2014 Investor Meeting Summary

Transcription

1 2014 Investor Meeting Summary

2 Summary of Presentations Following is a high- level summary of presentations scheduled for Gap Inc. s Investor Meeting on April 16, Glenn Murphy Chairman and Chief Executive Officer... 2 Sabrina Simmons Executive Vice President and Chief Financial Officer... 3 Art Peck President, Growth, Innovation and Digital... 5 Sonia Syngal Executive Vice President, Global Supply Chain... 6 Tom Keiser Executive Vice President, Global Product Operations... 7 Jeff Kirwan President, Greater China... 8 Steve Sunnucks Global President, Gap... 9 Jack Calhoun Global President, Banana Republic Stefan Larsson Global President, Old Navy

3 Glenn Murphy Chairman and Chief Executive Officer Our mission is to be the world s favorite for American style. We have the strategy, talent and strengths to be #1 as we compete and win against the top global competitors in the $1.4 trillion apparel market. We re committed to building upon our success over the last number of years and making significant progress on four company- wide goals: global growth, omni- channel, responsive supply chain and seamless inventory. Achieving these goals combined with our strong portfolio of brands, our multiple channel and geography business model gives us the edge to win on the global stage and drive long- term value for the company. When we talk about global growth, the conversation starts with China, which is currently our largest growth initiative. We expect global growth to lead to a gradual increase in spread driven by opening more productive stores and profitable online growth. Through omni- channel, we are embracing the continually changing customer and building a bridge between our global fleet and our evolving digital offerings and tools. Omni- channel provides opportunities to capitalize on mobile traffic, and drive higher conversion and click through. Through seamless inventory and responsive supply chain, we ll put the operating models in place to match customer demand with supply, leading to improved regular price selling, reduced stranded inventory and better markdown margin. We ll also drive flexibility and speed. When you combine the benefits of our strategies with our already strong operating margin, there is meaningful runway ahead for further operating margin expansion. 2

4 Sabrina Simmons Executive Vice President and Chief Financial Officer Our Financial Track Record Over the past five years, we have grown net sales by $1.6 billion, expanded operating margin by 260 basis points and grown earnings per share at a 15% compound annual growth rate. We have generated about $6 billion in free cash flow and distributed nearly $8 billion to shareholders through share repurchases and dividends. We are leading the domestic competition with a higher sales base and with higher operating margins and EPS growth. We are also gaining on the global competition with a higher five- year EPS CAGR and a strong trend in operating margin expansion. Our Strategy The retail environment is shifting and we embrace the growing importance of online and mobile in particular. We are increasing our capital investments in supply chain and omni- channel capabilities. We have been able to increase our capital spend while also expanding return on invested capital about three full percentage points in the last five years. Stores: Since 2007, we have shed about 6M square feet in our North America specialty fleet and have shifted our square footage towards the higher returning outlet channel. By year- end 2014, we expect to have over 550 outlet stores worldwide. We are focused on adding more productive stores through growth at Athleta as well as Gap, and we re particularly excited about the international opportunity for Old Navy. 3

5 Online: We have doubled online sales to $2.3 billion dollars in just the last five years. We have grown the penetration of online to 14% on growing store sales. And there is runway ahead through our omni- channel capabilities and international growth. Franchise: This is a high returning channel with about 450 stores expected by year- end And we believe there is ample growth ahead with our strategy to increase our presence in existing markets for Gap, expand Banana Republic into new countries and launch Old Navy. We are successfully balancing our portfolio towards our higher returning channels Online, Outlet and Franchise with about 12 points of contribution shifting already since Our Economic Model Consistent comp and revenue growth is our number one priority. We aim to do this while maintaining healthy merchandise margins. This will be enabled through delivering consistent product, deploying our supply chain tools as well as continuing our disciplined inventory management. We have a strong track record in managing our expenses and leveraging them as a rate to sales. Regarding cash distribution, we remain committed to consistently distributing excess cash to shareholders. We have increased our dividend by a compound annual growth rate of over 25% since 2004 to 88 cents per share. Since 2004, we ve repurchased about 630 million shares at an average price of under $21. This equates to buying back over 50% of shares outstanding. Our stock price at the end of 2013 was 84% higher than our average purchase price. 4

6 Key Priorities

7 Art Peck President, Growth, Innovation and Digital We have embraced technology as an important part of how people shop today and interact with our brands. We are leaders in bridging our physical stores with our innovative digital technology to make our customers shopping experience convenient. Our technology is our own and it gives us the speed, scalability and flexibility to design customer experiences across channels. We remain committed to continuous investment in digital and omni- channel. We have industry- leading global talent as well as the resources to invent, re- invent, test and learn what works best for our customers. Our proximity to Silicon Valley is a competitive advantage as we attract and retain top talent in the technology sector to fuel innovation. We re listening to our customers to understand what they want most and we are delivering those digital capabilities rapidly: Ship from Store, Find in Store, Reserve in Store and Order in Store. We believe that these will be meaningful ways to drive customer engagement and loyalty with our brands, and to gain new customers. Mobile is changing the digital world and we view it as its own channel. We are aggressively developing innovative technology like responsive design and easier check out to change how the customer interacts with our brands through mobile devices and open greater opportunity for engagement and conversion through this growing source of traffic. Personalization of web content will allow us to make all of our customer interactions even more relevant in the future. We ve already made great strides in personalization triggered , digital advertising, rewards notification but we have more to do. 5

8 Sonia Syngal Executive Vice President, Global Supply Chain World class supply chains are no longer just execution engines. Today s best- in- class supply chains drive real value through flexibility and speed in order to respond to customer demand. Benefits of a responsive supply chain are higher merchandise margins from realizing higher average unit retails and lower average unit costs as well as faster inventory turns. Key elements of a responsive supply chain include Fabric Platforming, which is helpful with Vendor Managed Inventory, and enables Rapid Response and Test & Respond. Fabric Platforming is the key enabler of lead- time reduction. It allows us to leverage our scale and drive average unit cost savings over time, respond quickly within a season, and drive simplicity. Vendor Managed Inventory, in which key vendors keep a pool of inventory of finished goods that they can draw on for replenishment, is targeted at long living product and enables better in stock levels. Rapid Response is targeted at seasonal product so we can read demand and react to the color, size or silhouette that customers are buying. This can help take the volatility out of our investments, allowing us to shift the assortment from underperforming styles to better performing ones. Test & Respond is targeted at fashion and allows us to assess customer style preferences on buys so we can buy into known demand. This is a multi- year journey, with great progress made this year. We expect to grow the percentage of our assortment on the responsive model to 50% by the end

9 Tom Keiser Executive Vice President, Global Product Operations Seamless inventory will put product in the right place at the right time to fulfill customer demand. With the launch of our Ship from Store capability over a year ago, we saw the clear opportunity to better match our inventory allocations across channels, geographies, distribution centers and stores. We are shifting our inventory management model to unlock pools of inventory to address supply and demand imbalances, which is essential in a global and technology- driven retail environment. We are doing extensive benchmarking and testing to establish the optimal inventory model for our business. Our future operating model will be unique compared to our domestic competitors. Once in place, we will use advanced, predictive analytics to assess real- time data that will allow us to get product in the hands of our customers when and how they want it. To enable seamless inventory, we have implemented global fit and global labels, allowing us to sell and move product across markets. We will have several proof points on our distribution centers to evaluate as we move forward. Our Shanghai distribution center is now fully integrated between stores and online for all China geographies; in our UK distribution center we will co- locate stores and online inventory; and our Athleta business operates on a seamless platform today. All pilots will serve as learnings and add some value as we move toward the full integration in

10 Jeff Kirwan President, Greater China China is important to Gap Inc. s growth strategy. It s a large market with strong growth potential. China s apparel sector grew more than 11% in 2013 to over $180 billion. Gap China revenue reached about $300 million in 2013, just three years after launching. We believe our Gap Inc. revenue in China can reach $1 billion in the next three years. The strengths of our multi- channel, multi- brand portfolio position us to win against our global competitors in the growing China marketplace, making us uniquely qualified to win: Our portfolio of American brands is a competitive advantage, with each brand playing a role in our overall strategy and covering a large addressable market. You need great brands for longevity, and we are making the investments to build brand awareness. Our outlet business is perfectly positioned to grow in the emerging value/outlet market in China with increasing numbers of outlet centers being built. Online, which we launched concurrent to our first stores, is a strength in a country where the consumer is more engaged in digital and mobile than any other market in the world. With our technology, talent and capabilities, we re ready to capitalize on China s e- commerce growth. As we ve successfully expanded to more than 20 cities, we re investing in and raising brand awareness in the market, and establishing our commitment to the China market. Old Navy has great potential in this market. Following a successful first store opening in Shanghai, we will open four more stores this year. In a market with a growing value sector, estimated in the $50 to $60 billion range, and family as a cultural cornerstone, we believe Old Navy has a huge runway ahead. 8

11 Global Brands

12 Steve Sunnucks Global President, Gap Gap s formula to win in 2014 is focused on four key themes: global product, the rise of the millennial, the significance of the outlet customer, and the growing importance of digital as part of the omni- channel mix. We ll deliver our iconic foundational pieces, overlaying fashion and building big ideas around them. However, at the heart of our brand is denim, where we re innovating in fit, wash and quality. We ve put a top creative leadership team in place to drive this work, led by Creative Director Rebekka Bay and Global Head of Merchandising, Michelle DeMartini. The millennial customer is becoming important to Gap. With this in mind, everything we do is designed for a digital- first approach, creating video content shared across social media. We can win in the digital media space, in the same way we won with national television in the 1990s, and our new partnership with Wieden + Kennedy will bring an exciting new marketing twist to Gap in the Fall. Gap Outlet continues to increase its contribution to our business through global expansion, real estate strategies like urban stores, and testing online. Our online business is growing fast internationally. In addition, Gap will roll out Reserve in Store to all U.S. stores by the end of Q2. Through our global brands infrastructure, Gap has been moving to a simple operating model that will be completed this year to ensure clarity and accountability throughout the business. Gap Brand s runway is long as we seek to drive consistent positive comparable sales growth in existing stores and online, and add new outlet and franchise stores. We re excited about our global expansion, in light of our success in China, and our opening in Brazil. 9

13 Jack Calhoun Global President, Banana Republic With the changes we are making in product and marketing, we now feel we have the right strategies in place to regain our rightful place in the Gap Inc. portfolio as the top affordable luxury retailer. We are pleased to announce that Marissa Webb will join Banana Republic as Creative Director and EVP of Design. Marissa is an extremely talented and highly creative designer who brings a modern look that s true to our brand and right for our customer. Her unique blend of experiences includes leading womenswear and accessories design at J.Crew, as well as leading her own self- titled label. Online, we re engaging our customers with an aspirational look and feel that emphasizes newness, individuality, emotion and storytelling. And recognizing that more of our s are being opened on a mobile device, we re designing for mobile first and providing fresh, relevant content for customers. We are shifting our media investment mix to be more relevant to our target customer, as we build on the new marketing platform we launched in February throughout the coming months. Internationally, we have a new leader in place, focused on laying the groundwork for strategic growth, particularly in our Franchise business and strong Japan market. Omni- channel is a significant customer benefit, and our goal is to drive awareness and use of Find in Store and Reserve in Store, which is offered at all of our U.S. stores. 10

14 Stefan Larsson Global President, Old Navy Old Navy is ready to build on its two- year comp of positive 8% and gain market share against value competitors in North America, while also entering new markets. A top focus continues to be creating better and more trend- right product with wide appeal. The brand s product mix strategy is as follows: 1) offer items with casual versatility that build on the success of basics; 2) reinforce value with can t believe it offerings like the traffic- driving $1 flip flop campaign; and 3) expand into new categories such as active wear, maternity and accessories. Bringing a humor that is uniquely Old Navy, the brand s television commercials featuring Amy Poehler build on a formula for marketing and customer communications that centers on product, value and a sense of urgency. The spots target the demographic that is ideal for expanding Old Navy s customer base. While the brand s television advertising creates key campaign moments, Old Navy is taking a diversified approach, adding social media, digital marketing and radio. As part of the brand s efforts to gain market share, Old Navy is building on its recent success with special events. The Show me the bunny campaign for Easter is one of the events that create unique, traffic- driving experiences on key weekends that aren t reliant on overall mall traffic. Old Navy is leveraging Gap Inc. s innovative work on personalization, connecting with each customer online while telling the right stories on targeted product and value for each customer group. Old Navy s future opportunity is largely untapped. We are scaling our international expansion with our entry into China and Franchise, in addition to new stores in our successful Japan market. 11

15