GAP INC. LEADERSHIP TEAM DETAILS PRODUCT AND CUSTOMER EXPERIENCE STRATEGIES TO BUILD FOR THE FUTURE

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1 GAP INC. LEADERSHIP TEAM DETAILS PRODUCT AND CUSTOMER EXPERIENCE STRATEGIES TO BUILD FOR THE FUTURE Actions to Drive Stronger Performance at Gap North America, Coupled with Continued Global Growth and Digital Innovation Central to Company s Strategy SAN FRANCISCO June 16, 2015 As part of its annual investor meeting, Gap Inc. (NYSE: GPS) today will provide an overview of its strategic agenda designed to best serve the ever-changing needs of consumers, while continuing to drive long-term shareholder value and profitable growth across its portfolio of brands. Our management team is aligned and focused on the key priorities that will drive profitable growth for the company, said Art Peck, chief executive officer, Gap Inc. Building upon the strength of Old Navy, each brand within our portfolio is focused on clear, near-term priorities and a strategy to capitalize on long-term opportunities. Even before taking the helm of the company in February 2015, Peck moved swiftly to assemble a team of proven leaders focused on driving commercial success across its core brands. Additionally, as demonstrated by yesterday s announcement, Peck and Gap global president Jeff Kirwan are implementing a series of strategic actions designed to improve productivity and profitability at the company s namesake brand. Today, the Gap Inc. management team will continue to reinforce its strategies to drive loyalty and enhance growth. Compelling Product Collections: Led by Old Navy s proven success growing top-line sales by nearly $1 billion over the last three fiscal years, Gap Inc. s portfolio of brands will leverage its transformed product operating model, Product 3.0, to more consistently deliver on-trend product collections that customers love. The company will highlight how this underlying engine mixes the art and science of bringing products to market, while working alongside the company s responsive supply chain to improve speed and flexibility. Industry-Leading Customer Experiences: The company will also emphasize its continued commitment to delivering exciting and seamless shopping experiences across all channels. Recognizing that customers are increasingly shopping and engaging with brands through online and mobile, Gap Inc. will highlight its plans for new digital capabilities, as well as mobile and personalization initiatives. Peck continued, The retail industry is at a pivot point, where digital experiences are redefining how customers shop and engage with brands. We re constantly testing and rolling out new innovations to ensure we stay ahead of the customer and, ultimately, thrive in a time of disruption. Continued Global Expansion: Gap Inc. will emphasize its ongoing pursuit of global growth opportunities, most notably through continued expansion in China, where sales have grown to nearly $500 million in just over four years and its Gap e-commerce sales expanded by about 60 percent yearover-year between 2013 and The company also continues to focus on growth through its global outlet and online channels, as well as through the company s Athleta brand in the United States.

2 Strong Economic Model: Gap Inc. will underscore its continued commitment to delivering against its long-term financial objectives as evidenced by the company s five-year track record where it has: Grown sales by more than $2 billion; Achieved a 13 percent compound annual growth rate in earnings per share; Generated nearly $6 billion in free cash flow; Increased its dividend per share by about 120 percent; and Distributed over $8.5 billion to shareholders through share repurchases and dividends. Over the past five years, we re pleased to have achieved an earnings per share compound annual growth rate in the teens, while consistently returning billions of dollars back to shareholders, said Sabrina Simmons, chief financial officer, Gap Inc. Looking ahead, we have a clear strategy and are well positioned to deliver long-term shareholder value. In addition to Peck and Simmons, global brand presidents from the company s three largest brands will present updates to investors, including: Jeff Kirwan from Gap; Andi Owen from Banana Republic; and Stefan Larsson from Old Navy. Gap Inc. Investor Meeting A live webcast is accessible on Gap Inc. s Financial News and Events page at from approximately 9:00 a.m. to 12:00 p.m. Pacific Time today. In addition, audio of this meeting can be accessed by calling GPS or for domestic callers and for international callers. The conference passcode is A replay of the event will be available on Follow the event on Twitter at The Twitter cashtag for the event is $GPS. SEC Regulation G This press release includes the non-gaap measure free cash flow, and the related investor day webcast includes the non-gaap measures free cash flow, adjusted debt to capital, earnings per share excluding estimated pre-tax costs, foreign exchange impact on operating income and earnings per share, and adjusted debt to EBIDTAR. The description or reconciliation to GAAP of these measures is included in the tables at the end of this release. Forward-Looking Statements This press release and related investor day webcast contain forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of All statements other than those that are purely historical are forward-looking statements. Words such as expect, anticipate, believe, estimate, intend, plan, project, and similar expressions also identify forward-looking statements. Forward-looking statements include statements regarding the following: improving business performance, profitable growth, and driving productivity improvements; growth initiatives, including Athleta growth, outlet growth, online growth, and international growth, including growth in Asia and Mexico; advances in the product operating model and increased product acceptance; digital, mobile and omni-channel innovations and growth; delivering shareholder value and distributing cash to shareholders; positive comps, expanding margins, and leveraging expenses; earnings per share growth; impact of West Coast ports slowdowns and shutdowns on financial results; foreign exchange impact on financial results; Gap China profitability;

3 number of future Gap brand stores, and number of Gap brand store closures; workforce reductions; financial impact of store closures and workforce reductions, including sales impact, annualized savings, and the amount, type, and timing of expected one-time costs; earnings per share for fiscal year 2015; and sales per square foot and store contribution rates. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause the company s actual results to differ materially from those in the forward-looking statements. These factors include, without limitation, the following: the risk that the company or its franchisees will be unsuccessful in gauging apparel trends and changing consumer preferences; the risk that changes in global economic conditions or consumer spending patterns could adversely impact the company s results of operations; the highly competitive nature of the company s business in the United States and internationally; the risk that if the company is unable to manage its inventory effectively, its gross margins will be adversely affected; the risks to the company s efforts to expand internationally, including its ability to operate under a global brand structure, foreign exchange fluctuations, and operating in regions where it has less experience; the risks to the company s business, including its costs and supply chain, associated with global sourcing and manufacturing; the risks to the company s reputation or operations associated with importing merchandise from foreign countries, including failure of the company s vendors to adhere to its Code of Vendor Conduct; the risk that trade matters could increase the cost or reduce the supply of apparel available to the company and adversely affect its business, financial condition, and results of operations; the risk that the company s franchisees operation of franchise stores is not directly within the company s control and could impair the value of its brands; the risk that the company or its franchisees will be unsuccessful in identifying, negotiating, and securing new store locations and renewing, modifying, or terminating leases for existing store locations effectively; the risk that the company is subject to data or other security breaches that may result in increased costs, violations of law, significant legal and financial exposure, and a loss of confidence in the company s security measures, which could have an adverse effect on the company s results of operations and reputation; the risk that the failure to attract and retain key personnel, or effectively manage succession, could have an adverse impact on the company s results of operations; the risk that the company s investments in omni-channel shopping initiatives may not deliver the results the company anticipates; the risk that comparable sales and margins will experience fluctuations; the risk that changes in the company s credit profile or deterioration in market conditions may limit the company s access to the capital markets and adversely impact its financial results or business initiatives; the risk that updates or changes to the company s information technology ( IT ) systems may disrupt its operations; the risk that natural disasters, public health crises, political crises, or other catastrophic events could adversely affect the company s operations and financial results, or those of its franchisees or vendors;

4 the risk that changes in the regulatory or administrative landscape could adversely affect the company s financial condition, strategies, and results of operations; the risk that the company does not repurchase some or all of the shares it anticipates purchasing pursuant to its repurchase program; and the risk that the company will not be successful in defending various proceedings, lawsuits, disputes, claims, and audits. Additional information regarding factors that could cause results to differ can be found in the company s Annual Report on Form 10-K for the fiscal year ended January 31, 2015, as well as the company s subsequent filings with the Securities and Exchange Commission. These forward-looking statements are based on information as of June 16, The company assumes no obligation to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. About Gap Inc. Gap Inc. is a leading global retailer offering clothing, accessories, and personal care products for men, women, and children under the Gap, Banana Republic, Old Navy, Athleta, and Intermix brands. Fiscal year 2014 net sales were $16.4 billion. Gap Inc. products are available for purchase in more than 90 countries worldwide through about 3,300 company-operated stores, over 400 franchise stores, and e- commerce sites. For more information, please visit Investor Relations Contact: David Davick (415) Investor_relations@gap.com Media Relations Contact: Kari Shellhorn (415) Press@gap.com

5 FREE CASH FLOW Free cash flow is a non-gaap financial measure. We believe free cash flow is an important metric because it represents a measure of how much cash a company has available for discretionary and non-discretionary items after the deduction of capital expenditures, as we require regular capital expenditures to build and maintain stores and purchase new equipment to improve our business. We use this metric internally, as we believe our sustained ability to generate free cash flow is an important driver of value creation. However, this non-gaap financial measure is not intended to supersede or replace our GAAP results. Fiscal Year (number of weeks) ($ in millions) 2014 (52) 2013 (52) 2012 (53) 2011 (52) 2010 (52) Net cash provided by operating activities $ 2,129 $ 1,705 $ 1,936 $ 1,363 $ 1,744 Less: Purchases of property and equipment (714) (670) (659) (548) (557) Free cash flow $ 1,415 $ 1,035 $ 1,277 $ 815 $ 1,187

6 ADJUSTED DEBT TO CAPITAL Adjusted debt to capital is a non-gaap financial measure. We believe adjusted debt to capital is an important metric in evaluating the total amount of leverage in our capital structure including off-balance sheet lease obligations. However, this non-gaap financial measure is not intended to supersede or replace our GAAP results. ($ in millions) January 31, 2015 Total long-term debt $ 1,353 Add: Estimated capitalized operating lease obligations (a) 6,595 Lease adjusted debt $ 7,948 ($ and shares in millions except stock price) Stock price as of June 9, 2015 $ Number of shares outstanding as of May 29, Market capitalization 15,659 Add: Lease adjusted debt 7,948 Adjusted capital $ 23,607 Adjusted debt to capital 34% (a) Calculated as rent expense for fiscal year ended January 31, 2015 multiplied by five. The multiple of five times rent expense is a commonly used method of estimating the debt we would record for our leases that are classified as operating if they had met the criteria for a capital lease, or we had purchased the property.

7 ADJUSTED DEBT TO EBITDAR Adjusted debt to earnings before interest, income taxes, depreciation, amortization, and rent ("EBITDAR") is a non-gaap financial measure. We believe adjusted debt to EBITDAR is an important metric in evaluating our credit worthiness, which could impact our credit rating and borrowing costs. However, this non-gaap financial measure is not intended to supersede or replace our GAAP results. ($ in millions) January 31, 2015 Total long-term debt $ 1,353 Add: Estimated capitalized operating lease obligations (a) 6,595 Lease adjusted debt $ 7,948 ($ in millions) Fiscal 2014 Net income $ 1,262 Add: Income taxes 751 Add: Interest expense, net 70 Earnings before interest and income taxes 2,083 Add: Depreciation and amortization expenses (b) 500 Add: Rent expense 1,319 EBITDAR $ 3,902 Adjusted debt to EBITDAR 2.0 (a) Calculated as rent expense for fiscal year ended January 31, 2015 multiplied by five. The multiple of five times rent expense is a commonly used method of estimating the debt we would record for our leases that are classified as operating if they had met the criteria for a capital lease, or we had purchased the property. (b) Depreciation and amortization is net of amortization of lease incentives.

8 ADDITIONAL INFORMATION REGARDING FOREIGN EXCHANGE In calculating the impact of foreign exchange to the company s operating income and earnings per share, the company estimates current gross margins using the appropriate prior year rates (including the impact of merchandise-related hedges), translates current period foreign earnings at prior year rates, and excludes the year-over-year earnings impact of balance sheet remeasurement and gains or losses from non-merchandise-related foreign currency hedges. This is done in order to enhance the visibility of business results excluding the direct impact of foreign currency exchange rate fluctuations.

9 ADDITIONAL INFORMATION REGARDING GUIDANCE The fiscal year 2015 diluted earnings per share guidance of $2.75 to $2.80 excludes pre-tax charges of $140 million to $160 million (approximately $0.21 to $0.24 per diluted share) primarily related to the Gap brand optimization effort. This guidance is provided to enhance visibility into the company's expectations regarding its ongoing business excluding the Gap brand optimization effort.