarter, we had very strong beats and gross margin, a portion of that driven by commodities and as we just talked about, a portion of that driven by the credit card activity but also by better performance in gross margin. As we think about the year-to-date performance for the company, we've gained about 450 basis points in gross margin overall due to strong recovery and commodity costs as well as better inventory management.

Speaker Change #107: First of all, you know, I think we're proving with the consistent deliverables quarter after quarter that we do what we say we're going to do. This quarter in particular was a real success story in relation to 500 basis points of gross margin expansion and of course our operating margin expansion of.

Katrina O'connell: This quarter in particular was a real success story in relation to 500 basis points of gross margin expansion. And of course, our operating margin. In the expansion of 490 basis points. We've held our view on revenue in SG&A, and we've raised our guidance in relation to higher gross margin outlook, and we expect to expand roughly 200 basis points year-over-year for 24, and that will result in eBIG growth in the mid to high 50% range.

Speaker Change #107: 490 basis points.

Speaker Change #107: We've held our view on revenue in SGNA and we've raised.

Speaker Change #107: are guidance and in relation to higher gross margin outlook.

Speaker Change #107: and we expect to expand roughly 200 basis points year for year for it.

Speaker Change #107: 24, and that will result in eBigros in the mid to high 50% range.

Katrina O'connell: You know, as we continue to deliver against our priorities and over the long term, we're working on multiple initiatives, especially in this expense structure, and we'll be getting back to you as to the targeted ways that we're going to continue to drive efficiencies and effectiveness. As we continue to deliver what we say we're going to deliver, we see the ability for this portfolio to deliver historical references and ultimately new chapters of growth for the company.

Katrina O'connell: So, we feel very good about the progress that we are making in being able to control inventories offer better assortment and really generate less promotional volume. I think in addition to that, we see continued benefits heading into Q3. We just provided an outlook that shows a range of possible outcomes around margin which could grow somewhere in the 50 to 75 basis point range and we attributed that upside to really improved promotional activity as we head into third quarter.

Speaker Change #107: You know, as we continue to deliver against our priorities and over the long term, we're working on multiple initiatives.

Speaker Change #107: especially in this expense structure. And we'll be getting back to you as to the targeted ways that we're going to continue to drive efficiencies and effectiveness.

Speaker Change #107: and as we continue to deliver what we say we're going to deliver we see the ability for this portfolio to deliver historical references and ultimately new chapters of growth for the company.

Katrina O'connell: So, when you take the first half performance and our third quarter raised outlook, we've actually raised our full year outlook on gross margin again and we now expect gross margins to be up about 200 basis points a year every year. So, all of that I think is a reflection of the rigor we've put into the inventory management side as well as the reinvigoration work that the brands are doing to offer great product, a great value through great marketing. Thank you for the follow. Thank you.

Speaker Change #107: Got it, and then just Katrina as a follow-up to that, what's the comfortable level of cash for Gap Ink going forward?

Katrina: Well, first of all, I would say we're very pleased with the health of the balance sheet.

Katrina: 2.1 billion dollars of cash is a meaningful growth year over year and so that certainly feels good.

Katrina O'connell: I think about minimum cash balance is somewhere in the $1.2 billion range that gives us a level that ensures we have the cash to service our working capital fluctuations and general business volatility, and then, you know, when I think about cash, we sort of have a balanced framework for capital allocation. First, we invest in the business through capital to the degree we feel like we can get a good return, and this year we've said we're spending about $500 million in capital. Second, we believe in paying an attractive dividend as a key component of shareholder returns, and we have paid out about $112 million so far a year to date, and we just approved another 15 cents a share dividend in the third quarter.

Speaker Change #108: I think about minimum cash balance is somewhere in the 1.2 billion dollar range that gives us a level that ensures we have the cash to service our working capital fluctuations in general business volatility and then when I think about cash.

Corey Tarlow: Our next question comes from Corey, Tarlow with Jeffries. Please go ahead. Great. Thanks. Good afternoon and thank you for taking a question.

Katrina O'connell: I wanted to ask about the right way to think about what potential EBIT margin or profile of the business could be given. I think this is the first time in the first half of gap fiscal year in a very long time if ever you've had gross margins average over 41%. So, curious to hear how you think about the additional levers that you can pull the drive by our EBIT margins sustainably for longer.

Speaker Change #108: We sort of have a balanced framework for capital allocation. First, we invest in the business through capital to the degree we feel like we can get a good return. In this year, we've said we're spending about $500 million in capital.

Speaker Change #108: Second, we believe in paying an attractive dividend as a key component of shareholder returns and we have paid out about 112 million so far a year to date and we just approved another 15 cent.

Katrina O'connell: So I think so far we feel very good about the way we've been managing the balance sheet, and all of that management this year so far has given us about $400 million of free cash flow, so hopefully that's helpful. It is.

Speaker Change #108: I share dividend in third quarter. So, I think so far we feel very good about the...

Speaker Change #108: The way we've been managing the balance sheet and all of that management this year so far has given us about $400 million of free cash flow. So hopefully that's helpful.

Katrina O'connell: You know, first of all, you know, I think we're proving with the consistent deliverables quarter after quarter that we do what we say we're going to do. This quarter in particular was a real success story in relation to 500 basis points of gross margin expansion and of course our operating margin, in the expansion of 490 basis points. We've held our view on revenue in SG&A, and we've raised our guidance in relation to higher gross margin outlook, and we expect to expand roughly 200 basis points year-over-year for 24, and that will result in EBIT growth in the mid to high 50% range.

Unknown Executive: Thank you very much, and best of luck.

Speaker Change #109: It is, thank you very much and best of luck.

Dana Telsey: Our last question will come from the line of Dana Telsi with Telsi Advisory Group.

Richard Dickson: Please go ahead. Hi, good afternoon everyone, and very nice to see the progress. Richard, I've been in the stores in the New Banana Republic in Soho and in Century City that you just opened, and certainly the physical store footprint is important for the new enhancements of the product that you're advancing.

Speaker Change #110: Our last question will come from the line of Dana Telsy with Telsy Advisory Group. Please go ahead.

Dana Telsy: Hi, good afternoon everyone and very nice to see the progress.

Dana Telsy: Richard, I've been in the stores in the new banana, our public, and so-ho, and in century city that you just opened, and certainly the physical store footprint is important for the new enhancements of the product that you're advancing. How are you thinking about the retail fleet and the past that have been thought that old maybe would go into some more rural areas too? What's the status of the fleet of each division, where the remodeled smaller size and will you're taking it going forward? Thank you.

Richard Dickson: How are you speaking about the retail fleet? In the past, it had been thought that Old Navy would go into some more rural areas too. What's the status of the fleet of each division with a remodel smaller size when we are taking it going forward? Thank you. Thank you, Dana. I really appreciate you visiting our Soho store and Century City. We're really proud of those expressions. And I think Soho and Century are great examples of immersive experiences that we're trying to create. It certainly has a new aesthetic, which we believe, again, has the right elements for the new direction that we're taking, and we're planning to roll out similar elements inspired by those two doors to the rest of the fleet.

Katrina O'connell: You know, as we continue to deliver against our priorities and over the long term, we're working on multiple initiatives, especially in this expense structure, and we'll be getting back to you as to the targeted ways that we're going to continue to drive efficiencies and effectiveness, and as we continue to deliver, what we say, we're going to deliver, we see the ability for this portfolio to deliver historical references and ultimately new chapters of growth for the company.

Speaker Change #112: Thank you, Dan, I really appreciate you visiting our Seho store and Century City, we're really proud of those expressions.

Speaker Change #113: and I think, you know, so-ho and century of great examples of immersive experiences that we're trying to create. It certainly has a new aesthetic.

Speaker Change #113: which we believe, again, has the right elements for the new direction that we're taking and we're planning to roll out similar elements inspired by those two doors to the rest of the fleet.

Katrina O'connell: Got it, and then just Katrina as a follow-up to that, what's the comfortable level of cash for Gap Inc going forward? Yeah, well, first of all, I would say we're very pleased with the health of the balance sheet. $2.1 billion of cash is a meaningful growth year-over-year, and so that certainly feels good. I think about minimum cash balance is somewhere in the $1.2 billion range that gives us a level that ensures we have the cash to service our working capital fluctuations and general business volatility, and then you know, when I think about cash, we sort of have a balanced framework for capital allocation.

Richard Dickson: As it relates to retail stores in general across our fleet, we are in the sort of studying stage, if you will, of optimizing our retail footprint. There's a lot of work that we're doing to understand productivity, store experiences, traffic, and all the variables, as you can imagine, with a fleet and presence that we have. We believe very strongly in retail and the balance of the omnichannel experience being both bricks and mortar and digital and the connection between the two. But we have work to do. You know, we have a lot of work to do across our fleets to make sure that these stores reflect the brand reinvigoration that we've been working on.

Speaker Change #113: As it relates to retail stores in general across our fleet, we are in the sort of studying stage if you will of optimizing our retail footprint.

Speaker Change #113: There's a lot of work that we're doing to understand productivity.

Speaker Change #113: Story experiences, traffic, and all the variables, as you can imagine.

Speaker Change #113: with a fleet and a presence that we have, we believe.

Speaker Change #113: Very strongly in retail, and the balance of the omnichannel experience being both bricks and mortar and digital in the connection between the two, but we have worked to do. You know, we have a lot of work to do across our fleets to make sure that these stores reflect.

Katrina O'connell: First, we invest in the business through capital to the degree, we feel like we can get a good return, and this year we've said we're spending about $500 million in capital. Second, we believe in paying an attractive dividend as a key component of shareholder returns, and we have paid out about 112 million, so far a year to date, and we just approved another 15 cents a share dividend in third quarter. So, I think so far we feel very good about the way we've been managing the balance sheet, and and all of that, you know, management this year so far has given us about $400 million of free cash flow, so hopefully that's helpful. It is.

Richard Dickson: Each one of our brand leaders is paying incredible attention to the store experience, the service levels, the aesthetics, the sites, and the sounds. These are all really important parts of our consumer journey and the reinvigoration of our brands. So, while we made progress and we've got some great indication on some of our stores, we do have a lot of work to do.

Katrina O'connell: Thank you very much, and best of luck.

Speaker Change #113: the brand reinvigoration that we've been working on.

Speaker Change #113: Each one of our brand leaders is being incredible attention to the store experience.

Speaker Change #113: The service levels, the aesthetics, the sights, the sounds. These are all really important part of our consumer journey and the reinvigoration of our brands.

Speaker Change #113: So while we made progress and we've got some great indication on some of our stores, we do have a lot of work to do and we'll be sharing a lot more of that in the quarters to come.

Richard Dickson: And we'll be sharing a lot more of that in the quarters to come.

Unknown Executive: Thank you.

Speaker Change #113: Thank you.

Unknown Executive: We reach the end of the question and answer session. That does conclude our conference call.

Speaker Change #114: Thank you. We reached the end of the question and answer session. That does conclude our conference call. You may now disconnect.

Unknown Executive: You may now disconnect.

Dana Telsey: Our last question will come from the line of Dana Telsi with Telsi Advisory Group. Please go ahead. Hi, good afternoon, everyone, and very nice to see the progress. Richard, I've been in the stores in the New Banana Republic in Soho and in Century City that you just opened, and certainly the physical store footprint is important for the new enhancements of the product that you're advancing. How are you speaking about the retail fleet? In the past, it had been thought that old Navy would go into some more rural areas, too.

Speaker Change #114: [inaudible]

Richard Dickson: What's the status of the fleet of each division, with a remodel smaller size than we are taking it going forward? Thank you. Thank you, Dana. I really appreciate you visiting our Soho store and Century City. We're really proud of those expressions, and I think, you know, Soho and Century are great examples of immersive experiences that we're trying to create. It certainly has a new aesthetic, which we believe, again, has the right elements for the new direction that we're taking, and we're planning to roll out similar elements inspired by those two doors to the rest of the fleet.

Richard Dickson: As it relates to retail stores in general across our fleet, we are in the sort of studying stage, if you will, of optimizing our retail footprint. There's a lot of work that we're doing to understand productivity, store experiences, traffic, and all the variables, as you can imagine, with a fleet and presence that we have. We believe very strongly in retail, and the balance of the Omnichannel Experience being both bricks and mortar and digital and the connection between the two, but we have work to do.

Richard Dickson: We have a lot of work to do across our fleets to make sure that these stores reflect the brand reinvigoration that we've been working on. Each one of our brand leaders is paying incredible attention to the store experience, the service levels, the aesthetics, the sites, the sounds. These are all really important part of our consumer journey and the reinvigoration of our brands.

Richard Dickson: So while we made progress, and we've got some great indication on some of our stores, we do have a lot of work to do, and we'll be sharing a lot more of that in the quarters to come. Thank you.

Whitney Notaro: We reach the end of the question and answer session.

Whitney Notaro: That does conclude our conference call.

Whitney Notaro: You may now disconnect.

Q2 2025 The Gap Inc Earnings Call

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