Gap Inc. Revised 2021 Outlook

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Gap Inc., a portfolio of purpose-led, billion-dollar lifestyle brands including Old Navy, Gap, Banana Republic, and Athleta, and the largest specialty apparel company in the U.S. has raised its reported full-year diluted earnings per share guidance to be in the range of $1.90 to $2.05. This outlook reflects charges incurred related to the divestiture of the Janie & Jack and Intermix businesses, as well as estimated charges related to strategic changes in the company’s European business. Excluding these charges, full-year earnings per share on an adjusted basis are expected to be in the range of $2.10 to $2.25. The company’s full-year outlook reflects the impact of expected headwinds in its global supply chain, potential inflationary pressures, and current COVID environment. The company continues to leverage the scale and strength of its advantaged platform to navigate through near-term volatility.

“Our strong second-quarter performance, demand for our purpose-led, billion-dollar lifestyle brands, and ongoing strength of the customer give us the confidence to raise our sales and earnings outlook for the second consecutive quarter,” said Katrina O’Connell, Executive Vice President and Chief Financial Officer, Gap Inc. “As we fuel profitable growth for the back half and beyond, we are focused on strategic expansion of addressable markets to take share, building customer lifetime value and launching new initiatives to digitally transform Gap Inc. for the future.”

Outlook 2021 —

Net Sales: The company now expects net sales growth for fiscal year 2021 to be about 30% versus 2020. This outlook reflects lost revenue related to the company’s decision to change its European operating model, as well as the completed divestitures of its Janie & Jack and Intermix businesses.

Operating Margin: Reported operating margin is expected to be approximately 7.0%. Adjusted operating margin guidance has been increased to about 7.5%, representing accelerated progress toward the company’s objective of achieving a 10% operating margin by the end of 2023.

Effective Tax Rate: The company expects its fiscal year 2021 reported effective tax rate to be about 25%. Excluding the impact of divestiture activity and estimated charges related to strategic changes in its European business, the company expects its adjusted effective tax rate to be about 26%.

Inventory: The company expects third quarter inventory levels to be up mid-single digits relative to the third quarter of fiscal year 2020.

Capital Expenditures: The company continues to expect capital spending to be approximately $800 million in fiscal year 2021.  Consistent with the company’s Power Plan 2023 strategy, capital spending will primarily support higher-return projects including digital, loyalty, and supply chain capacity projects along with investment in store growth for Old Navy and Athleta.

Real Estate: The company continues to expect to open about 30-40 Old Navy and 20-30 Athleta stores in 2021, as well as close approximately 75 Gap and Banana Republic stores in North America.

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