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What changed in GAP INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of GAP INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+287 added−302 removedSource: 10-K (2023-03-14) vs 10-K (2022-03-15)

Top changes in GAP INC's 2023 10-K

287 paragraphs added · 302 removed · 206 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

46 edited+14 added−25 removed13 unchanged
Biggest changeSandra Stangl , 54, President and Chief Executive Officer, Banana Republic effective December 2020; Co-Founder and Chief Merchant, MINE (Pearl Design Co.) from February 2019 to November 2020; Co-President, Chief Merchandising and Business Development Officer, Restoration Hardware, Inc. from December 2017 to August 2018; Co-President, New Business Development, Restoration Hardware, Inc. from May 2017 to December 2017; and President, Pottery Barn Kids and Pottery Barn Teen, Williams-Sonoma, Inc. from 2013 to January 2017. 8 John Strain , 53, Chief Digital and Technology Officer effective October 2019; Senior Vice President, Industries, Retail and Consumer Goods, Salesforce from January 2019 to October 2019; Strategic Advisor and Interim Chief Digital Officer, Total Wine & More from March 2018 to December 2018; Executive Vice President; Chief Digital and Technology Officer, Williams-Sonoma, Inc. from July 2006 to September 2017; and Vice President, Information Technology, Gap Inc. from March 2004 to June 2006.
Biggest changeSandra Stangl , 54, President and Chief Executive Officer, Banana Republic effective December 2020; Co-Founder and Chief Merchant, MINE (Pearl Design Co.) from February 2019 to November 2020; Co-President, Chief Merchandising and Business Development Officer, Restoration Hardware, Inc. from December 2017 to August 2018; Co-President, New Business Development, Restoration Hardware, Inc. from May 2017 to December 2017; and President, Pottery Barn Kids and Pottery Barn Teen, Williams-Sonoma, Inc. from 2013 to January 2017. 7
Old Navy, Gap, Banana Republic, and Athleta each have a private label credit card program and a co-branded credit card program through which frequent customers receive benefits. Private label and co-branded credit cards are provided by a third-party financing company, with associated revenue sharing arrangements reflected in Gap Inc. operations.
Old Navy, Gap, Banana Republic, and Athleta each have a private label credit card program and a co-branded credit card program through which customers receive benefits. Private label and co-branded credit cards are provided by a third-party financing company, with associated revenue sharing arrangements reflected in Gap Inc. operations.
Compliance with these laws, rules and regulations has not had, and is not expected to have, a material effect on our capital expenditures, results of operations, or competitive position as compared to prior periods. 6 Available Information We make available on our website (www.gapinc.com) under “Investors, Financial Information, SEC Filings” our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish them to the SEC.
Compliance with these laws, rules and regulations has not had, and is not expected to have, a material effect on our capital expenditures, results of operations, or competitive position as compared to prior periods. 5 Available Information We make available on our website (www.gapinc.com) under “Investors, Financial Information, SEC Filings” our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish them to the SEC.
In addition, as of that date, approximately 81 percent of employees were located in the U.S. and approximately 19 percent of employees were located outside of the U.S., with a majority of those non-U.S. based employees located in Canada, Asia, and Europe.
In addition, as of that date, approximately 81 percent of employees were located in the U.S. and approximately 19 percent of employees were located outside of the U.S., with a majority of those non-U.S. based employees located in Canada and Asia.
For additional information on risks related to our human capital management, see the section entitled “Risk Factors—Risks Related to Human Capital, Inventory and Supply Chain Management—Our failure to manage key executive succession and retention and to continue to attract qualified personnel could adversely impact our results of operations” in Item 1A, Risk Factors, of this Form 10-K.
For additional information on risks related to our human capital management, see the section entitled “Risk Factors—Risks Related to Human Capital, Inventory and Supply Chain Management—Our failure to manage key executive succession and retention and to continue to attract qualified personnel could adversely affect our results of operations” in Item 1A, Risk Factors, of this Form 10-K.
Designed for people with purpose who share a passion for life, Banana Republic is redefining luxury by using the finest materials with the latest fabric innovations to create timeless, modern, and versatile clothing, eyewear, jewelry, shoes, handbags, and fragrances. Customers can purchase Banana Republic products globally in our specialty stores, factory stores, online, and franchise stores. Athleta.
Designed for people with purpose who share a passion for life, Banana Republic is redefining luxury by using the finest materials with the latest fabric innovations to create timeless, modern, and versatile clothing, eyewear, jewelry, shoes, handbags, and fragrances. Customers can purchase Banana Republic products globally in the brand's specialty stores, factory stores, online, and franchise stores. 1 Athleta.
Julie Gruber , 56, Executive Vice President, Chief Legal and Compliance Officer, and Corporate Secretary effective March 2020; Executive Vice President, Chief Legal, Compliance and Sustainability Officer, and Corporate Secretary from March 2020 to May 2021; Executive Vice President, Global General Counsel, Corporate Secretary and Chief Compliance Officer from February 2016 to March 2020; Senior Vice President and General Counsel from March 2015 to February 2016; Vice President and Deputy General Counsel from 2007 to March 2015; and Associate General Counsel from 2003 to 2007.
Julie Gruber , 57, Executive Vice President, Chief Legal and Compliance Officer, and Corporate Secretary effective March 2020; Executive Vice President, Chief Legal, Compliance and Sustainability Officer, and Corporate Secretary from March 2020 to May 2021; Executive Vice President, Global General Counsel, Corporate Secretary and Chief Compliance Officer from February 2016 to March 2020; Senior Vice President and General Counsel from March 2015 to February 2016; Vice President and Deputy General Counsel from 2007 to March 2015; and Associate General Counsel from 2003 to 2007.
Environmental, Social, Governance ("ESG") Information about our ESG efforts is available on our website (www.gapinc.com) under "Values, Sustainability, ESG Hub," which provides information on our public commitments, policies, social and environmental programs, sustainability strategy and ESG data.
Environmental, Social, Governance ("ESG") Information about our ESG efforts is available on our website (www.gapinc.com) under "Values, Sustainability, ESG Resources" which provides information on our public commitments, policies, social and environmental programs, sustainability strategy and ESG data.
Katrina O'Connell , 52, Executive Vice President and Chief Financial Officer effective March 2020; Chief Financial Officer and Senior Vice President of Strategy & Innovation, Old Navy from January 2017 to March 2020; and Chief Financial Officer and Senior Vice President of Strategy, Banana Republic from March 2015 to January 2017. Ms.
Katrina O'Connell , 53, Executive Vice President and Chief Financial Officer effective March 2020; Chief Financial Officer and Senior Vice President of Strategy & Innovation, Old Navy from January 2017 to March 2020; and Chief Financial Officer and Senior Vice President of Strategy, Banana Republic from March 2015 to January 2017. Ms.
Sheila Peters , 69, Executive Vice President and Chief People Officer effective March 2020; Senior Vice President, Human Resources, Talent and Communications from October 2016 to March 2020; Senior Vice President, Global Human Resources and Communications from February 2013 to October 2016; and Senior Vice President, Human Resources from July 2011 to February 2013.
Sheila Peters , 70, Executive Vice President and Chief People Officer effective March 2020; Senior Vice President, Human Resources, Talent and Communications from October 2016 to March 2020; Senior Vice President, Global Human Resources and Communications from February 2013 to October 2016; and Senior Vice President, Human Resources from July 2011 to February 2013.
For additional information on risks related to our inventory, see the sections entitled “Risk Factors—Risks Related to Our Brand Relevance and Brand Execution—We must successfully gauge apparel trends and changing consumer preferences to succeed,” "Risk Factors—Risks Related to Human Capital, Inventory and Supply Chain Management—If we are unable to manage our inventory effectively, our results of operations could be adversely affected" and "Risk Factors—Risks Related to Operating a Global Business—Our business and results of operations could be adversely affected by natural disasters, public health crises, political crises, negative global climate patterns, or other catastrophic events" in Item 1A, Risk Factors, of this Form 10-K.
For additional information on risks related to our inventory, see the below sections in Item 1A, Risk Factors, of this Form 10-K. • “Risks Related to Our Brand Relevance and Brand Execution—We must successfully gauge apparel trends and changing consumer preferences to succeed,” • "Risks Related to Human Capital, Inventory and Supply Chain Management—If we are unable to manage our inventory effectively, our results of operations could be adversely affected" and • "Risks Related to Operating a Global Business—Our business and results of operations could be adversely affected by natural disasters, public health crises, political crises, negative global climate patterns, or other catastrophic events" Competitors The global apparel retail industry is highly competitive.
Our success is dependent to a significant degree on the continued contributions of key employees. We understand the importance of human capital and prioritize building talent; diversity, equity and inclusion; ensuring pay equity; gathering employee feedback; and protecting the health and safety of our employees, customers, and communities. Building Talent.
Our success is dependent to a significant degree on the continued contributions of our employees. We understand the importance of human capital and prioritize building talent; diversity and inclusion; ensuring pay equity; gathering and actioning on employee feedback; and supporting the health, wellness, and safety of our employees, customers, and communities. Building Talent.
We maintain a large part of our inventory in distribution centers. We review our inventory levels in order to identify slow-moving merchandise and broken assortments (items no longer in stock in a sufficient range of sizes or colors) and we primarily use promotions and markdowns to clear merchandise.
We review our inventory levels in order to identify slow-moving merchandise and broken assortments (items no longer in stock in a sufficient range of sizes or colors) and we primarily use promotions and markdowns to clear merchandise.
For additional information on risks related to our merchandise vendors, see the sections entitled "Risk Factors—Risks Related to Macroeconomic Conditions—The COVID-19 pandemic has and could continue to adversely affect our business and results of operations," “Risk Factors—Risks Related to Human Capital, Inventory and Supply Chain Management—Our business is subject to risks associated with global sourcing and manufacturing," "Risk Factors—Risks Related to Human Capital, Inventory and Supply Chain Management—Risks associated with importing merchandise from foreign countries, including failure of our vendors to adhere to our Code of Vendor Conduct, could harm our business,” “Risk Factors—Risks Related to Operating a Global Business—Trade matters may disrupt our supply chain” and "Risk Factors—Risks Related to Operating a Global Business—Our business and results of operations could be adversely affected by natural disasters, public health crises, political crises, negative global climate patterns, or other catastrophic events" in Item 1A, Risk Factors, of this Form 10-K.
For additional information on risks related to our merchandise vendors, see the below sections in Item 1A, Risk Factors, of this Form 10-K. • "Risks Related to Macroeconomic Conditions—The COVID-19 pandemic has and could continue to adversely affect our business and results of operations," • “Risks Related to Human Capital, Inventory and Supply Chain Management—Our business is subject to risks associated with global sourcing and manufacturing," • "Risks Related to Human Capital, Inventory and Supply Chain Management—Risks associated with importing merchandise from foreign countries, including failure of our vendors to adhere to our Code of Vendor Conduct, could harm our business,” • "Risks Related to Operating a Global Business—Our business and results of operations could be adversely affected by natural disasters, public health crises, political crises, negative global climate patterns, or other catastrophic events" and • “Risks Related to Operating a Global Business—Trade matters may disrupt our supply chain” Seasonal Business Our business typically follows a seasonal pattern, with sales peaking during the end-of-year holiday period.
Product Development We design, develop, market, and sell a wide range of apparel, footwear and accessories products reflecting a mix of basics and fashion items based on widely accepted fashion trends, striving to bring product to market quickly and provide unrivaled value to customers.
All of our brands issue and redeem gift cards. Product Development We design, develop, market, and sell a wide range of apparel, footwear and accessories products reflecting a mix of basics and fashion items based on widely accepted fashion trends, striving to bring product to market quickly and provide unrivaled value to customers.
Franchising We have franchise agreements with unaffiliated franchisees to operate Old Navy, Gap, Banana Republic, and Athleta stores in a number of countries throughout Asia, Europe, Latin America, the Middle East, and Africa. Under these agreements, third parties operate, or will operate, stores that sell apparel and related products under our brand names.
We have franchise agreements to operate Old Navy, Gap, Banana Republic, and Athleta throughout Asia, Europe, Latin America, the Middle East, and Africa. Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names.
Gap also serves value-conscious customers with exclusively designed collections for Gap Outlet and Gap Factory Stores. Banana Republic. Acquired in 1983 as a travel and adventure outfitter, Banana Republic is a global apparel and accessories brand committed to work for a better republic.
Gap connects with customers online, in Company-operated and franchise retail locations globally, and through licensing partnerships. Gap also serves value-conscious customers with exclusively designed collections for Gap Outlet and Gap Factory Stores. Banana Republic. Acquired in 1983 as a travel and adventure outfitter, Banana Republic is a global apparel and accessories brand committed to work for a better republic.
In fiscal 2021, we also published our first dedicated Equality & Belonging Report to talk openly about our progress and the lessons we have learned along the way. Pay Equity.
In fiscal 2022, we also published our second dedicated Equality & Belonging Report to talk openly about our progress and the lessons we are learning along the way. Pay Equity.
Marketing and Advertising We use a variety of marketing and advertising mediums to drive brand health, customer acquisition, and engagement. We leverage our growing customer database and respond to shopping behaviors and needs with personalized content across email, site, and digital media to drive relevance and urgency. Our diversified media mix spans traditional to digital to social media.
We leverage our growing customer database and respond to shopping behaviors and needs with personalized content across email, site, and digital media to drive relevance and urgency. Our diversified media mix spans traditional to digital to social media.
Human Capital As of January 29, 2022, we had a workforce of approximately 97,000 employees. We also hire seasonal employees, primarily during the peak holiday selling season. As of January 29, 2022, approximately 81 percent of employees worked in retail locations, approximately 9 percent of employees worked in headquarters locations, and approximately 10 percent of employees worked in distribution centers.
We also hire seasonal employees, primarily during the peak holiday selling season. As of January 28, 2023, approximately 81 percent of employees worked in retail locations, approximately 9 percent of employees worked in headquarters locations, and approximately 10 percent of employees worked in distribution centers.
We are also committed to greater transparency and have publicly reported our global employee gender data and overall U.S. race and ethnicity data since 2007, and in fiscal 2021 we shared additional data on how our employees identify their race and ethnicity at stores, distribution and call centers and headquarters.
Information about our commitments is available on our website (www.gapinc.com) under "Values, Equality & Belonging, Our Commitments." We are also committed to greater transparency and have publicly reported our global employee gender data and overall U.S. race and ethnicity data since 2007, and since 2021 we have shared additional data on how our U.S. employees identify their race and ethnicity at stores, distribution centers and headquarters.
Gap Inc. is an omni-channel retailer, with sales to customers both in stores and online, through Company-operated and franchise stores, Company-owned websites, and third-party arrangements. We have Company-operated stores in the United States, Canada, Japan, Italy, China, Taiwan, and Mexico.
Gap Inc. is an omni-channel retailer, with sales to customers both in stores and online, through Company-operated and franchise stores, Company-owned websites, and third-party arrangements. As of January 28, 2023, we had Company-operated stores in the United States, Canada, Japan, China, and Taiwan. In fiscal 2022, we signed agreements with a third party, Baozun Inc.
Competitors The global apparel retail industry is highly competitive. We compete with local, national, and global apparel retailers. For additional information on risks related to competition, see the section entitled “Risk Factors—Risks Related to Competition—Our business is highly competitive” in Item 1A, Risk Factors, of this Form 10-K.
We compete with local, national, and global apparel retailers. For additional information on risks related to competition, see the section entitled “Risk Factors—Risks Related to Competition—Our business is highly competitive” in Item 1A, Risk Factors, of this Form 10-K. Human Capital As of January 28, 2023, we had a workforce of approximately 95,000 employees.
Our omni-channel services, including curbside pick-up, buy online pick-up in store, order-in-store, find-in-store, and ship-from-store, as well as enhanced mobile-enabled experiences, are tailored uniquely across our collection of brands.
Our omni-channel services, including curbside pick-up, buy online pick-up in store, order-in-store, find-in-store, and ship-from-store, as well as enhanced mobile-enabled experiences, are tailored uniquely across our collection of brands. Old Navy. Old Navy is an American value apparel brand that makes current essentials accessible to everyone.
For additional information on risks related to our franchise business, see the sections entitled “Risk Factors—Risks Related to Operating a Global Business—Our efforts to expand internationally may not be successful” and “Risk Factors—Risks Related to Operating a Global Business—Our franchise and licensing businesses are subject to certain risks not directly within our control that could impair the value of our brands” in Item 1A, Risk Factors, of this Form 10-K. 4 Inventory The nature of the retail business requires us to carry a significant amount of inventory, especially prior to the peak holiday selling season when we, along with other retailers, generally build up inventory levels.
For additional information on risks related to our franchise business, see the sections entitled “Risk Factors—Risks Related to Operating a Global Business—Our efforts to expand internationally may not be successful” and “Risk Factors—Risks Related to Operating a Global Business—Our franchise and licensing businesses are subject to certain risks not directly within our control that could impair the value of our brands” in Item 1A, Risk Factors, of this Form 10-K.
Also included are downloads of our reporting standards and frameworks: Sustainability Accounting Standards Board (SASB) and Global Reporting Index (GRI), and our Annual ESG report.
Also included are downloads of our reporting standards and frameworks: Task Force on Climate-Related Financial Disclosures (TCFD), Sustainability Accounting Standards Board (SASB) and Global Reporting Index (GRI), and our Annual ESG reports.
The Compensation and Management Development Committee has formal oversight over the Company's policies and strategies relating to its human capital management, including policies, processes and strategies relating to employee recruitment, retention and development of management resources; executive personnel appraisal, development and selection; talent management; workforce diversity; and compensation, workplace and employment practices, as outlined in its charter.
The Compensation and Management Development Committee has formal oversight over the Company's policies and strategies relating to its human capital management function, including policies, processes and strategies relating to employee recruitment, retention, appraisal and development; talent management; workplace culture and employee engagement; workforce diversity, equity and inclusion and any goals related thereto; and the Company's general approach to broad-based compensation, benefits, workplace and employment practices, as outlined in its charter.
Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names. In addition to operating in the specialty, outlet, online, and franchise channels, we use our omni-channel capabilities to bridge the digital world and physical stores to further enhance the shopping experience for our customers.
In addition to operating in the specialty, outlet, online, and franchise channels, we use our omni-channel capabilities to bridge the digital world and physical stores to further enhance the shopping experience for our customers.
Established in 1998 and acquired by Gap Inc. in 2008, Athleta integrates technical features and innovative design across its women's collection to carry her through a life in motion, from yoga, training and sports, to everyday activities and travel. In 2016, Athleta launched Athleta Girl, mirroring its signature performance in styles for the next generation.
Established in 1998 and acquired by Gap Inc. in 2008, Athleta integrates technical features and innovative design across its women's collection to carry her through a life in motion, from yoga, training and sports, to everyday activities and travel. In 2022, Athleta unveiled new product collaborations with athletes and celebrities.
Old Navy is committed to creating incredible shopping experiences regardless of where, when, and how customers choose to shop, including a fun store experience, a dynamic online channel, and convenient omni-channel capabilities.
The brand celebrates the democracy of style through on-trend, playfully optimistic, affordable, high-quality product, and inclusive size ranges. Old Navy is committed to creating incredible shopping experiences regardless of where, when, and how customers choose to shop, including a fun store experience, a dynamic online channel, and convenient omni-channel capabilities.
Our two largest vendors accounted for approximately 8 percent and 7 percent of the dollar amount of our total fiscal 2021 purchases. Of our merchandise purchased during fiscal 2021, substantially all purchases, by dollar value, were from factories outside the United States. Approximately 33 percent of our fiscal 2021 purchases, by dollar value, were from factories in Vietnam.
Of our merchandise purchased during fiscal 2022, substantially all purchases, by dollar value, were from factories outside the United States. Approximately 30 percent of our fiscal 2022 purchases, by dollar value, were from factories in Vietnam. Approximately 17 percent of our fiscal 2022 purchases, by dollar value, were from factories in Indonesia.
We use these insights to understand what is important to our employees and to determine where we should focus our investments and build new programs and strategies that help us create a thriving, productive work environment. We have modernized our approach to soliciting employee feedback, shifting from an annual Company-wide opinion survey to more frequent pulse surveys on topical issues.
We use these insights to understand what is important to our employees and to determine where we should focus our investments and build new programs and strategies that help us create a thriving, productive work environment.
We anticipate that our integrated loyalty program will allow us to better leverage first party data and increase targeted promotions through personalization with targeted content, offers, and experiences. Although each brand expression has a different look and feel, customers can earn and redeem rewards across all of our purpose-led brands. All of our brands issue and redeem gift cards.
We are focused on increasing the lifetime value of our loyalty members through greater personalization, including by leveraging first party data and increasing promotions with targeted content, offers, and experiences. Although each brand expression has a different look and feel, customers can earn and redeem rewards across all of our purpose-led brands.
We focus on productivity of demand generation investments to drive increased effectiveness. 3 Merchandise Vendors We purchase private label and non-private label merchandise from over 250 vendors. Our vendors decreased compared to fiscal 2020 primarily due to the divestitures of Intermix and Janie and Jack. Our vendors have factories in approximately 25 countries.
We focus on productivity of demand generation investments to drive increased effectiveness. 2 Merchandise Vendors We purchase private label and non-private label merchandise from over 250 vendors. Our vendors have factories in about 25 countries. Our two largest vendors accounted for approximately 8 percent and 6 percent of the dollar amount of our total fiscal 2022 purchases.
Brand Building Our ability to develop and evolve our existing brands is a key to our success. We believe our distinct brands are among our most important assets. Virtually all aspects of brand development, from product design and distribution to marketing, merchandising and shopping environments, are controlled by Gap Inc. employees.
We believe our distinct brands are among our most important assets. Virtually all aspects of brand development, from product design and distribution to marketing, merchandising and shopping environments, are controlled by Gap Inc. employees. We continue to invest in our business and enhance the customer experience through ongoing supply chain, digital, marketing, and omni-channel initiatives.
The information contained in, or referred to, on our website is not deemed to be incorporated into this Annual Report unless otherwise expressly noted. 7 Information about our Executive Officers The following are our executive officers: Name, Age, Position, and Principal Occupation: Mark Breitbard , 54, President and Chief Executive Officer, Gap Brand effective September 2020; President and Chief Executive Officer, Specialty Brands from March 2020 to September 2020; President and Chief Executive Officer, Banana Republic from May 2017 to March 2020; Chief Executive Officer, The Gymboree Corporation from January 2013 to April 2017; President, Gap North America from 2012 to January 2013; Executive Vice President, Gap North America Merchandising from 2011 to 2012; and Executive Vice President, GapKids and babyGap from 2010 to 2011.
Mark Breitbard , 54, President and Chief Executive Officer, Gap Brand effective September 2020; President and Chief Executive Officer, Specialty Brands from March 2020 to September 2020; President and Chief Executive Officer, Banana Republic from May 2017 to March 2020; Chief Executive Officer, The Gymboree Corporation from January 2013 to April 2017; President, Gap North America from 2012 to January 2013; Executive Vice President, Gap North America Merchandising from 2011 to 2012; and Executive Vice President, GapKids and babyGap from 2010 to 2011.
Old Navy opened its first store in 1994 in the United States and since has expanded to more than 1,200 stores, including Company-operated stores in Canada and Mexico and franchise stores around the world.
Old Navy opened its first store in 1994 in the United States and since then has expanded to more than 1,200 Company-operated stores, as well as franchise stores around the world. Gap. Gap is an authority on modern American style. Founded in San Francisco in 1969, Gap continues to build on its heritage grounded in denim and khakis.
We also offer a LinkedIn Learning program providing employees with access to micro-courses on topics from strategic thinking and mental agility, to equality and belonging and communicating with confidence. 5 Diversity, Equity and Inclusion. We offer our employees extensive programs and resource groups that foster diversity and inclusion. In addition, we have established nine Company-wide commitments to foster racial justice.
We offer our employees extensive programs and resource groups that foster diversity and inclusion. In addition, we have established nine Company-wide commitments to foster racial equality.
In 2021, Athleta continued to expand its international presence by launching the Athleta website in Canada and opening the first stores in the Canadian market. 2 Athleta has been certified as a benefit corporation ("B Corp"), furthering its commitment to using the business as a force for good to drive social and environmental impact.
Additionally, Athleta continued to open new stores in both the U.S. and Canadian markets. Since 2018, Athleta has been certified as a benefit corporation ("B Corp"), furthering its commitment to using the business as a force for good to drive social and environmental impact. The Company continues to meet rigorous standards across social and environmental performance, accountability, and transparency.
In fiscal 2021, we launched a new integrated loyalty program across the U.S. and Puerto Rico to attract new customers and create enduring relationships by turning customers into lifelong loyalists. We are focused on increasing the lifetime value of our loyalty members through greater personalization.
During fiscal 2022, the Company launched a new long-term credit card program with Barclays that replaced our prior credit card program with Synchrony Financial. We also have an integrated loyalty program across the U.S. and Puerto Rico that aims to attract new customers and create enduring relationships by turning customers into lifelong loyalists.
Gap is a lifestyle brand that includes adult apparel and accessories, Gap Teen, Gap Kids, babyGap, Gap Maternity, Gap Body, GapFit, Yeezy Gap and Gap Home collections. In 2021, Gap introduced Gap Home, a new brand of home essentials available exclusively at Walmart. The brand connects with customers online, in Company-operated and franchise retail locations globally, and through licensing partnerships.
Gap is a lifestyle brand that includes adult apparel and accessories, Gap Teen, Gap Kids, babyGap, Gap Maternity, Gap Body, GapFit, and Gap Home collections. In 2022, Gap Home, our licensing partnership with Walmart, continued to scale and offer new categories in the home space including launching a collection for kids.
Seasonal Business Our business follows a seasonal pattern, with sales peaking during the end-of-year holiday period. Additionally, the COVID-19 pandemic has had and may continue to have an impact on customer behavior that could result in temporary changes in the seasonality of our business.
Additionally, other macroeconomic conditions such as the uncertainty surrounding global inflationary pressures, the COVID-19 pandemic, and the Russia-Ukraine crisis have had and may continue to have an impact on customer behavior that could result in temporary changes in the seasonality of our business. Brand Building Our ability to develop and evolve our existing brands is a key to our success.
We invest in our employees through accessible resources and structured training programs that offer all employees opportunities for development. We create, manage or offer a large collection of courses for employees that cover a range of subjects such as goal setting, how to be an effective leader, situational leadership, unconscious bias and inclusive leadership, and effective communication.
We invest in our employees through accessible resources and structured training programs that offer opportunities for development. Currently, we offer functional and technical training to our employees in our stores, distribution centers, and headquarters. We have historically created, managed, or offered a collection of development courses for employees that cover a range of subjects. 4 Diversity and Inclusion.
Trademarks and Service Marks Old Navy, Gap, Gap Kids, babyGap, Gap Body, GapFit, Gap Teen, Banana Republic, and Athleta trademarks and service marks, and certain other trademarks and service marks, have been registered, or are the subject of pending trademark applications, with the United States Patent and Trademark Office and with the registries of many foreign countries and/or are protected by common law.
Our major trademarks include the Old Navy, Gap, Gap Kids, babyGap, Gap Body, GapFit, Gap Teen, Banana Republic, and Athleta trademarks and service marks, and certain other trademarks and service marks.
In fiscal 2021, we signed an agreement with a third party to operate Gap Italy stores as a franchise partner beginning in fiscal 2022. We also have franchise agreements with unaffiliated franchisees to operate Old Navy, Gap, Banana Republic, and Athleta stores throughout Asia, Europe, Latin America, the Middle East, and Africa.
We believe the distinctive trademarks we use in connection with our products are important in building our brand image and distinguishing our products from those of others. 3 Franchising We have franchise agreements to operate Old Navy, Gap, Banana Republic, and Athleta in a number of countries throughout Asia, Europe, Latin America, the Middle East, and Africa.
More recently, we have accelerated the adoption of digital product creation capabilities which we believe will allow us to better innovate with suppliers and reduce product design and development timelines. We also leverage feedback and purchasing data from our customer database, along with market trend insight, to guide our product and merchandising decision-making.
We leverage feedback and purchasing data from our customer database, along with market trend insights, to guide our product and merchandising decision-making. Marketing and Advertising We use a variety of marketing and advertising mediums to drive brand health, customer acquisition, and engagement.
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In October 2020, the Company unveiled its Power Plan 2023 strategy, which reflects long-term plans to grow and strengthen the Company by leveraging the collective power of its four purpose-led lifestyle brands, enabling growth through competitive omni-channel capabilities and scaled operations through the power of its platform, and extending customer reach across every age, body, and occasion through the power of its portfolio.
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("Baozun"), to operate Gap China and Gap Taiwan ("Gap Greater China") stores and the in-market website as a franchise partner. On January 31, 2023, the Gap China transaction closed with Baozun. The Gap Taiwan operations will continue to operate as usual until regulatory approvals and closing conditions are met.
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Key initiatives include: • growing Old Navy and Athleta; • repositioning and transforming Gap and Banana Republic; • growing our online business; • expanding into new categories; • transforming cost through re-engineered capabilities; and • scaled strategic partnerships to amplify our reach.
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With this accreditation, Gap Inc. is one of the largest publicly-traded retail companies with a B Corp certified subsidiary apparel brand. We ended fiscal 2022 with 2,685 Company-operated stores and 667 franchise store locations.
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In fiscal 2021, the Company’s progress against its Power Plan included: • net openings of 32 Old Navy stores and 28 Athleta stores; • continuing to close under-performing Gap and Banana Republic stores in North America; • relaunching Banana Republic in the fall of 2021 to focus on affordable luxury with an elevated in-store and online experience as well as higher priced cashmere, merino, leather, and silk products; • continued focus on our online business and investments in automation and machine learning, which we believe will improve both the customer experience and reduce the cost of shipping and processing online orders and returns; • launching an integrated rewards program to increase loyalty and cross-shopping across all brands; 1 • expanding the Company into new markets, new categories, and new demographics; new releases from the Yeezy Gap collaboration; the launch of Gap Home at Walmart; and promotional partnerships with athletes and celebrities at Athleta; • acquiring two technology companies, 3D virtual fit technology company Drapr Inc.
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Trademarks and Service Marks We own the material trademarks used in connection with the marketing, distribution and sale of our products, domestically and internationally, where our products are currently sold or manufactured.
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("Drapr") and artificial intelligence and machine learning company Context-based 4 Casting Ltd.
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We have obtained and continue to maintain registrations for the aforementioned marks in the United States, Canada, Mexico, the United Kingdom, the European Union, Japan, China and numerous other countries throughout the world. In addition, we own domain names for our primary trademarks and hold several copyright registrations.
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("CB4"); • transitioning our Company-operated stores to a franchise model in France and signing an agreement to transition our Gap stores in Italy; and • closing our Company-operated stores in the United Kingdom and Ireland and entering into an agreement to continue serving our customers online beyond fiscal 2021 through a joint venture agreement.
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We intend to continue to strategically register, both domestically and internationally, trademarks and copyrights that we utilize today and those we develop in the future. We will continue to aggressively police our trademarks and pursue those who infringe, both domestically and internationally.
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We believe our continued efforts to transform our business will improve our customer experience, our overall performance, and ultimately position us for long-term growth. Old Navy. Old Navy is an American value apparel brand that makes current essentials accessible to everyone. The brand celebrates the democracy of style through on-trend, playfully optimistic, affordable, high-quality product, and inclusive size ranges.
Added
Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names.
Removed
Old Navy believes in the power of the next generation, and through its cause platform, ONward!, supports the Boys & Girls Clubs of America to help turn learners into leaders.
Added
Inventory The nature of the retail business requires us to carry a significant amount of inventory, especially prior to the peak holiday selling season when we, along with other retailers, generally build up inventory levels. We maintain a large part of our inventory in distribution centers.
Removed
In 2021, Old Navy also launched BODEQUALITY, an innovative and fully inclusive shopping experience in stores and online through a human-centered design approach, to prioritize inclusive fit and style for customers. Gap. Gap is an authority on modern American style. Founded in San Francisco in 1969, Gap continues to build on its heritage grounded in denim and khakis.
Added
We have modernized our approach to soliciting employee feedback on topical issues to capture data so we can understand and respond faster to employees' needs. We also collect feedback about our employees' work experience during performance reviews. Health, Wellness and Safety. Protecting the health and safety of our employees, customers and communities is a top priority.
Removed
In 2020, Athleta introduced its first sleep collection, expanded its offerings to include inclusive sizing, and launched franchise stores in the United Kingdom, expanding its reach and bringing the brand to new customers.
Added
Our store and distribution center employees are trained on safe work practices and learn procedural knowledge through on-the-job training programs that are aligned to industry and Occupational Safety & Health standards.
Removed
The Company met rigorous standards across social and environmental performance, accountability, and transparency. Additionally, Athleta's legal charter was amended to become a Delaware public benefit corporation, further demonstrating its commitment to people and the planet. With this accreditation, Gap Inc. has become one of the largest publicly-traded retail companies with a B Corp certified subsidiary apparel brand. Intermix.
Added
Our internal Safety and Claims teams analyze risks and collaborate with operational leaders to understand and adjust business practices to align with emerging trends, and our Internal Audit team gauges procedural compliance at distribution centers and stores.
Removed
In May 2021, the Company completed the divestiture of Intermix. We acquired Intermix in 2012. Janie and Jack. In April 2021, the Company completed the divestiture of Janie and Jack. We acquired Janie and Jack in 2019. Hill City. In January 2021, the Company closed the Hill City brand, which was launched in 2018.
Added
We continue to monitor all official COVID-19 pandemic recommendations from the Occupational Safety and Health Administration and the Center for Disease Control and Prevention, local government mandates and current COVID-19 data trends to make adjustments to our policies. Human Capital Oversight. The Board of Directors (the "Board") and its Compensation and Management Development Committee oversee human capital issues.
Removed
The range of merchandise displayed in each store varies depending on the selling season and the size and location of the store. Stores are generally open seven days per week (where permitted by law) and most holidays. We ended fiscal 2021 with 2,835 Company-operated stores and 564 franchise store locations.
Added
The information contained in, or referred to, on our website is not deemed to be incorporated into this Annual Report unless otherwise expressly noted. 6 Information about our Executive Officers The following are our executive officers: Name, Age, Position, and Principal Occupation: Horacio Barbeito , 52, President and Chief Executive Officer, Old Navy effective August 2022; President and CEO, Walmart Canada from November 2019 to July 2022; President and CEO, Walmart Argentina and Chile from February 2015 to November 2019; and President and CEO, Walmart Argentina from February 2012 to February 2015.
Removed
Approximately 16 percent of our fiscal 2021 purchases, by dollar value, were from factories in Indonesia.
Added
Sally Gilligan , 50, Executive Vice President, Chief Supply Chain, Strategy and Transformation Officer effective March 2023; Chief Growth Transformation Officer from April 2021 to March 2023; Chief Information Officer & Head of Strategy from April 2018 to March 2021; and Senior Vice President, Product Operations and Supply Chain from 2015 to April 2018.
Removed
We continue to invest in our business and enhance the customer experience through significant investments in our supply chain and digital capabilities, investments in marketing, and enhancement of our omni-channel shopping experience.
Added
Martin , 74, Interim Chief Executive Officer effective July 2022 and Executive Chair of the Board effective March 2020; Operating Partner, Stephens Group, Inc. since 2003; Principal (part-time), Mcon Management Services, Ltd. since 2020 and Chief Executive Officer (part-time), Mcon Management Services, Ltd. from 2002 to 2020; independent consultant from 1999 to 2002; and President and Chief Executive Officer, Walmart International, a division of Walmart Stores, Inc., from 1984 to 1999.
Removed
In addition, through a virtual platform, employees ranging from Manager to Vice President can connect with experienced coaches to receive customized guidance that takes into account each participant's unique situation.
Removed
This allows us to capture real-time data so we can understand and respond faster to employees' immediate needs. We now issue monthly surveys to representative samples of employees based on the topic, with an aim to have all employees participate in at least one survey every quarter. Health and Safety.
Removed
Protecting the health and safety of our employees, customers and communities is a top priority. In 2020, we committed to evolving our health and safety practices in response to the COVID-19 pandemic as we safely reopened stores with a strategic plan to deliver a safe shopping experience for our communities.
Removed
In 2021, we launched on-site COVID-19 vaccination clinics at certain U.S. distribution centers. We are committed to following strict safety protocols in our stores, offices and distribution centers based on recommendations from the Center for Disease Control and Prevention and the World Health Organization, as well as federal, state and local government mandates. Human Capital Oversight.
Removed
The Board of Directors and its Compensation and Management Development Committee oversee human capital issues.
Removed
Nancy Green , 60, President and Chief Executive Officer, Old Navy effective October 2020; Interim Head of Old Navy from March 2020 to October 2020; President and Chief Creative Officer, Old Navy from August 2019 to March 2020; President and Chief Executive Officer, Athleta from April 2013 to August 2019; and various roles at the Company from 2009 to April 2013 including as Executive Vice President and Chief Creative Officer, Old Navy, from 2010 to 2012.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

89 edited+30 added−22 removed62 unchanged
Biggest changeConversely, if we underestimate or are unable to satisfy consumer demand for our products, including due to increasing consumer demand in areas where the impacts of the COVID-19 pandemic decrease or supply chain disruptions that result in delayed inventory, we may experience inventory shortages, which could result in lower than anticipated sales, delayed shipments to customers and negative impacts on consumer relationships and brand loyalty, which could adversely affect our results of operations. 14 We have key strategic initiatives designed to optimize our inventory levels and increase the efficiency and responsiveness of our supply chain, including vendor fabric platforming, product demand testing, and in-season rapid response to demand.
Biggest changeConversely, if we underestimate or are unable to satisfy consumer demand for our products, we may experience inventory shortages, which could result in lower than anticipated sales, delayed shipments to customers and negative impacts on consumer relationships and brand loyalty, which could adversely affect our results of operations.
We face a variety of competitive challenges in an increasingly complex and fast-paced environment, including: • anticipating and quickly responding to changing apparel trends and customer demands; • attracting customer traffic both in stores and online; • competitively pricing our products and achieving customer perception of value; • maintaining favorable brand recognition and effectively marketing our products to customers in several diverse market segments and geographic locations; • anticipating and responding to changing customer shopping preferences and practices, including the increasing shift to digital brand engagement, social media communication, and online shopping; • developing innovative, high-quality products in sizes, colors, and styles that appeal to customers of varying demographics and tastes; • purchasing and stocking merchandise to match seasonal weather patterns, and our ability to react to shifts in weather that impact consumer demand; • sourcing and allocating merchandise efficiently; and 12 • improving the effectiveness and efficiency of our processes in order to deliver cost savings to fund growth.
We face a variety of competitive challenges in an increasingly complex and fast-paced environment, including: • anticipating and quickly responding to changing apparel trends and customer demands; • attracting customer traffic both in stores and online; 9 • competitively pricing our products and achieving customer perception of value; • maintaining favorable brand recognition and effectively marketing our products to customers in several diverse market segments and geographic locations; • anticipating and responding to changing customer shopping preferences and practices, including the increasing shift to digital brand engagement, social media communication, and online shopping; • developing innovative, high-quality products in sizes, colors, and styles that appeal to customers of varying demographics and tastes; • purchasing and stocking merchandise to match seasonal weather patterns, and our ability to react to shifts in weather that impact consumer demand; • sourcing and allocating merchandise efficiently; and • improving the effectiveness and efficiency of our processes in order to deliver cost savings to fund growth.
In addition, we may seek to downsize, consolidate, reposition, relocate, or close some of our real estate locations, which in most cases requires a modification of an existing store lease. Since the beginning of fiscal 2020, in connection with our Power Plan strategy, we have closed hundreds of Gap and Banana Republic stores in North America.
In addition, we may seek to downsize, consolidate, reposition, relocate, or close some of our real estate locations, which in most cases requires a modification or termination of an existing store lease. Since the beginning of fiscal 2020, in connection with our Power Plan strategy, we have closed hundreds of Gap and Banana Republic stores in North America.
Our failure to comply with these and other data privacy laws or to secure personal or confidential information could result in significant legal and financial exposure, and a loss of consumer confidence in our security measures, which could adversely affect our results of operations and our reputation. 16 Failures of, or updates or changes to, our IT systems may disrupt operations.
Our failure to comply with these and other data privacy laws or to secure personal or confidential information could result in significant legal and financial exposure, and a loss of consumer confidence in our security measures, which could adversely affect our results of operations and our reputation. Failures of, or updates or changes to, our IT systems may disrupt operations.
However, there can be no assurance that we will successfully maintain or launch these systems as planned or that they will be implemented without disruptions to our operations. IT system disruptions or failures, if not anticipated and appropriately mitigated, or failure to successfully implement new or upgraded systems, could disrupt our operations and therefore adversely affect our results of operations.
However, there can be no assurance that we will successfully maintain or launch these systems as planned or that they will be implemented without disruptions to our operations. IT system disruptions or failures, if not anticipated and appropriately mitigated, or failure to successfully implement new or upgraded systems, could disrupt our operations and adversely affect our results of operations.
Consumer tastes and trends may differ in many of these locations and, as a result, the sales of our products may not be successful or result in the margins we anticipate. If our international expansion plans are unsuccessful or do not deliver an appropriate return on our investments, our results of operations could be adversely affected.
Consumer tastes and trends may differ in these locations and, as a result, the sales of our products may not be successful or result in the margins we anticipate. If our international expansion plans are unsuccessful or do not deliver an appropriate return on our investments, our results of operations could be adversely affected.
To the extent we misjudge the market for our merchandise or the products suitable for local markets, or fail to execute trends and deliver products to the market as timely as our competitors, our sales will be adversely affected, and the markdowns required to move the resulting excess inventory will adversely affect our results of operations.
To the extent we misjudge the market for our merchandise or the products suitable for local markets, or fail to execute trends and deliver products to the market as timely as our competitors, our sales will be adversely affected, and the markdowns required to move the resulting excess inventory will adversely affect our margins and results of operations.
In addition, the global regulatory environment surrounding information security, cybersecurity, and data privacy is increasingly demanding, and we are required to comply with new and constantly evolving laws, such as the European Union’s General Data Protection Regulation (GDPR), the California Consumer Privacy Act, the California Privacy Rights Act and the Virginia Consumer Data Protection Act, each of which gives customers the right to control how their personal information is collected, used and retained.
The global regulatory environment surrounding information security, cybersecurity, and data privacy is increasingly demanding, and we are required to comply with new and constantly evolving laws, such as the European Union’s General Data Protection Regulation (GDPR), the California Consumer Privacy Act, the California Privacy Rights Act and the Virginia Consumer Data Protection Act, each of which gives customers the right to control how their personal information is collected, used and retained.
Our high level of indebtedness could impact our business in the following ways: • make it more difficult for us to satisfy our debt obligations, including with respect to the Senior Notes; • increase our vulnerability to general adverse economic and external conditions, including the ongoing COVID-19 pandemic and inflationary pressures; • impair our ability to obtain additional debt or equity financing in the future for working capital, capital expenditures, acquisitions or general corporate or other purposes; • require us to dedicate a material portion of our cash flows from operations to the payment of principal and interest on our indebtedness, thereby reducing the availability of our cash flows to fund working capital needs, capital expenditures, acquisitions and other general corporate purposes; • expose us to the risk of increased interest rates for borrowings under the ABL Facility, which bear interest at a variable rate; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • place us at a disadvantage compared to our competitors that have less indebtedness; and • limit our ability to adjust to changing market conditions.
Our high level of indebtedness could impact our business in the following ways: • make it more difficult for us to satisfy our debt obligations, including with respect to the Senior Notes and ABL Facility; • increase our vulnerability to general adverse economic and external conditions, including recent inflationary pressures; • impair our ability to obtain additional debt or equity financing in the future for working capital, capital expenditures, acquisitions or general corporate or other purposes; • require us to dedicate a material portion of our cash flows from operations to the payment of principal and interest on our indebtedness, thereby reducing the availability of our cash flows to fund working capital needs, capital expenditures, acquisitions and other general corporate purposes; • expose us to the risk of increased interest rates for borrowings under the ABL Facility, which bear interest at a variable rate; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • place us at a disadvantage compared to our competitors that have less indebtedness; and • limit our ability to adjust to changing market conditions.
In addition, the cost of fuel is a significant component of transportation costs, so increases in the price of petroleum products (including due to inflationary pressures, political instability, and/or regulation of energy inputs and greenhouse gas emissions) can adversely affect our gross margins.
In addition, the cost of fuel is a significant component of transportation costs, so increases in the price of petroleum products (including due to inflationary pressures, political instability, and/or regulation of energy inputs and greenhouse gas emissions) could adversely affect our gross margins.
Changes in our credit profile or deterioration in market conditions may limit our access to the capital markets and adversely impact our business and financial condition. We currently have corporate credit ratings of BB with a positive outlook from Standard & Poor's and Ba2 with a positive outlook from Moody’s.
Changes in our credit profile or deterioration in market conditions may limit our access to the capital markets and adversely impact our business and financial condition. We currently have corporate credit ratings of BB with a negative outlook from Standard & Poor's and Ba2 with a negative outlook from Moody’s.
Other risks that may affect these third parties include general economic conditions in specific countries or markets, foreign exchange rates, changes in diplomatic and trade relationships, restrictions on the transfer of funds, and political instability.
Other risks that may affect these third parties include general economic conditions in specific countries or markets, foreign exchange rates, changes in diplomatic and trade relationships, restrictions on the transfer of funds, and geopolitical instability.
Additionally, changes to our office environments, the adoption of new work models, and our requirements and/or expectations about when or how often certain employees work on-site or remotely may not meet the expectations of our employees. As businesses increasingly operate remotely, traditional geographic competition for talent may change in ways that we cannot presently predict.
Additionally, changes to our office environments and our requirements and/or expectations about when or how often certain employees work on-site or remotely may not meet the expectations of our employees. As businesses increasingly operate remotely, traditional geographic competition for talent may change in ways that we cannot presently predict.
A variety of factors affect comparable sales and/or margins, including but not limited to apparel trends, competition, current economic conditions (including due to inflationary pressures, political instability or the impacts of the COVID-19 pandemic), the timing of new merchandise releases and promotional events, changes in our merchandise mix, the success of our marketing programs (including our loyalty program), supply chain disruptions and transitory costs, foreign currency fluctuations, industry traffic trends, and weather conditions.
A variety of factors affect comparable sales and/or margins, including but not limited to apparel trends, competition, current economic conditions (including due to macroeconomic pressures, geopolitical instability or the impacts of the COVID-19 pandemic), the timing of new merchandise releases and promotional events, changes in our merchandise mix, the success of our marketing programs (including our loyalty program), supply chain disruptions and transitory costs, foreign currency fluctuations, industry traffic trends, and weather conditions.
The potential impact of the conflict and any resulting bans, sanctions and boycotts on our business is uncertain at the current time due to the fluid nature of the conflict as it is unfolding.
The potential impact of the conflict and any resulting bans, sanctions and boycotts on our business is uncertain at the current time due to the fluid nature of the conflict as it is unfolding in real-time.
The income and cash flow that we receive from Synchrony is dependent upon a number of factors, including the level of sales on private label and co-branded accounts, the level of balances carried on the accounts, payment rates on the accounts, finance charge rates and other fees on the accounts, the level of credit losses for the accounts, Synchrony’s ability to extend credit to our customers, as well as the cost of customer rewards programs.
The income and cash flow that we receive from Barclays is dependent upon a number of factors, including the level of sales on private label and co-branded accounts, the level of balances carried on the accounts, payment rates on the accounts, finance charge rates and other fees on the accounts, the level of credit losses for the accounts, Barclay’s ability to extend credit to our customers, as well as the cost of customer rewards programs.
In February 2022, in response to the military conflict between Russia and Ukraine, the United States and other North Atlantic Treaty Organization member states, as well as non-member states, announced targeted economic sanctions on Russia, including certain Russian citizens and enterprises, and the continuation of the conflict may trigger additional economic and other sanctions.
In February 2022, in response to the conflict, the United States and other North Atlantic Treaty Organization member states, as well as non-member states, announced targeted economic sanctions on Russia, including certain Russian citizens and enterprises, and the continuation of the conflict may trigger additional economic and other sanctions.
Our agreement with Synchrony provides for certain payments to be made by Synchrony to us, including a share of revenues from the performance of the credit card portfolios.
Our agreement with Barclays provides for certain payments to be made by Barclays to us, including a share of revenues from the performance of the credit card portfolios.
Our franchise and licensing businesses are subject to certain risks not directly within our control that could impair the value of our brands. We have entered into franchise agreements with unaffiliated franchisees to operate stores and websites in many countries around the world.
Our franchise and licensing businesses are subject to certain risks not directly within our control that could impair the value of our brands. We have entered into franchise agreements to operate stores and websites in many countries around the world.
Failure to protect the value of our brands, or any other harmful acts or omissions by a franchisee or licensee, could adversely affect our results of operations and our reputation. 17 Trade matters may disrupt our supply chain.
Failure to protect the value of our brands, or any other harmful acts or omissions by a franchisee or licensee, could also adversely affect our results of operations and our reputation. 15 Trade matters may disrupt our supply chain.
We may not have the resources to anticipate or prevent rapidly evolving types of cyber-attacks, such as phishing and ransomware attacks, which have emerged as particularly prominent. While we train our employees to identify these and other security threats as part of our security efforts, this training cannot be completely effective.
We may not have the resources to anticipate or prevent rapidly evolving types of cyber-attacks, such as phishing and ransomware attacks, which have become particularly prevalent. While we train our employees to identify these and other security threats as part of our security efforts, this training cannot be completely effective.
Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names. We have also entered into licensing agreements with unaffiliated licensees to sell products using our brand names.
Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names. We have also entered into licensing agreements to sell products using our brand names.
Natural disasters, such as hurricanes, tornadoes, floods, earthquakes, wildfires, and other extreme weather conditions; unforeseen public health crises, such as pandemics and epidemics (including, for example, the ongoing COVID-19 pandemic); political crises, such as terrorist attacks, war, labor unrest, and other political instability; negative global climate patterns, especially in water stressed regions; or other catastrophic events or disasters occurring in or impacting the areas in which our stores, distribution centers, corporate offices or our vendors’ manufacturing facilities are located, whether occurring in the United States or internationally, could disrupt our, our franchisees' and our vendors' operations.
Natural disasters, such as hurricanes, tornadoes, floods, earthquakes, wildfires, and other extreme weather conditions; unforeseen public health crises, such as pandemics and epidemics; political crises, such as terrorist attacks, war, labor unrest, and other political instability; negative global climate patterns, especially in water stressed regions; or other catastrophic events or disasters occurring in or impacting the areas in which our stores, distribution centers, corporate offices or our vendors’ manufacturing facilities are located, whether occurring in the United States or internationally, could disrupt our, our franchisees' and our vendors' operations.
The effect of these arrangements on our business and results of operations is uncertain and will depend upon various factors, including the demand for our products in international markets, the demand for new product categories (such as our Gap Home collection at Walmart) and our ability to successfully identify appropriate third parties to act as franchisees, licensees, distributors, or in a similar capacity.
The effect of these arrangements on our business and results of operations is uncertain and will depend upon various factors, including the demand for our products in international markets, the demand for new product categories and our ability to successfully identify appropriate third parties to act as franchisees, licensees, distributors, or in a similar capacity.
The COVID-19 pandemic also has significantly impacted our supply chain and may continue to do so if the factories that manufacture our products, the distribution centers where we manage our inventory, or the operations of our logistics and other service providers are disrupted, temporarily closed or experience worker shortages.
The COVID-19 pandemic also significantly impacted our supply chain and may do so again in the future if the factories that manufacture our products, the distribution centers where we manage our inventory, or the operations of our logistics and other service providers are disrupted, temporarily closed or experience worker shortages.
This could impact the quality of our decisions to exercise lease options and renew expiring leases at negotiated rents.
This could impact the quality of our decisions to enter into leases, exercise lease options and/or renew expiring leases at negotiated rents.
Risks Related to Strategic Transactions and Investments We may engage in or seek to engage in strategic transactions, such as acquisitions, divestitures and other dispositions, that are subject to various risks and uncertainties, which could disrupt or adversely affect our business.
Risks Related to Strategic Transactions and Investments We may engage in or seek to engage in strategic transactions, such as acquisitions, divestitures and other dispositions, or adjust our business strategies, all of which are subject to various risks and uncertainties, which could disrupt or adversely affect our business.
In fiscal 2021 , our reported quarterly comparable sales have ranged from a high of 28 percent in the first quarter of fiscal 2021 to a low of negative 1 percent in the third quarter of fiscal 2021.
In fiscal 2022, our reported quarterly comparable sales have ranged from a high of 1 percent in the third quarter of fiscal 2022 to a low of negative 14 percent in the first quarter of fiscal 2022.
In addition, in many of these locations, the real estate, employment and labor, transportation and logistics, regulatory, and other operating requirements differ dramatically from those in the places where we have more experience.
In many of these locations, we face major established competitors. In addition, in many of these locations, the real estate, employment and labor, transportation and logistics, and other operating requirements differ dramatically from those in the places where we have more experience.
If we are unable to retain, attract, and motivate talented employees with the appropriate skill sets, or if changes to our organizational structure or business model adversely affect morale or retention, we may not achieve our objectives and our results of operations could be adversely impacted.
If we are unable to retain, attract, and motivate talented employees with the appropriate skill sets, or if changes to our organizational structure or business model adversely affect morale or retention, we may not achieve our objectives and our results of operations could be adversely impacted. Our business is subject to risks associated with global sourcing and manufacturing.
Delays in production and added costs in Vietnam or Indonesia have and could continue to adversely affect our results of operations. Because independent vendors manufacture virtually all of our products outside of our principal sales markets, third parties must transport our products over large geographic distances.
Delays in production and added costs in Vietnam or Indonesia have in the past adversely affected and in the future could adversely affect our results of operations. 12 Because independent vendors manufacture virtually all of our products outside of our principal sales markets, third parties must transport our products over large geographic distances.
In addition, over the past five fiscal years, our reported operating margins have ranged from a high of 9.3 percent in fiscal 2017 to a low of negative 6.2 percent in fiscal 2020.
In addition, over the past five fiscal years, our reported operating margins have ranged from a high of 8.2 percent in fiscal 2018 to a low of negative 6.2 percent in fiscal 2020.
However, lead times for many of our design and purchasing decisions may make it more difficult for us to respond rapidly to new or changing apparel trends or consumer acceptance of our products, and supply chain disruptions may lead to prolonged delays in receiving inventory.
However, lead times for many of our design and purchasing decisions may make it more difficult for us to respond rapidly to new or changing apparel trends or consumer acceptance of our products. Transportation shortages, factory closures, labor shortages, port congestion and other supply chain disruptions may lead to prolonged delays in receiving inventory.
Operating or manufacturing delays, transportation delays, or unexpected demand for our products may require us to use faster, but more expensive, transportation methods such as air freight, which could adversely affect our gross margins.
Operating or manufacturing delays, transportation delays, or unexpected demand for our products may require us to use faster, but more expensive, transportation methods such as air freight, which have in the past adversely affected and in the future could adversely affect our gross margins.
The plaintiffs in some Actions seek unspecified damages or injunctive relief, or both. Actions are in various procedural stages and some may be covered in part by insurance. We cannot predict with assurance the outcome of Actions brought against us. Additionally, defending against Actions may involve significant expense and diversion of management's attention and resources.
Actions are in various procedural stages and some may be covered in part by insurance. We cannot predict with assurance the outcome of Actions brought against us. Additionally, defending against Actions may involve significant expense and diversion of management's attention and resources.
In addition, market conditions such as increased volatility or disruption in the credit markets, including the recent volatility due, in part, to the ongoing COVID-19 pandemic, could adversely affect our ability to obtain financing or refinance existing debt on terms that would be acceptable to us. 22 Item 1B. Unresolved Staff Comments. None.
In addition, market conditions such as increased volatility or disruption in the credit markets could adversely affect our ability to obtain financing or refinance existing debt on terms that would be acceptable to us. Item 1B. Unresolved Staff Comments. None.
Vessel, container and other transportation shortages, factory closures, labor shortages and port congestion globally have delayed and are expected to continue to delay inventory orders and, in turn, deliveries to our and our franchisees' stores and distribution centers.
Vessel, container and other transportation shortages, factory closures, labor shortages and port congestion globally have in the past delayed and could in the future delay inventory orders and, in turn, deliveries to our and our franchisees' stores and distribution centers.
On September 27, 2021, we issued $750 million aggregate principal amount of 3.625 percent Senior Notes due 2029 (the "2029 Senior Notes") and $750 million aggregate principal amount of 3.875 percent Senior Notes due 2031 (the "2031 Senior Notes" and, with the 2029 Senior Notes, the "Senior Notes").
In September 2021, we issued $750 million aggregate principal amount of 3.625 percent Senior Notes due 2029 (the "2029 Senior Notes") and $750 million aggregate principal amount of 3.875 percent Senior Notes due 2031 (the "2031 Senior Notes" and, with the 2029 Senior Notes, the "Senior Notes"), which remain outstanding.
We also acquired two technology companies in 2021. We incurred costs and expenses in connection with these transactions and may incur such costs and expenses in connection with future strategic reviews, which will require significant attention from our senior management and employees.
We incurred costs and expenses in connection with these transactions and may incur such costs and expenses in connection with future strategic reviews, which may require significant attention from our senior management and employees.
Some of the factors that may influence consumer spending patterns include high levels of unemployment, pandemics (such as the ongoing COVID-19 pandemic), extreme weather conditions and natural disasters, higher consumer debt levels, inflationary pressures (such as current inflation related to global supply chain disruptions), global geopolitical instability (such as the current conflict between Russia and Ukraine and related economic and other retaliatory measures taken by the United States, European Union and others), reductions in net worth based on market declines and uncertainty, home foreclosures and reductions in home values, fluctuating interest and foreign currency rates and credit availability, government austerity measures, fluctuating fuel and other energy costs, fluctuating commodity prices, and general uncertainty regarding the overall future economic environment.
Some of the factors that may influence consumer spending patterns include high levels of unemployment, pandemics, extreme weather conditions and natural disasters, higher consumer debt levels, inflationary pressures, global geopolitical instability (including the ongoing conflict between Russia and Ukraine), reductions in net worth based on market declines and uncertainty, home foreclosures and reductions in home values, fluctuating interest and foreign currency rates and credit availability, government austerity measures, fluctuating fuel and other energy costs, fluctuating commodity prices, and general uncertainty regarding the overall future economic environment.
If we experience significant increases in demand or need to replace an existing vendor, including due to factory closures and labor shortages in the countries where our vendors are located, there can be no assurance that additional manufacturing capacity will be available when required on terms that are acceptable to us or that any vendor would allocate sufficient capacity to us in order to meet our requirements.
If we experience significant increases in demand or need to replace an existing vendor, there can be no assurance that additional manufacturing capacity will be available when required on terms that are acceptable to us or that any vendor would allocate sufficient capacity to us to meet our requirements.
If we are unable to manage our inventory effectively, our results of operations could be adversely affected. Fluctuations in the global apparel retail markets impact the levels of inventory owned by apparel retailers.
Risks Related to Human Capital, Inventory and Supply Chain Management If we are unable to manage or protect our inventory effectively, our results of operations could be adversely affected. Fluctuations in the global apparel retail markets impact the levels of inventory owned by apparel retailers.
In such case, the market price of our common stock could decline. Risks Related to Macroeconomic Conditions The COVID-19 pandemic has and could continue to adversely affect our business and results of operations. The COVID-19 pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets.
The COVID-19 pandemic has and could continue to adversely affect our business and results of operations. The COVID-19 pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets.
Deteriorating economic conditions or geopolitical instability in any of the regions in which we and our franchisees sell our products could reduce consumer confidence and adversely impact consumer spending patterns, and thereby could adversely affect our sales and results of operations.
Deteriorating economic conditions or geopolitical instability in any of the regions in which we and our franchisees sell our products could reduce consumer confidence and adversely impact consumer spending patterns, and thereby could adversely affect our sales and results of operations, and could also result in changes to the assumptions and estimates used when preparing our Consolidated Financial Statements.
Although we reopened our corporate offices and other facilities beginning in June 2020 and have implemented remote work or hybrid work policies for certain employees, we may face future closure requirements and other operational restrictions if the pandemic is not fully contained. These policies may also negatively impact productivity and cause other disruptions to our business.
Although we have since reopened our corporate offices and other facilities, we may face future closure requirements and other operational restrictions if the pandemic is not contained. These policies may also negatively impact productivity and cause other disruptions to our business.
Disasters occurring at our vendors’ manufacturing facilities could impact our reputation and our customers’ perception of our brands. To the extent any of these events occur, our business and results of operations could be adversely affected.
These types of events could also negatively impact consumer spending in the impacted regions or globally, depending upon the severity. Disasters occurring at our vendors’ manufacturing facilities could impact our reputation and our customers’ perception of our brands. To the extent any of these events occur, our business and results of operations could be adversely affected.
Any adverse effect on the quality of these decisions could impact our ability to retain real estate locations adequate to meet our targets or efficiently manage the profitability of our existing fleet of stores, and could adversely affect our financial condition or results of operations. 19 We are subject to various proceedings, lawsuits, disputes, and claims from time to time, which could adversely affect our business, financial condition and results of operations.
Any adverse effect on the quality of these decisions could impact our ability to retain real estate locations adequate to meet our targets or efficiently manage the profitability of our existing fleet of stores, and could adversely affect our financial condition or results of operations. Climate change may have an adverse impact on our business.
Our failure to comply with applicable laws and regulations, and any changes in laws or regulations, the imposition of additional laws or regulations, or the enactment of any new or more stringent legislation that impacts employment and labor, anti-corruption, trade, product safety, transportation and logistics, health care, tax, cybersecurity, privacy, operations, or environmental issues, among others, could adversely affect our business, financial condition and results of operations.
While our policies are designed to comply with all applicable laws and regulations, such laws and regulations are complex and often subject to differing interpretations, which can lead to unintentional or unknown instances of non-compliance. 17 Our failure, or the failure of our employees, franchisees, licensees, vendors, or other business partners, to comply with applicable laws and regulations, and any changes in laws or regulations, the imposition of additional laws or regulations, or the enactment of any new or more stringent legislation that impacts employment and labor, anti-corruption, trade, product safety, transportation and logistics, health care, tax, cybersecurity, privacy, operations, or environmental issues, among others, could adversely affect our business, financial condition and results of operations.
We must enter into contracts for the purchase and manufacture of merchandise well in advance of the applicable selling season, and supply chain delays may increase lead times. As a result, we are vulnerable to demand and pricing shifts and to suboptimal selection and timing of merchandise purchases.
We must enter into contracts for the purchase and manufacture of merchandise long before the applicable selling season, and transportation shortages, factory closures, labor shortages, port congestion and other supply chain disruptions may lead to prolonged delays in receiving inventory. As a result, we are vulnerable to demand and pricing shifts and to suboptimal selection and timing of merchandise purchases.
As a result, we are directly impacted by increases in the cost of those products .
Independent third parties manufacture all of our products for us. As a result, we are directly impacted by increases in the cost of those products.
We may also experience increased difficulties in attracting, retaining and motivating employees and/or attracting and retaining customers during the pendency or following the completion of any of these transactions, which could harm our business. In particular, in 2021 we divested our Janie and Jack and Intermix brands and reached agreements to transfer our European business to a franchise model.
We may also experience increased difficulties in attracting, retaining and motivating employees and/or attracting and retaining customers during the pendency or following the completion of any of these transactions, which could harm our business.
Executing any transactions resulting from future strategic reviews will be time-consuming, will involve additional costs and expenses, which may be significant, and may result in difficulties attracting, retaining and motivating employees, which could harm our business and adversely affect our results of operations. Our investments in customer, digital, and omni-channel shopping initiatives may not deliver the results we anticipate.
Executing any transactions resulting from future strategic reviews will be time-consuming, will involve additional costs and expenses, which may be significant, and may result in difficulties attracting, retaining and motivating employees, which could harm our business and adversely affect our results of operations. We have adjusted and may further adjust our business strategies to meet changes in our business environment.
Furthermore, we have experienced a shortage of labor for field and distribution center positions, including due to concerns around COVID-19 and other factors, and we cannot be sure that we will be able to attract and retain a sufficient number of qualified personnel for these and other positions in future periods.
Competition for talent is intense and the turnover rate in the retail industry is generally high. Furthermore, we have experienced a shortage of labor for field and distribution center positions, and we cannot be sure that we will be able to attract and retain a sufficient number of qualified personnel for these and other positions in future periods.
In addition, the process of completing these transactions may be time-consuming and involve significant costs and expenses, which may be significantly higher than what we anticipate and may not yield a benefit if the transactions are not completed successfully, and executing these transactions may require significant time and attention from our senior management and employees, which could disrupt our ongoing business and adversely affect our results of operations.
In addition, the process of completing these transactions may be time-consuming and involve considerable costs and expenses, which may be significantly higher than what we anticipate and may not yield a benefit if the transactions are not completed successfully.
Our success is largely dependent upon our ability to gauge the tastes of our customers and to provide merchandise that satisfies customer demand in a timely manner.
Risks Related to Our Brand Relevance and Brand Execution We must successfully gauge apparel trends and changing consumer preferences to succeed. Our success is largely dependent upon our ability to gauge the tastes of our customers and to provide merchandise that satisfies customer demand in a timely manner.
The factors affecting the income and cash flow that we receive from our credit card arrangement can also vary based on a variety of economic, legal, social, and other factors (for example, the impact of the ongoing COVID-19 pandemic) that we cannot control.
All of these factors can vary based on changes in federal and state credit card, banking, and consumer protection laws. The factors affecting the income and cash flow that we receive from our credit card arrangement can also vary based on a variety of economic, legal, social, and other factors that we cannot control.
While we began to safely reopen our temporarily closed stores in May 2020 and have since reopened most of our stores, we and our franchisees may face new store closure requirements and other operational restrictions with respect to some or all of our physical locations for prolonged periods if the pandemic is not fully contained.
While we have since reopened our stores, we expect that certain parts of our operations will continue to be impacted by the continuing effects of COVID-19, and we and our franchisees may face new store closure requirements and other operational restrictions with respect to some or all of our physical locations for prolonged periods if the pandemic is not fully contained.
On February 9, 2022, we borrowed $350 million under the ABL Facility and had $1.5175 billion in principal amount of undrawn commitments available for additional borrowings, subject to borrowing base availability.
As of January 28, 2023, we had $1.85 billion in principal amount of undrawn commitments available for additional borrowings under the ABL Facility, subject to borrowing base availability.
In addition, the loss of one or more of our key personnel or the inability to effectively identify a suitable successor to a key role could adversely affect our business. In 2019 and 2020, we made significant changes to our executive leadership team. The effectiveness of our leaders, and any further transition, could adversely affect our results of operations.
The loss of one or more of our key personnel or the inability to effectively identify a suitable successor to a key role could adversely affect our business. We made significant changes to our executive leadership team in recent years and are currently searching for a non-interim CEO.
If we cannot make scheduled payments on our indebtedness, we will be in default and, as a result, our lenders could declare all outstanding principal and interest to be due and payable, could terminate their commitments to loan money to us and could foreclose against any assets securing our indebtedness, and we could be forced into bankruptcy or liquidation.
We may not be able to effect any such alternative measures (including due to restrictions in our indebtedness agreements), if necessary, on commercially reasonable terms or at all and, even if successful, such alternative actions may not allow us to meet our scheduled debt service obligations. 19 If we cannot make scheduled payments on our indebtedness, we will be in default and, as a result, our lenders could declare all outstanding principal and interest to be due and payable, could terminate their commitments to loan money to us and could foreclose against any assets securing our indebtedness under the ABL Facility, and we could be forced into bankruptcy or liquidation.
We purchase merchandise from third-party vendors in many different countries, and we require those vendors to adhere to a Code of Vendor Conduct, which includes anti-corruption, environmental, labor, health, and safety standards. From time to time, our vendors and their suppliers may not be in compliance with these standards or applicable local laws.
Risks associated with importing merchandise from foreign countries, including failure of our vendors to adhere to our Code of Vendor Conduct, could harm our business. We purchase merchandise from third-party vendors in many different countries, and we require those vendors to adhere to a Code of Vendor Conduct, which includes anti-corruption, environmental, labor, health, and safety standards.
We generated net cash from operating activities of $809 million in fiscal 2021 and ended fiscal 2021 with $877 million of cash and cash equivalents on our balance sheet. 21 Our ability to make scheduled payments on our indebtedness depends upon our future operating performance and on our ability to generate cash flows in the future, which is subject to general economic, financial, business, competitive, legislative, regulatory and other factors that are beyond our control, including the impact of the ongoing COVID-19 pandemic.
Our ability to make scheduled payments on our indebtedness depends upon our future operating performance and on our ability to generate cash flows in the future, which is subject to general economic, financial, business, competitive, legislative, regulatory and other factors that are beyond our control.
If the implementation of our customer, digital, and omni-channel initiatives is not successful, or we do not realize the return on our investments in these initiatives that we anticipate, our results of operations would be adversely affected. 13 Risks Related to Human Capital, Inventory and Supply Chain Management Our failure to manage key executive succession and retention and to continue to attract qualified personnel could adversely affect our results of operations.
If the implementation of our customer, digital, and omni-channel initiatives is not successful, or we do not realize the return on our investments in these initiatives that we anticipate, our results of operations would be adversely affected.
If sales do not meet expectations, including due to the impact of current economic conditions (including due to inflationary pressures, political instability or the impacts of the COVID-19 pandemic) on consumer demand, too much inventory may cause excessive markdowns and, therefore, lower-than-planned gross margins.
If sales do not meet expectations, including due to the impact of current macroeconomic conditions on consumer demand, too much inventory may cause excessive markdowns and, therefore, lower-than-planned gross margins. As a result, we may also be required to take significant impairment charges on delayed or unproductive inventory.
If our vendors , or any raw material suppliers on which our vendors rely, suffer prolonged manufacturing or transportation disruptions due to public health conditions, such as the ongoing COVID-19 pandemic, or other unforeseen events, our ability to source product could be adversely impacted which would adversely affect our results of operations. 15 Risks associated with importing merchandise from foreign countries, including failure of our vendors to adhere to our Code of Vendor Conduct, could harm our business.
If our vendors, or any raw material suppliers on which our vendors rely, suffer prolonged manufacturing or transportation disruptions due to public health conditions or other unforeseen events, our ability to source product could be adversely impacted which would adversely affect our sales and results of operations.
See Note 6 of Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K for disclosures on our debt and credit facilities. Our level of indebtedness may adversely affect our ability to operate and expand our business. We have a significant amount of indebtedness.
As a result, we are subject to risks relating to our indebtedness, including the following risks. 18 See Note 7 of Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Form 10-K for disclosures on our debt and credit facilities.
Actual or anticipated attacks may disrupt or impair our technology capabilities, and may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants.
Although we strive to take appropriate measures to safeguard our information security and privacy environment from security breaches and vulnerabilities, we could still expose our customers and our business to risk. 13 Actual or anticipated attacks may disrupt or impair our technology capabilities, and may cause us to incur costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants.
Fluctuations in our comparable sales and margins or failure to meet financial market expectations in one or more future periods could reduce the market price of our common stock, cause our credit ratings to decline, and negatively impact our liquidity. 18 Our business and results of operations could be adversely affected by natural disasters, public health crises, political crises, negative global climate patterns, or other catastrophic events.
Fluctuations in our comparable sales and margins or failure to meet financial market expectations in one or more future periods could reduce the market price of our common stock, cause our credit ratings to decline, and negatively impact our liquidity. 16 The global market for real estate is competitive.
Our business and future success depends in part on our ability to attract and retain key personnel in our design, merchandising, sourcing, marketing, and other functions. In addition, executing our strategic initiatives, including our technology and supply chain initiatives, has required and may require in the future that we hire and/or develop employees with appropriate and specialized experience.
In addition, executing our strategic initiatives, including our technology and supply chain initiatives, has required and may require in the future that we hire and/or develop employees with appropriate and specialized experience. We must also attract, develop, and retain a sufficient number of qualified field and distribution center personnel.
A third party, Synchrony Financial (“Synchrony”), currently owns and services our portfolios of private label credit card and co-branded programs for our Gap, Old Navy, Banana Republic and Athleta brands and another third party, Barclays PLC ("Barclays"), is expected to acquire those credit card portfolios during the second quarter of fiscal 2022.
A third party, Barclays Bank Delaware ("Barclays"), currently issues and services our portfolios of private label credit card and co-branded credit card programs for our Gap, Old Navy, Banana Republic and Athleta brands.
If we are unable to implement these initiatives and integrate these additional capabilities successfully, we may not realize the return on our investments that we anticipate, and our results of operations could be adversely affected. Our business is subject to risks associated with global sourcing and manufacturing. Independent third parties manufacture all of our products for us.
If we are unable to implement these initiatives and integrate these additional capabilities successfully, we may not realize the return on our investments that we anticipate, and our results of operations could be adversely affected. Risk of loss or theft of assets, including inventory shrinkage, is inherent in the retail business.
As a multinational company, we are subject to various proceedings, lawsuits, disputes, and claims (“Actions”) arising in the ordinary course of our business. Many of these Actions raise complex factual and legal issues and are subject to uncertainties.
We are subject to various proceedings, lawsuits, disputes, and claims from time to time, which could adversely affect our business, financial condition and results of operations. As a multinational company, we are subject to various proceedings, lawsuits, disputes, and claims (“Actions”) arising in the ordinary course of our business.
While we consider these types of catastrophic events as part of our disaster recovery and business continuity planning, our planning may not be sufficient in all instances.
While we consider these types of catastrophic events as part of our disaster recovery and business continuity planning, our planning may not be sufficient in all instances. 14 In particular, these types of events could impact our supply chain from or to the impacted region and could impact our ability or the ability of our franchisees or other third parties to operate our stores or websites.
The COVID-19 pandemic has adversely affected our business and results of operations and this adverse effect could continue.
The COVID-19 pandemic has adversely affected our business and results of operations and this adverse effect could continue. 8 At the peak of the COVID-19 outbreak, we temporarily closed a significant number of our stores globally and furloughed the majority of our store teams.
Our failure to achieve progress on our stated commitments, targets or goals on a timely basis, or at all, could adversely affect our brand image and reputation. Risks Related to Competition Our business is highly competitive. The global apparel retail industry is highly competitive.
Failure to maintain, enhance and protect our brand image could adversely affect our business and results of operations. Risks Related to Competition Our business is highly competitive. The global apparel retail industry is highly competitive.
W e are required to dedicate a substantial portion of any cash flows from operations to the payment of interest and principal under our indebtedness .
We are required to dedicate a substantial portion of any cash flows from operations to the payment of interest and principal under our indebtedness. We generated net cash from operating activities of $607 million in fiscal 2022 and ended fiscal 2022 with $1,215 million of cash and cash equivalents on our balance sheet.
Additionally, c limate change may increase both the frequency and severity of extreme weather conditions and natural disasters, and the physical changes prompted by climate change could result in increased regulation or changes in consumer preferences.
The physical changes prompted by climate change could result in increased regulation or changes in consumer preferences and spending patterns.
Any failure by our third party providers could disrupt our operations and therefore adversely affect our results of operations. Risks Related to Operating a Global Business Our efforts to expand internationally may not be successful. Our current business strategies include pursuing selective international expansion in a number of countries around the world through a number of channels.
Our efforts to expand internationally may not be successful. Our current business strategies include pursuing selective international expansion in a number of countries around the world through a number of channels. This includes our franchisees opening additional stores internationally. We have limited experience operating or franchising in some of these locations.
Consumer purchases of discretionary items, including our merchandise, generally decline during periods when disposable income is adversely affected or when there are inflationary pressures or economic uncertainty. The uncertain state of the global economy continues to impact businesses around the world.
Historically, consumer purchases of discretionary items, including our merchandise, generally decline during recessionary periods when disposable income is lower or during other periods of economic instability or uncertainty.
Although our operations in Russia and Ukraine are not significant, we do not and cannot know if the conflict, which is unfolding in real-time, could escalate and result in broader economic and security concerns which could adversely affect our business, financial condition or results of operations. The market for real estate is competitive.
The potential impacts could include supply chain and logistics disruptions, volatility in foreign exchange rates and interest rates, inflationary pressures on raw materials and energy and heightened cybersecurity threats. We do not and cannot know if the conflict could escalate and result in broader economic and security concerns which could adversely affect our business, financial condition or results of operations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties. We have Company-operated stores in the United States, Canada, Japan, Italy, China, Taiwan, and Mexico. In fiscal 2021, we signed an agreement with a third party to operate Gap Italy stores as a franchise partner beginning in fiscal 2022. As of January 29, 2022, we had 2,835 Company-operated stores, which aggregated to approximately 33.3 million square feet.
Biggest changeItem 2. Properties. As of January 28, 2023, we had Company-operated stores in the United States, Canada, Japan, China, and Taiwan, which totaled 2,685 Company-operated stores and approximately 31.8 million square feet. Almost all of these stores are leased, typically with one or more renewal options after the initial term.
We lease approximately 0.6 million square feet of corporate office space located in: San Francisco, Los Angeles and Rocklin, California; New York and Brooklyn, New York; Albuquerque, New Mexico; and Toronto, Ontario, Canada. We also lease regional offices in North America and in various international locations.
We lease approximately 0.5 million square feet of corporate office space located in: San Francisco, Los Angeles and Rocklin, California; New York and Brooklyn, New York; Albuquerque, New Mexico; and Toronto, Ontario, Canada. We also lease regional offices in North America and in various international locations.
We lease approximately 1.2 million square feet of distribution space located in: Shanghai, China; Phoenix, Arizona; and Erlanger and Hebron, Kentucky. Third-party logistics companies provide logistics services to us through distribution warehouses in Chiba, Japan and Hong Kong, China. Item 3. Legal Proceedings.
We lease approximately 1.2 million square feet of distribution space located in: Shanghai, China; Phoenix, Arizona; and Erlanger and Hebron, Kentucky. Third-party logistics companies provide logistics services to us through distribution warehouses in Chiba, Japan; Hong Kong, China; and New Taipei City, Taiwan.
We own approximately 9.3 million square feet of distribution space located in: Fresno, California; Fishkill, New York; Groveport, Ohio; Gallatin, Tennessee; Brampton, Ontario, Canada; and Rugby, England. We also began construction on distribution centers in Longview, Texas and London, Ontario, Canada in fiscal 2021, with estimated occupancy in fiscal 2022 and fiscal 2024, respectively.
We own approximately 9.5 million square feet of distribution space located in: Fresno, California; Fishkill, New York; Groveport, Ohio; Gallatin, Tennessee; Brampton, Ontario, Canada; and Longview, Texas. We also have a distribution center in construction in London, Ontario, Canada with estimated occupancy in fiscal 2025.
We do not believe that the outcome of any current Action would have a material effect on our Consolidated Financial Statements. Item 4. Mine Safety Disclosures. Not applicable. 23 Part II
We also use a number of distribution facilities located globally that are leased and operated by third-party logistics providers related to our franchise business. Item 3. Legal Proceedings. We do not believe that the outcome of any current Action would have a material effect on our Consolidated Financial Statements. Item 4. Mine Safety Disclosures. Not applicable. 21 Part II
Almost all of these stores are leased, typically with one or more renewal options after the initial term. Terms vary by type and location of store. We own approximately 1.2 million square feet of corporate office space located in San Francisco, Pleasanton, and Rocklin, California.
Terms vary by type and location of store. 20 We own approximately 0.9 million square feet of corporate office space located in San Francisco, Pleasanton, and Rocklin, California.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDuring fiscal 2020, the Company deferred the record and payment date of its previously announced first quarter dividend of $0.2425 per share and suspended the Company's quarterly dividend for the remainder of fiscal year 2020. The dividend was paid on April 28, 2021 to shareholders of record at the close of business on April 7, 2021.
Biggest changeDividends Declared and Paid Fiscal Year 2022 2021 1st Quarter $ 0.15 $ — 2nd Quarter 0.15 0.12 3rd Quarter 0.15 0.12 4th Quarter 0.15 0.12 $ 0.60 $ 0.36 During fiscal 2020, the Company deferred the record and payment date of its previously announced first quarter dividend of $0.2425 per share and suspended the Company's quarterly dividend for the remainder of fiscal year 2020.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The principal market on which our stock is traded is the New York Stock Exchange under the symbol "GPS". Our website is www.gapinc.com. The number of holders of record of our stock as of March 9, 2022 was 5,623.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The principal market on which our stock is traded is the New York Stock Exchange under the symbol "GPS". Our website is www.gapinc.com. The number of holders of record of our stock as of March 8, 2023 was 5,464.
Apparel Retailers Index. The total stockholder return for our common stock assumes reinvestment of any dividends paid.
The total stockholder return for our common stock assumes reinvestment of any dividends paid.
(2) In February 2019, we announced that the Board of Directors approved a $1 billion share repurchase authorization, which has no expiration date. 24 Stock Performance Graph The graph below compares our cumulative total stockholder return on our common stock for the five-year period ended January 29, 2022, with the cumulative total returns of (i) the S&P 500 Index and (ii) the Dow Jones U.S.
The February 2019 repurchase program had $476 million remaining as of January 28, 2023. 22 Stock Performance Graph The graph below compares our cumulative total stockholder return on our common stock for the five-year period ended January 28, 2023, with the cumulative total returns of (i) the S&P 500 Index and (ii) the Dow Jones U.S. Apparel Retailers Index.
TOTAL RETURN TO STOCKHOLDERS (Assumes $100 investment on 1/28/2017) Total Return Analysis 1/28/2017 2/3/2018 2/2/2019 2/1/2020 1/30/2021 1/29/2022 The Gap, Inc. $ 100.00 $ 147.14 $ 118.59 $ 86.93 $ 101.11 $ 90.79 S&P 500 $ 100.00 $ 126.41 $ 123.48 $ 150.26 $ 176.18 $ 217.21 Dow Jones U.S.
TOTAL RETURN TO STOCKHOLDERS (Assumes $100 investment on 2/3/2018) Total Return Analysis 2/3/2018 2/2/2019 2/1/2020 1/30/2021 1/29/2022 1/28/2023 The Gap, Inc. $ 100.00 $ 80.60 $ 59.08 $ 68.71 $ 61.70 $ 48.53 S&P 500 $ 100.00 $ 97.69 $ 118.87 $ 139.37 $ 171.83 $ 157.71 Dow Jones U.S.
Removed
The Company resumed its quarterly dividend in fiscal 2021 and paid a quarterly dividend of $0.12 for each of the second, third, and fourth quarters of fiscal 2021. See "Liquidity and Capital Resources" included in Item 7, Management's Discussion and Analysis, of this Form 10-K for more information on dividends.
Added
The table below sets forth the dividends declared and paid for each of the fiscal quarters in fiscal 2022 and 2021.
Removed
Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table presents information with respect to purchases of common stock of the Company made during the thirteen weeks ended January 29, 2022 by the Company or any affiliated purchaser, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended: Total Number of Shares Purchased (1) Average Price Paid Per Share Including Commissions Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or approximate dollar amount) of Shares that May Yet be Purchased Under the Plans or Programs (2) Month #1 (October 31 - November 27) 878,643 $ 24.60 878,643 $ 651 million Month #2 (November 28 - January 1) 2,006,511 $ 17.02 2,006,511 $ 617 million Month #3 (January 2 - January 29) 1,014,000 $ 17.60 1,014,000 $ 599 million Total 3,899,154 $ 18.88 3,899,154 __________ (1) Excludes shares withheld to settle employee statutory tax withholding related to the vesting of stock units.
Added
The dividend was paid on April 28, 2021 to shareholders of record at the close of business on April 7, 2021. The Company resumed its quarterly dividend in the second quarter of fiscal 2021.
Removed
Apparel Retailers $ 100.00 $ 113.82 $ 123.70 $ 137.88 $ 147.41 $ 163.17 Source: Research Data Group, Inc. Item 6. Selected Financial Data. Not applicable. 25
Added
Purchases of Equity Securities by the Issuer and Affiliated Purchasers In February 2019, we announced that the Board approved a $1.0 billion share repurchase authorization (the "February 2019 repurchase program"), which has no expiration date.
Added
There were no shares repurchased, other than shares withheld to settle employee statutory tax withholding related to the vesting of stock units, during the thirteen weeks ended January 28, 2023.
Added
Apparel Retailers $ 100.00 $ 108.68 $ 121.14 $ 129.51 $ 143.36 $ 156.59 Source: Research Data Group, Inc. Item 6. [Reserved] 23

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe percentage change in Comp Sales by global brand and for The Gap, Inc., as compared with the preceding year, is as follows: 52 Weeks Ended January 29, 2022 Old Navy Global — % Gap Global 8 % Banana Republic Global 24 % Athleta 12 % The Gap, Inc. 6 % 29 Store count, openings, closings, and square footage for our stores are as follows: January 30, 2021 Fiscal 2021 January 29, 2022 Number of Store Locations Number of Stores Opened Number of Stores Closed Number of Store Locations Square Footage (in millions) Old Navy North America 1,220 44 12 1,252 20.1 Gap North America 556 2 38 520 5.5 Gap Asia 340 12 23 329 2.8 Gap Europe (1) 117 1 86 11 0.1 Banana Republic North America 471 2 27 446 3.7 Banana Republic Asia 47 6 3 50 0.2 Athleta North America 199 30 2 227 0.9 Intermix North America (2) 31 — — — — Janie and Jack North America (2) 119 — — — — Company-operated stores total 3,100 97 191 2,835 33.3 Franchise (1) 615 78 150 564 N/A Total 3,715 175 341 3,399 33.3 Decrease over prior year (8.5) % (3.8) % February 1, 2020 Fiscal 2020 January 30, 2021 Number of Store Locations Number of Stores Opened Number of Stores Closed Number of Store Locations Square Footage (in millions) Old Navy North America 1,207 32 19 1,220 19.6 Old Navy Asia 17 — 17 — — Gap North America 675 2 121 556 5.8 Gap Asia 358 16 34 340 2.9 Gap Europe 137 4 24 117 1.0 Banana Republic North America 541 3 73 471 4.0 Banana Republic Asia 48 5 6 47 0.2 Athleta North America 190 11 2 199 0.8 Intermix North America 33 — 2 31 0.1 Janie and Jack North America 139 — 20 119 0.2 Company-operated stores total 3,345 73 318 3,100 34.6 Franchise 574 67 26 615 N/A Total 3,919 140 344 3,715 34.6 Decrease over prior year (5.2) % (6.5) % __________ (1) The 21 Gap France stores that were transitioned to Hermione People & Brands during the period are not included as store closures or openings for Company-operated and Franchise store activity.
Biggest change(7) % 6 % 27 Store count, openings, closings, and square footage for our stores are as follows: January 29, 2022 Fiscal 2022 January 28, 2023 Number of Store Locations Number of Stores Opened Number of Stores Closed Number of Store Locations Square Footage (in millions) Old Navy North America (1) 1,252 30 20 1,238 19.8 Gap North America 520 10 37 493 5.2 Gap Asia 329 5 102 232 2.0 Gap Europe (2) 11 — — — — Banana Republic North America 446 2 29 419 3.5 Banana Republic Asia 50 3 7 46 0.2 Athleta North America 227 40 10 257 1.1 Company-operated stores total 2,835 90 205 2,685 31.8 Franchise (1) (2) 564 138 70 667 N/A Total 3,399 228 275 3,352 31.8 Decrease over prior year (1.4) % (4.5) % January 30, 2021 Fiscal 2021 January 29, 2022 Number of Store Locations Number of Stores Opened Number of Stores Closed Number of Store Locations Square Footage (in millions) Old Navy North America 1,220 44 12 1,252 20.1 Gap North America 556 2 38 520 5.5 Gap Asia 340 12 23 329 2.8 Gap Europe (3) 117 1 86 11 0.1 Banana Republic North America 471 2 27 446 3.7 Banana Republic Asia 47 6 3 50 0.2 Athleta North America 199 30 2 227 0.9 Intermix North America (4) 31 — — — — Janie and Jack North America (4) 119 — — — — Company-operated stores total 3,100 97 191 2,835 33.3 Franchise (3) 615 78 150 564 N/A Total 3,715 175 341 3,399 33.3 Decrease over prior year (8.5) % (3.8) % __________ (1) The 24 Old Navy Mexico stores that were transitioned to Grupo Axo during the period are not included as store closures or openings for Company-operated and Franchise store activity.
If actual results and conditions are not consistent with the estimates and assumptions used in our calculations, we may be exposed to additional impairments of long-lived assets. See Note 7 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for additional information and disclosures about impairment of long-lived assets.
If actual results and conditions are not consistent with the estimates and assumptions used in our calculations, we may be exposed to additional impairments of long-lived assets. See Note 8 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for additional information and disclosures about impairment of long-lived assets.
Events that result in an impairment review include a significant decrease in the operating performance of the long-lived asset or the decision to close a store, corporate facility, or distribution center. 38 Long-lived assets are considered impaired if the carrying amount exceeds the estimated undiscounted future cash flows of the asset or asset group over the estimated remaining useful life.
Events that result in an impairment review include a significant decrease in the operating performance of the long-lived asset or the decision to close a store, corporate facility, or distribution center. Long-lived assets are considered impaired if the carrying amount exceeds the estimated undiscounted future cash flows of the asset or asset group over the estimated remaining useful life.
Cash Flows from Investing Activities Net cash used for investing activities during fiscal 2021 decreased $64 million compared with fiscal 2020, primarily due to the following: • $529 million higher net proceeds from available for sale securities during fiscal 2021 compared with fiscal 2020; partially offset by • $302 million more purchases of property and equipment during fiscal 2021 compared with fiscal 2020; and • $135 million in cash payments for acquisitions in fiscal 2021.
Net cash used for investing activities during fiscal 2021 decreased $64 million compared with fiscal 2020, primarily due to the following: • $529 million higher net proceeds from available for sale securities during fiscal 2021 compared with fiscal 2020; partially offset by • $302 million more purchases of property and equipment during fiscal 2021 compared with fiscal 2020; and • $135 million in cash payments for acquisitions in fiscal 2021.
The Company used the net proceeds from the offering of the Senior Notes, together with cash on hand, to complete tender offers and purchase an aggregate principal amount of $1.9 billion of the 8.375 percent senior secured notes due 2023 (the "2023 Notes"), 8.625 percent senior secured notes due 2025 (the "2025 Notes"), and 8.875 percent senior secured Notes due 2027 (the "2027 Notes") (the 2023 Notes, the 2025 Notes, and the 2027 Notes, collectively, the "Secured Notes").
The Company used the net proceeds from the offering, together with cash on hand, to complete tender offers and purchase an aggregate principal amount of $1.9 billion of its 8.375 percent senior secured notes due 2023 (the "2023 Notes"), 8.625 percent senior secured notes due 2025 (the "2025 Notes"), and 8.875 percent senior secured notes due 2027 (the "2027 Notes") (the 2023 Notes, the 2025 Notes, and the 2027 Notes, collectively, the "Secured Notes").
However, this non-GAAP financial measure is not intended to supersede or replace our GAAP results. The following table reconciles free cash flow, a non-GAAP financial measure, from net cash provided by operating activities, a GAAP financial measure.
However, this non-GAAP financial measure is not intended to supersede or replace our GAAP results. 34 The following table reconciles free cash flow, a non-GAAP financial measure, from net cash provided by operating activities, a GAAP financial measure.
Our contractual obligations primarily consist of operating leases, purchase obligations and commitments, long-term debt and related interest payments, and income taxes. See Notes 6 and 12 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data of this Form 10-K for information related to our debt, including our ABL Facility, and operating leases, respectively.
Our contractual obligations primarily consist of operating leases, purchase obligations and commitments, long-term debt and related interest payments, and income taxes. See Notes 7 and 12 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for information related to our debt including our ABL Facility and operating leases, respectively.
The ending balance for Gap Europe excludes these stores and the ending balance for Franchise includes these stores. (2) On April 8, 2021, the Company completed the divestiture of the Janie and Jack brand. On May 21, 2021, the Company completed the divestiture of the Intermix business.
The ending balance for Gap Europe excludes these stores and the ending balance for Franchise includes these stores. (4) On April 8, 2021, the Company completed the divestiture of the Janie and Jack brand. On May 21, 2021, the Company completed the divestiture of the Intermix business.
Current year foreign exchange rates are applied to both current year and prior year Comp Sales to achieve a consistent basis for comparison. For the fifty-two weeks ended January 29, 2022, any stores temporarily closed for more than three days as a result of the COVID-19 pandemic were excluded from the Comp Sales calculations.
Current year foreign exchange rates are applied to both current year and prior year Comp Sales to achieve a consistent basis for comparison. 26 For the 52 weeks ended January 29, 2022, any stores temporarily closed for more than three days as a result of the COVID-19 pandemic were excluded from the Comp Sales calculations.
We are party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Consolidated Balance Sheet as of January 29, 2022, while others are considered future obligations.
We are party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Consolidated Balance Sheet as of January 28, 2023, while others are considered future obligations.
See Note 8 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for additional information on income taxes. 39 Recent Accounting Pronouncements See "Organization and Summary of Significant Accounting Policies" in Note 1 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for recent accounting pronouncements, including the expected dates of adoption and estimated effects on our Consolidated Financial Statements.
Recent Accounting Pronouncements See "Organization and Summary of Significant Accounting Policies" in Note 1 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for recent accounting pronouncements, including the expected dates of adoption and estimated effects on our Consolidated Financial Statements.
After stores reopened, subsequent sales were included in the Comp/Non-comp status they were in prior to temporary closure. Online sales continued to be included in the Comp Sales calculation for each period.
After stores reopened, subsequent sales were included in the Comp/Non-comp status they were in prior to temporary closure. Online sales continued to be included in the Comp Sales calculation.
Cash Flows from Operating Activities Net cash provided by operating activities increased by $572 million during fiscal 2021 compared with fiscal 2020, primarily due to the following: Net income (loss) • Net income compared with net loss in prior year; Non-cash items • a decrease of $517 million due to lower non-cash impairment charges for operating lease assets and store assets during fiscal 2021 compared with fiscal 2020; and • an increase of $267 million due to higher loss on extinguishment of debt during fiscal 2021 compared with fiscal 2020; Changes in operating assets and liabilities • an increase of $219 million related to income taxes payable, net of receivables, and other tax-related items resulting from the taxable loss carryback recorded in fiscal 2020 as well as timing of tax-related payments; • an increase of $186 million related to accrued expenses and other current liabilities in part due to an increase in deferred revenue due to the new integrated loyalty program and an increase in performance-based compensation during fiscal 2021 compared to fiscal 2020; • a decrease of $378 million related to accounts payable primarily due to the suspension of rent for stores closed temporarily during fiscal 2020 as well as changes in payment terms as a result of the COVID-19 pandemic; and • a decrease of $288 million related to merchandise inventory in part due to higher air freight cost and timing of receipts as a result of the global supply chain disruptions during fiscal 2021 compared to fiscal 2020.
Net cash provided by operating activities increased $572 million during fiscal 2021 compared with fiscal 2020, primarily due to the following: Net income (loss) • Net income compared with net loss in prior year; Non-cash items • a decrease of $517 million due to lower non-cash impairment charges for operating lease assets and store assets during fiscal 2021 compared with fiscal 2020; and • an increase of $267 million due to higher loss on extinguishment of debt during fiscal 2021 compared with fiscal 2020; Changes in operating assets and liabilities • an increase of $219 million related to income taxes payable, net of receivables, and other tax-related items resulting from the taxable loss carryback recorded in fiscal 2020 as well as timing of tax-related payments; • an increase of $186 million related to accrued expenses and other current liabilities in part due to an increase in deferred revenue due to the new integrated loyalty program and an increase in performance-based compensation during fiscal 2021 compared to fiscal 2020; • a decrease of $378 million related to accounts payable primarily due to the suspension of rent for stores closed temporarily during fiscal 2020 as well as changes in payment terms as a result of the COVID-19 pandemic; and • a decrease of $288 million related to merchandise inventory in part due to higher air freight cost and timing of receipts as a result of the global supply chain disruptions during fiscal 2021 compared to fiscal 2020. 33 Cash Flows from Investing Activities Net cash used for investing activities during fiscal 2022 decreased $219 million compared with fiscal 2021, primarily due to the following: • $458 million in net proceeds from sale of buildings during fiscal 2022; and • $135 million in cash payments for acquisitions in fiscal 2021; partially offset by • $409 million in net proceeds from available-for-sale securities during fiscal 2021.
We identify our operating segments according to how our business activities are managed and evaluated. As of January 29, 2022, our operating segments included Old Navy Global, Gap Global, Banana Republic Global, and Athleta.
We identify our operating segments according to how our business activities are managed and evaluated. As of January 28, 2023, our operating segments included Old Navy Global, Gap Global, Banana Republic Global, and Athleta Global.
At any point in time, many tax years are subject to or in the process of being audited by various U.S. and foreign tax jurisdictions. These audits include reviews of our tax filing positions, including the timing and amount of deductions taken and the allocation of income between tax jurisdictions.
Such adverse impacts may be material. 36 At any point in time, many tax years are subject to or in the process of being audited by various U.S. and foreign tax jurisdictions. These audits include reviews of our tax filing positions, including the timing and amount of deductions taken and the allocation of income between tax jurisdictions.
We incurred a loss on extinguishment of debt of $325 million, which was recorded on the Consolidated Statement of Operations during fiscal 2021, primarily related to the tender premiums, make-whole premiums, and unamortized debt issuance costs of the Secured Notes. 32 On May 7, 2020, the Company completed the issuance of the Secured Notes for $2.25 billion and used the proceeds to redeem the 5.95 percent notes due April 2021 (the "2021 Notes").
We incurred a loss on extinguishment of debt of $325 million, which was recorded on the Consolidated Statement of Operations during fiscal 2021, primarily related to the tender premiums, make-whole premiums, and unamortized debt issuance costs of the Secured Notes. 30 On May 7, 2020, the Company completed the issuance of the Secured Notes in an aggregate principal amount of $2.25 billion and used the proceeds to redeem its 5.95 percent notes due April 2021 (the "2021 Notes").
Outlet and factory stores are reflected in each of the respective brands. 30 Net Sales Discussion Our net sales for fiscal 2021 increased $2.9 billion, or 21 percent, compared with fiscal 2020, driven primarily by temporary closures across our fleet during fiscal 2020 due to the COVID-19 pandemic, as well as a favorable impact of foreign exchange of $93 million; partially offset by supply chain disruptions that constrained inventory and negatively impacted sales in the second half of fiscal 2021.
Our net sales for fiscal 2021 increased $2.9 billion, or 21 percent, compared with fiscal 2020, driven primarily by temporary closures across our fleet during fiscal 2020 due to the COVID-19 pandemic, as well as a favorable impact of foreign exchange of $93 million; partially offset by supply chain disruptions that constrained inventory and negatively impacted sales in the second half of fiscal 2021.
Purchase obligations and commitments consist of open purchase orders to purchase inventory as well as commitments for products and services used in the normal course of business. As of January 29, 2022, our purchase obligations and commitments were approximately $6 billion.
Purchase obligations and commitments consist of open purchase orders to purchase inventory as well as commitments for products and services used in the normal course of business. As of January 28, 2023, our purchase obligations and commitments were approximately $4 billion.
Interest Expense ($ in millions) Fiscal Year 2021 2020 2019 Interest expense $ 167 $ 192 $ 76 Interest expense decreased $25 million or 13.0 percent during fiscal 2021 compared with fiscal 2020 primarily due to the lower interest rates and principal as a result of the issuance of the Senior Notes.
Interest expense decreased $25 million or 13.0 percent during fiscal 2021 compared with fiscal 2020 primarily due to the lower interest rates and principal as a result of the issuance of the Senior Notes.
Net cash provided by financing activities was $895 million during fiscal 2020 compared with $560 million of cash used for financing activities during fiscal 2019, primarily due to the following: • $2,250 million proceeds received related to the issuance of long-term debt during fiscal 2020; and • No payments of dividends and repurchases of common stock during fiscal 2020 as a result of the COVID-19 pandemic compared with $564 million in payments of dividends and repurchases of common stock during fiscal 2019; partially offset by • $1,307 million payment for the extinguishment of long-term debt during fiscal 2020.
Net cash used for financing activities was $1,471 million during fiscal 2021 compared with $895 million of cash provided by financing activities during fiscal 2020, primarily due to the following: • $2,546 million for payments related to the extinguishment of long-term debt during fiscal 2021 compared with $1,307 million paid during fiscal 2020; • $1,500 million in proceeds received for the issuance of long-term debt for fiscal 2021 compared with $2,250 million in proceeds received for fiscal 2020; • $226 million in payments of dividends during fiscal 2021 compared with no dividends paid during fiscal 2020 as a result of the COVID-19 pandemic; and • $201 million in repurchases of common stock during fiscal 2021 compared with no repurchases during fiscal 2020 as a result of the COVID-19 pandemic.
Income Taxes ($ in millions) Fiscal Year 2021 2020 2019 Income taxes $ 67 $ (437) $ 177 Effective tax rate 20.7 % 39.7 % 33.5 % The decrease in the effective tax rate for fiscal 2021 compared with fiscal 2020 was primarily due to benefits from the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), foreign entity structure changes related to fiscal 2020, and the recognition of certain tax benefits associated with divestiture activity occurring in fiscal 2021, partially offset by the tax impact of foreign operations.
The decrease in the effective tax rate for fiscal 2021 compared with fiscal 2020 was primarily due to benefits from the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), foreign entity structure changes related to fiscal 2020, and the recognition of certain tax benefits associated with divestiture activity occurring in fiscal 2021, partially offset by the tax impact of foreign operations.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Our Business We are a collection of purpose-led, lifestyle brands offering apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. We have Company-operated stores in the United States, Canada, Japan, Italy, China, Taiwan, and Mexico.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Our Business We are a collection of purpose-led, lifestyle brands offering apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands.
On September 27, 2021, the Company completed the issuance of 3.625 percent senior notes due 2029 (“2029 Notes”) and 3.875 percent senior notes due 2031 (“2031 Notes”) (the 2029 Notes and the 2031 Notes, collectively, the "Senior Notes") in an aggregate principal amount of $1.5 billion.
Loss on Extinguishment of Debt ($ in millions) Fiscal Year 2022 2021 2020 Loss on extinguishment of debt $ — $ 325 $ 58 On September 27, 2021, the Company completed the issuance of its 3.625 percent senior notes due 2029 (“2029 Notes”) and 3.875 percent senior notes due 2031 (“2031 Notes”) (the 2029 Notes and the 2031 Notes, collectively, the “Senior Notes”), in an aggregate principal amount of $1.5 billion.
Certain financial information about the Company's share repurchases is set forth under the heading "Share Repurchases" in Note 10 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
We plan to pay a dividend of $0.15 per share in the first quarter of fiscal 2023. Share Repurchases Certain financial information about the Company's share repurchases is set forth under the heading "Share Repurchases" in Note 10 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
Cost of goods sold and occupancy expenses increased 3.3 percentage points as a percentage of net sales in fiscal 2020 compared with fiscal 2019. • Cost of goods sold increased 4.1 percentage points as a percentage of net sales in fiscal 2020 compared with fiscal 2019, primarily driven by higher shipping costs as a result of growth in online sales as well as higher inventory impairment due to store closures in the first half of the year and decreased retail traffic as a result of the COVID-19 pandemic; partially offset by lower promotional activity. • Occupancy expenses decreased 0.8 percentage points as a percentage of net sales in fiscal 2020 compared with fiscal 2019, primarily driven by growth in online sales with minimal impact on fixed occupancy expenses; partially offset by decrease in net sales largely due to store closures as a result of the COVID-19 pandemic without a corresponding decrease in occupancy expenses. 31 Operating Expenses and Operating Margin ($ in millions) Fiscal Year 2021 2020 2019 Operating expenses $ 5,827 $ 5,567 $ 5,559 Operating expenses as a percentage of net sales 35.0 % 40.3 % 33.9 % Operating margin 4.9 % (6.2) % 3.5 % Operating expenses increased $260 million, but decreased 5.3 percentage points as a percentage of net sales in fiscal 2021 compared with fiscal 2020 primarily due to an increase in net sales as well as the following: • an increase in advertising expense to support demand generation across all purpose-led lifestyle brands; • an increase in performance-based compensation; • an increase in store payroll and benefits and other store operating expenses due to COVID-19 temporary store closures during fiscal 2020 which was partially offset by additional costs incurred during fiscal 2020 to support health and safety measures as stores reopened; • an increase related to fiscal 2021 strategic initiatives including divestiture activity and the review of our European operating model; and • an increase related to digital innovation costs to fuel the growth priorities of the business; partially offset by • a decrease due to impairment charges of $557 million during fiscal 2020 primarily due to the impact of the COVID-19 pandemic and a strategic review of the Intermix business; and • a decrease in lease termination fees.
Operating expenses increased $260 million, but decreased 5.3 percentage points as a percentage of net sales in fiscal 2021 compared with fiscal 2020 primarily due to an increase in net sales as well as the following: • an increase in advertising expense to support demand generation across all purpose-led lifestyle brands; • an increase in performance-based compensation; • an increase in store payroll and benefits and other store operating expenses due to COVID-19 temporary store closures during fiscal 2020 which was partially offset by additional costs incurred during fiscal 2020 to support health and safety measures as stores reopened; • an increase related to fiscal 2021 strategic initiatives including divestiture activity and the review of our European operating model; and • an increase related to digital innovation costs to fuel the growth priorities of the business; partially offset by • a decrease due to impairment charges of $557 million during fiscal 2020 primarily due to the impact of the COVID-19 pandemic and a strategic review of the Intermix business; and • a decrease in lease termination fees.
As a result of the extensive temporary store closures during the first quarter of fiscal 2020 due to the COVID-19 pandemic, comparable sales are not a meaningful metric for the fifty-two weeks ended January 30, 2021 and we have not included a discussion within our Results of Operations.
As a result of the extensive temporary store closures during the first quarter of fiscal 2020 due to the COVID-19 pandemic, Comp Sales are not a meaningful metric for the 52 weeks ended January 30, 2021.
Financial results for fiscal 2021 are as follows: • Net sales for fiscal 2021 increased 21 percent to $16.7 billion compared with $13.8 billion for fiscal 2020. • Online sales for fiscal 2021 increased 2 percent compared with fiscal 2020 and store sales for fiscal 2021 increased 36 percent compared with fiscal 2020. • Gross profit for fiscal 2021 was $6.6 billion compared with $4.7 billion for fiscal 2020.
Overview Financial results for fiscal 2022 are as follows: • Net sales for fiscal 2022 decreased 6 percent to $15.6 billion compared with $16.7 billion for fiscal 2021. • Store sales for fiscal 2022 decreased 6 percent compared with fiscal 2021 and online sales for fiscal 2022 decreased 7 percent compared with fiscal 2021. • Gross profit for fiscal 2022 was $5.4 billion compared with $6.6 billion for fiscal 2021.
In addition to operating in the specialty, outlet, online, and franchise channels, we use our omni-channel capabilities to bridge the digital world and physical stores to further enhance our shopping experience for our customers.
Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names. In addition to operating in the specialty, outlet, online, and franchise channels, we use our omni-channel capabilities to bridge the digital world and physical stores to further enhance our shopping experience for our customers.
We fund inventory expenditures during normal and peak periods through cash flows from operating activities and available cash. Our business follows a seasonal pattern, with sales peaking during the end-of-year holiday period.
Our primary uses of cash include merchandise inventory purchases, lease and occupancy costs, personnel-related expenses, purchases of property and equipment, shipping costs, and payment of taxes. As our business typically follows a seasonal pattern, with sales peaking during the end-of-year holiday period, we fund inventory expenditures during normal and peak periods through cash flows from operating activities and available cash.
We remain focused on the following strategic priorities in the near term: • creating product that offers value to our customers through a combination of fit, quality, brand and price; • investing in our four purpose-led lifestyle brands to drive relevance and gain market share; • growing our online business; • reducing our fixed cost structure to fuel demand generation investments; • leveraging our scale to navigate constraints in supply chain; • managing inventory to support a healthy merchandise margin; • rationalizing the Gap and Banana Republic store fleet; • prioritizing asset-light growth through licensing, online, and franchise partnerships globally; • attracting and retaining strong talent in our businesses and functions; and • continuing to integrate social and environmental sustainability into business practices to support long-term growth.
Martin, the Executive Chair of the Board, began serving as President and Chief Executive Officer on an interim basis. 25 We remain focused on the following strategic priorities in the near term: • managing inventory to support a healthy merchandise margin; • reducing and optimizing our fixed cost structure to improve profitability and manage through current macroeconomic challenges; • driving sales through assortment improvements and a balanced and relevant category mix; • driving creative excellence and delivering product that offers value to our customers through a combination of fit, quality, brand, and price; • rationalizing the Gap and Banana Republic store fleet; • prioritizing asset-light growth through licensing, online, and franchise partnerships globally; • optimizing investments in our four purpose-led lifestyle brands to drive relevance and market share; • attracting and retaining strong talent in our businesses and functions; and • continuing to integrate social and environmental sustainability into business practices to support long-term growth.
The seasonality of our operations, in addition to the impact of the COVID-19 pandemic and global supply chain disruption, may lead to significant fluctuations in certain asset and liability accounts between fiscal year-end and subsequent interim periods.
The seasonality of our operations, in addition to the impact of global economic conditions such as the uncertainty surrounding global inflationary pressures, the COVID-19 pandemic, and the Russia-Ukraine crisis, may lead to significant fluctuations in certain asset and liability accounts as well as cash inflows and outflows between fiscal year-end and subsequent interim periods.
We believe our existing balances of cash and cash equivalents, along with our cash flows from operations, and instruments mentioned above, provide sufficient funds for our business operations as well as capital expenditures, dividends, share repurchases, and other liquidity requirements associated with our business operations over the next 12 months and beyond.
See Note 4 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for information related to income taxes. 32 We believe our existing balances of cash and cash equivalents, along with our cash flows from operations, and instruments mentioned above, provide sufficient funds for our business operations as well as capital expenditures, dividends, and other liquidity requirements associated with our business operations over the next 12 months and beyond.
The Company remains focused on our plans to reduce the number of Gap and Banana Republic stores in North America by approximately 350 stores from the beginning of fiscal 2020 to the end of fiscal 2023.
The costs were recorded in costs of goods sold and occupancy expenses on the Consolidated Statement of Operations. The Company is also continuing to reduce the number of Gap and Banana Republic stores in North America by approximately 350 stores from the beginning of fiscal 2020 to the end of fiscal 2023.
See Note 6 of Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data of this Form 10-K for further details related to our debt and credit facilities.
See Note 4 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for additional information on income taxes.
Cost of Goods Sold and Occupancy Expenses ($ in millions) Fiscal Year 2021 2020 2019 Cost of goods sold and occupancy expenses $ 10,033 $ 9,095 $ 10,250 Gross profit $ 6,637 $ 4,705 $ 6,133 Cost of goods sold and occupancy expenses as a percentage of net sales 60.2 % 65.9 % 62.6 % Gross margin 39.8 % 34.1 % 37.4 % Cost of goods sold and occupancy expenses decreased 5.7 percentage points as a percentage of net sales in fiscal 2021 compared with fiscal 2020. • Cost of goods sold decreased 3.1 percentage points as a percentage of net sales in fiscal 2021 compared with fiscal 2020, primarily due to lower promotional activity, a decrease in online shipping costs due to lower ship-from-store fulfillment, and higher inventory impairment recognized during fiscal 2020 due to the COVID-19 pandemic; partially offset by higher air freight costs especially in the fourth quarter of fiscal 2021. • Occupancy expenses decreased 2.6 percentage points as a percentage of net sales in fiscal 2021 compared with fiscal 2020, primarily driven by an increase in net sales largely due to temporary store closures as a result of the COVID-19 pandemic during fiscal 2020 as well as a decrease in fixed occupancy expenses due to strategic store closures.
Cost of goods sold and occupancy expenses decreased 5.7 percentage points as a percentage of net sales in fiscal 2021 compared with fiscal 2020. • Cost of goods sold decreased 3.1 percentage points as a percentage of net sales in fiscal 2021 compared with fiscal 2020, primarily due to lower promotional activity, a decrease in online shipping costs due to lower ship-from-store fulfillment, and higher inventory impairment recognized during fiscal 2020 due to the COVID-19 pandemic; partially offset by higher air freight costs especially in the fourth quarter of fiscal 2021. • Occupancy expenses decreased 2.6 percentage points as a percentage of net sales in fiscal 2021 compared with fiscal 2020, primarily driven by an increase in net sales largely due to temporary store closures as a result of the COVID-19 pandemic during fiscal 2020 as well as a decrease in fixed occupancy expenses due to strategic store closures. 29 Operating Expenses and Operating Margin ($ in millions) Fiscal Year 2022 2021 2020 Operating expenses $ 5,428 $ 5,827 $ 5,567 Operating expenses as a percentage of net sales 34.8 % 35.0 % 40.3 % Operating margin (0.4) % 4.9 % (6.2) % Operating expenses decreased $399 million, or 0.2 percentage points as a percentage of net sales in fiscal 2022 compared with fiscal 2021 primarily due to the following: • a decrease in performance-based compensation; • a gain of $83 million on sale of building; • a decrease in advertising expense primarily at Old Navy Global; and • a decrease in costs incurred related to strategic initiatives completed in fiscal 2022, which included the transition of our Old Navy Mexico business, compared with fiscal 2021, which included divestiture activity and the review of our European operating model.
We consider the following to be measures of our liquidity and capital resources: ($ in millions) January 29, 2022 January 30, 2021 Cash and cash equivalents $ 877 $ 1,988 Short-term investments — 410 Debt 8.375 percent 2023 Notes — 500 8.625 percent 2025 Notes — 750 8.875 percent 2027 Notes — 1,000 3.625 percent 2029 Notes 750 — 3.875 percent 2031 Notes 750 — Working capital 1,088 2,124 Current ratio 1.27:1 1.55:1 As of January 29, 2022, the majority of our cash and cash equivalents were held in the United States and are generally accessible without any limitations.
See Note 4 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for further details. 31 Liquidity and Capital Resources We consider the following to be measures of our liquidity and capital resources: ($ in millions) January 28, 2023 January 29, 2022 Cash and cash equivalents $ 1,215 $ 877 Debt 3.625 percent Senior Notes due 2029 750 750 3.875 percent Senior Notes due 2031 750 750 Working capital 1,361 1,088 Current ratio 1.42:1 1.27:1 As of January 28, 2023, the majority of our cash and cash equivalents were held in the United States and are generally accessible without any limitations.
Impairment of Long-Lived Assets Long-lived assets, which primarily consist of property and equipment and operating lease assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.
However, if estimates regarding consumer demand are inaccurate, or if economic conditions including delayed shipments, global inflationary pressures, and other supply chain challenges worsen beyond what is currently estimated by management, our operating results could be affected. 35 Impairment of Long-Lived Assets Long-lived assets, which primarily consist of property and equipment and operating lease assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.
The total outstanding principal related to our Notes decreased from $2.25 billion as of January 30, 2021, to $1.5 billion as of January 29, 2022. Additionally, the Senior Notes bear interest at 3.625 percent and 3.875 percent compared with 8.375 percent, 8.625 percent, and 8.875 percent with our previous Secured Notes.
Additionally, the Senior Notes bear interest at 3.625 percent and 3.875 percent compared with 8.375 percent, 8.625 percent, and 8.875 percent with our previous Secured Notes. Interest expense decreased $79 million or 47.3 percent during fiscal 2022 compared with fiscal 2021 primarily due to lower interest rates and principal for outstanding borrowings.
Net cash provided by operating activities decreased $1,174 million during fiscal 2020 compared with fiscal 2019, primarily due to the following significant changes: Net income (loss) • Net loss compared with net income in prior comparable period; Non-cash items • an increase of $189 million due to non-cash impairment charges for operating lease assets and store assets during fiscal 2020 compared with fiscal 2019; and • $191 million increase due to a gain on the sale of a building during fiscal 2019; Changes in operating assets and liabilities • a decrease of $390 million related to income taxes payable, net of receivables and other tax-related items, resulting from the taxable loss carryback estimated for fiscal 2020 as well as timing of tax-related payments; • a decrease of $309 million related to merchandise inventory primarily due to timing of receipts as a result of shipping delays and port congestion as well as seasonal inventory stored at our distribution centers; and 35 • a decrease of $124 million related to accrued expenses and other current liabilities primarily due to separation-related costs incurred in fiscal 2019; partially offset by • an increase of $498 million related to accounts payable primarily due to a change in payment terms and the suspension of rent payments for stores closed temporarily as a result of the COVID-19 pandemic.
Cash Flows from Operating Activities Net cash provided by operating activities decreased $202 million during fiscal 2022 compared with fiscal 2021, primarily due to the following: Net income (loss) • Net loss compared with net income in the prior year; Non-cash item • a decrease of $325 million due to a loss on extinguishment of debt during fiscal 2021; Changes in operating assets and liabilities • a decrease of $726 million related to accounts payable primarily due to the timing of payments for inventory during fiscal 2022 compared with fiscal 2021; and • a decrease of $415 million related to accrued expenses and other current liabilities primarily due to a decrease in performance-based compensation for fiscal 2022 compared with fiscal 2021; partially offset by • an increase of $1,147 million related to merchandise inventory primarily due to timing of receipts as a result of shipping delays and port congestion that occurred during fiscal 2021; and • an increase of $502 million related to income taxes payable, net of receivables and other tax-related items, primarily due to receipt of tax refunds during fiscal 2022 related to fiscal 2020 net operating loss carryback claims.
In fiscal 2020, cash used for purchases of property and equipment was $392 million primarily related to information technology and supply chain to support our omni and digital strategies. 36 Cash Flows from Financing Activities Net cash used for financing activities was $1,471 million during fiscal 2021 compared with $895 million of cash provided by financing activities during fiscal 2020, primarily due to the following: • $2,546 million for payments related to the extinguishment of long-term debt during fiscal 2021 compared with $1,307 million paid during fiscal 2020; • $1,500 million in proceeds received for the issuance of long-term debt for fiscal 2021 compared with $2,250 million in proceeds received for fiscal 2020; • $226 million in payments of dividends during fiscal 2021 compared with no dividends paid during fiscal 2020 as a result of the COVID-19 pandemic; and • $201 million in repurchases of common stock during fiscal 2021 compared with no repurchases during fiscal 2020 as a result of the COVID-19 pandemic.
Cash Flows from Financing Activities Net cash provided by financing activities was $6 million during fiscal 2022 compared with $1,471 million of cash used for financing activities during fiscal 2021, primarily due to the following: • $2,546 million for payments related to the extinguishment of long-term debt during fiscal 2021; and • $350 million in proceeds received from borrowing under the ABL Facility during the first quarter of fiscal 2022; partially offset by • $1,500 million in proceeds received for the issuance of long-term debt during fiscal 2021.
As of January 29, 2022, we have closed, net of openings, 250 Gap and Banana Republic stores in North America since the beginning of fiscal 2020.
As of January 28, 2023, we have closed, net of openings, 304 Gap and Banana Republic stores in North America since the beginning of fiscal 2020. We completed the transition of our United Kingdom and Ireland online operations to a franchise partner through a joint venture with Next Plc on August 10, 2022.
The foreign exchange impact is the translation impact if net sales for fiscal 2020 were translated at exchange rates applicable during fiscal 2021. Our net sales for fiscal 2020 decreased $2.6 billion, or 16 percent, compared with fiscal 2019, reflecting a 39 percent decline in store sales, partially offset by a 54 percent increase in online sales.
The foreign exchange impact is the translation impact if net sales for fiscal 2020 were translated at exchange rates applicable during fiscal 2021.
Comp Sales included the results of Hill City, Janie and Jack, and Intermix until the respective closure and divestitures of those brands in fiscal 2020 and fiscal 2021.
Comp Sales excludes the results of the franchise business. Gap Inc. Comp Sales included the results of Janie and Jack and Intermix until the divestitures of those brands in fiscal 2021. Comp Sales also included the results of our European operations and Old Navy Mexico operations until the respective transitions to third party franchise partners in fiscal 2021 and 2022.
We are also able to supplement near-term liquidity, if necessary, with our ABL Facility or other available market instruments. Our largest source of operating cash flows is cash collections from the sale of our merchandise.
We are also able to supplement near-term liquidity, if necessary, with our senior secured asset-based revolving credit agreement (the "ABL Facility") or other available market instruments. On July 13, 2022, we entered into an amendment and restatement of the ABL Facility.
We also have franchise agreements with unaffiliated franchisees to operate Old Navy, Gap, Banana Republic, and Athleta throughout Asia, Europe, Latin America, the Middle East, and Africa. Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under our brand names.
As of January 28, 2023, we had Company-operated stores in the United States, Canada, Japan, China, and Taiwan. Our products are available to customers online through Company-owned websites and through third party arrangements. We also have franchise agreements to operate Old Navy, Gap, Banana Republic, and Athleta throughout Asia, Europe, Latin America, the Middle East, and Africa.
Comparable Sales ("Comp Sales") Comp Sales include the results of Company-operated stores and sales through online channels. The calculation of Gap Inc. Comp Sales excludes the results of the franchise business. Gap Inc.
Results of Operations Net Sales See Note 3 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for net sales disaggregation. Comparable Sales ("Comp Sales") Comp Sales include the results of Company-operated stores and sales through online channels. The calculation of Gap Inc.
In line with our strategic review of our operating model in Europe, we completed the transition of our Gap France operations to Hermione People & Brands to operate Gap France stores as a franchise partner in the third quarter of fiscal 2021 and signed an agreement with OVS to operate Gap Italy stores as a franchise partner beginning in fiscal 2022.
We also completed the transition of our Gap France operations to Hermione People & Brands and Gap Italy operations to OVS S.p.A. ("OVS") on October 1, 2021 and February 1, 2022, respectively.
Debt and Credit Facilities Certain financial information about the Company's debt and credit facilities is set forth under the headings "Debt and Credit Facilities" in Note 6 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K. 37 Dividend Policy In determining whether and at what level to declare a dividend, we consider a number of factors including sustainability, operating performance, liquidity, and market conditions.
Fiscal Year ($ in millions) 2022 2021 2020 Net cash provided by operating activities $ 607 $ 809 $ 237 Less: Purchases of property and equipment (685) (694) (392) Free cash flow $ (78) $ 115 $ (155) Debt and Credit Facilities Certain financial information about the Company's debt and credit facilities is set forth under the headings "Debt and Credit Facilities" in Note 7 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
Our obligations under the Secured Notes were discharged following their redemption. See Note 6 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for further details about the Company’s debt and credit facilities.
As of January 28, 2023, the Company's outstanding borrowing under the ABL Facility was $350 million. See Note 7 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for disclosures on the ABL Facility. Our largest source of operating cash flows is cash collections from the sale of our merchandise.
The decrease in net sales was primarily driven by mandatory store closures and stay-at-home restrictions related to the COVID-19 pandemic as well as permanent store closures as a result of our strategic store rationalization initiatives for Gap Global and Banana Republic Global.
The decrease in net sales was also driven by strategic store closures which was partially offset by an increase in net sales related to our franchise business as well as Banana Republic Global. There was also an unfavorable impact of foreign exchange of $162 million.
The total outstanding principal related to our Notes increased from $1.25 billion as of February 1, 2020, to $2.25 billion as of January 30, 2021. Additionally, the Secured Notes bear interest at 8.375 percent, 8.625 percent, and 8.875 percent compared with our previous 5.95 percent 2021 Notes.
Interest Expense ($ in millions) Fiscal Year 2022 2021 2020 Interest expense $ 88 $ 167 $ 192 The total outstanding principal related to our Notes decreased from $2.25 billion as of January 30, 2021, to $1.5 billion as of January 29, 2022 as a result of the issuance of our Senior Notes on September 27, 2021.
The increase compared with the purchase obligations and commitments as of January 30, 2021 is primarily due to starting the merchandise booking process earlier to proactively mitigate supply chain delays.
The decrease compared with the purchase obligations and commitments as of January 29, 2022 is primarily due to reduced inventory orders as global supply chain challenges have improved in fiscal 2022, reducing the need to start the merchandise booking process earlier. We expect that the majority of these purchase obligations and commitments will be settled within one year.
Gross margin for fiscal 2021 was 39.8 percent compared with 34.1 percent for fiscal 2020. • Operating income for fiscal 2021 was $810 million compared with operating loss of $(862) million for fiscal 2020. • We incurred a loss on extinguishment of debt of $325 million during fiscal 2021, primarily related to the tender premiums, make-whole premiums, and unamortized debt issuance costs of the Secured Notes. • Effective tax rate for fiscal 2021 was 20.7 percent compared with 39.7 percent for fiscal 2020. • Net income for fiscal 2021 was $256 million compared with net loss of $(665) million for fiscal 2020. • Diluted earnings per share was $0.67 for fiscal 2021 compared with diluted loss per share of $(1.78) for fiscal 2020. 28 Results of Operations Net Sales See Note 3 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for net sales disaggregation.
Gross margin for fiscal 2022 was 34.3 percent compared with 39.8 percent for fiscal 2021. • Operating loss for fiscal 2022 was $(69) million compared with operating income of $810 million for fiscal 2021. • Effective tax rate for fiscal 2022 was negative 45.3 percent compared with 20.7 percent for fiscal 2021. • Net loss for fiscal 2022 was $(202) million compared with net income of $256 million for fiscal 2021. • Diluted loss per share was $(0.55) for fiscal 2022 compared with diluted earnings per share of $0.67 for fiscal 2021. • Merchandise inventory for fiscal 2022 decreased 21 percent compared with fiscal 2021.
These costs were recorded within cost of goods sold and occupancy expenses and operating expenses on the Consolidated Statement of Operations. We continued strengthening the power of our platform through strategic investments in our digital, loyalty, and supply chain capabilities.
The costs were recorded in cost of goods sold and occupancy expenses on the Consolidated Statement of Operations. 24 In fiscal 2022, the Company began to take steps to drive long-term improvements across our business. These steps include reducing open and existing corporate roles, renegotiating our advertising agency contracts, reducing technology operating costs, and rationalizing digital investments.
Removed
In fiscal 2021, we signed an agreement with a third party to operate Gap Italy stores as a franchise partner beginning in fiscal 2022. Our products are available to customers online through Company-owned websites and through the use of third parties that provide logistics and fulfillment services.
Added
During fiscal 2022, we made progress improving our inventory levels and inventory composition to meet changing consumer preferences; however, our gross margins were impacted by higher levels of promotional activity as well as macroeconomic challenges including global inflationary pressures.
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Overview We unveiled our Power Plan strategy during fiscal 2020, which reflects long-term plans to strengthen the Company and pave the foundation for sustainable growth.
Added
To right-size our inventory levels, we also reduced inventory orders, primarily at Old Navy, and we continue to have select seasonal product being stored at distribution centers for expected introduction into the market through fiscal 2023. In light of continued uncertain consumer preferences and the challenging macroenvironment, we will continue to take steps to improve inventory category, size, and assortments.
Removed
Since then, we have focused on our key initiatives, including growing Old Navy and Athleta, repositioning and transforming Gap and Banana Republic, and scaling strategic partnerships to amplify our brands across product categories, markets, and channels. Each of our purpose-led, lifestyle brands are finding new and relevant ways to expand customer reach.
Added
In the second quarter of fiscal 2022, due to difficulty managing the timing of seasonal inventory flows amidst global supply chain disruptions, the Company recorded pre-tax inventory impairment costs of $58 million, primarily related to delayed seasonal product and extended size product at Old Navy.
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Since the beginning of fiscal 2021, we have executed on this strategy in various ways such as launching Gap Home at Walmart, and BODEQUALITY at Old Navy. We also launched AthletaWell, an immersive digital health and wellness platform designed to build loyalty, engagement, and a community of empowered women.
Added
The Company did not incur material charges in connection with these steps during fiscal 2022.
Removed
Additionally, we launched the Athleta website in Canada and opened the first Athleta stores in the Canadian market in fiscal 2021. In order to attract new customers and create enduring relationships by turning customers into lifelong loyalists, we launched a new integrated loyalty program across the U.S. and Puerto Rico.
Added
On March 9, 2023, the Company shared plans to further simplify and optimize its operating model and structure, including actions such as increasing spans of control and decreasing management layers to improve quality and speed of decision making, as well as creating a consistent organizational structure across all four brands.
Removed
We also entered into agreements with Barclays and Mastercard relating to a new long-term credit card program that is expected to begin in the second quarter of fiscal 2022. Accordingly, our private label credit card program with Synchrony Financial will be discontinued upon the launch of the new long-term credit card program .
Added
The Company also believes there are opportunities to further optimize its marketing spend and rationalize its technology investments over the next few years. During the third quarter of fiscal 2022, the Company ended its Yeezy Gap contract and recorded pre-tax impairment costs of $53 million, primarily related to inventory, as a result of the decision.
Removed
During the second half of fiscal 2021, global supply chain disruption, including COVID-19 related factory closures and increased port congestion, caused significant product delays resulting in brands being unable to fully meet customer demand. The Company continues to work with its suppliers to minimize the ongoing disruption and has employed increased air freight and port diversification .
Added
As our European partnership model transition is now complete, we sold the distribution center in Rugby, England for $125 million and recognized a pre-tax gain on sale of $83 million within operating expenses on the Consolidated Statement of Operations during the 52 weeks ended January 28, 2023.
Removed
While the supply chain disruption resulted in lost sales in fiscal 2021 due to constrained inventory, and increased air freight expenses, we have prioritized increased investments in technology to build out our digital and supply chain capabilities and are beginning to optimize manufacturing which includes proximate sourcing and digital product creation.
Added
On March 1, 2023, the third party that operates our Gap France franchise business was placed into receivership. We do not expect this to have a material impact to our Consolidated Financial Statements.
Removed
These investments are intended to drive automation, speed, and efficiency within our fulfillment network to help mitigate future disruption. 26 We implemented actions during fiscal 2021 to reduce our interest on long-term notes.
Added
In addition to these changes to our European operating model, on August 1, 2022, we completed the transition of our Old Navy Mexico operations to a third party, Grupo Axo, to operate Old Navy Mexico stores as a franchise partner.
Removed
In conjunction with these transactions, we incurred a loss on extinguishment of debt of $325 million, which was recorded on the Consolidated Statement of Operations and primarily consisted of tender premiums, make-whole premiums, and unamortized debt issuance costs relating to the Secured Notes.
Added
As a result of this transaction, the Company recognized a pre-tax loss of $35 million within operating expenses on the Consolidated Statement of Operations during the 52 weeks ended January 28, 2023.
Removed
In addition, we entered into a joint venture agreement in September 2021 with Next Plc ("Next") where the joint venture will serve the United Kingdom and Ireland as a franchise partner beginning in early 2022.
Added
On November 7, 2022, we signed agreements to transition our Gap Greater China operations to a third party, Baozun, to operate Gap Greater China stores and the in-market website as a franchise partner, subject to regulatory approvals and closing conditions. On January 31, 2023, the Gap China transaction closed with Baozun.
Removed
We believe these transformations of our European business model will streamline our operations by using strong local partnerships to grow our brands and amplify our reach.
Added
The Gap Taiwan operations will continue to operate as usual until regulatory approvals and closing conditions are met. In fiscal 2023 and through the global macroeconomic challenges, we will continue to manage these transitions with our partnerships in order to transform our international footprint, grow our brands, and amplify our reach.
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As a result of these strategic changes, we incurred net pre-tax costs of $41 million during the fiscal year ended January 29, 2022, primarily consisting of employee and lease costs related to the closure of the Company-operated stores in the United Kingdom and Ireland.
Added
On July 11, 2022, Sonia Syngal stepped down as President and Chief Executive Officer and resigned from the Company's Board. On the same date, Bob L.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+1 added−8 removed1 unchanged
Biggest changeWe have highly liquid fixed and variable income investments classified as cash and cash equivalents. All highly liquid investments with original maturities of three months or less at the time of purchase are classified as cash and cash equivalents. Our cash equivalents are placed primarily in time deposits.
Biggest changeWe have highly liquid fixed and variable income investments classified as cash equivalents, which are placed primarily in time deposits. We generally value these investments at their original purchase prices plus interest that has accrued at the stated rate. The value of our investments is not subject to material interest rate risk. 38
Debt Certain financial information about the Company's debt is set forth under the heading "Debt and Credit Facilities" in Note 6 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
Debt Certain financial information about the Company's debt is set forth under the heading "Debt and Credit Facilities" in Note 7 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
We have performed a sensitivity analysis as of January 29, 2022 based on a model that measures the impact of a hypothetical 10 percent adverse change in foreign currency exchange rates to U.S. dollars (with all other variables held constant) on our underlying estimated major foreign currency exposures, net of derivative financial instruments.
We have performed a sensitivity analysis as of January 28, 2023 based on a model that measures the impact of a hypothetical 10 percent adverse change in foreign currency exchange rates to U.S. dollars (with all other variables held constant) on our underlying estimated major foreign currency exposures, net of derivative financial instruments.
The sensitivity analysis indicated that a hypothetical 10 percent adverse movement in foreign currency exchange rates would have an unfavorable impact on the underlying cash flow, net of our foreign exchange derivative financial instruments, of $28 million as of January 29, 2022.
The sensitivity analysis indicated that a hypothetical 10 percent adverse movement in foreign currency exchange rates would have an unfavorable impact on the underlying cash flow, net of our foreign exchange derivative financial instruments, of $14 million as of January 28, 2023.
The foreign currency exchange rates used in the model were based on the spot rates in effect as of January 29, 2022.
The foreign currency exchange rates used in the model were based on the spot rates in effect as of January 28, 2023.
Cash Equivalents and Short-Term Investments Certain financial information about the Company's cash equivalents and short-term investments is set forth under the heading "Fair Value Measurements" in Note 7 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
A hypothetical increase in 100 basis points of the SOFR rate would have resulted in an increase in interest expense of $3.5 million during the 52 weeks ended January 28, 2023. 37 Cash Equivalents Certain financial information about the Company's cash equivalents is set forth under the heading "Fair Value Measurements" in Note 8 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
Removed
On September 27, 2021, the Company completed the issuance of the Senior Notes in an aggregate principal amount of $1.5 billion and used the net proceeds from the offering, together with cash on hand, to complete tender offers and purchase an aggregate principal amount of $1.9 billion of the Company’s Secured Notes.
Added
Our Senior Notes have fixed interest rates and are exposed to interest rate risk that is limited to changes in fair value. Changes in interest rates do not impact our cash flows. We currently have a $350 million variable-rate borrowing under our ABL Facility, which is subject to interest rate risk due to changes in SOFR.
Removed
On October 27, 2021, the Company redeemed the remaining outstanding Secured Notes that were not tendered in the tender offers and paid the related make-whole premiums. The Senior Notes have a fixed interest rate and are exposed to interest rate risk that is limited to changes in fair value.
Removed
The scheduled maturity of the Notes is as follows: Scheduled Maturity ($ in millions) Principal Interest Rate Interest Payments Senior Notes October 1, 2029 $ 750 3.625% Semi-Annual October 1, 2031 750 3.875% Semi-Annual Total issuance $ 1,500 On September 1, 2021, Standard & Poor's upgraded our corporate credit rating from BB- with a positive outlook to BB with a positive outlook.
Removed
We also have a corporate credit rating of Ba2 with a positive outlook from Moody's. In addition, in conjunction with our financings, Standard & Poor’s assigned a BB rating and Moody's assigned a Ba3 rating to our long-term senior unsecured notes.
Removed
Any future reduction in the Moody's and Standard & Poor's ratings would potentially result in an increase to our interest expense on future borrowings.
Removed
We generally value these investments at their original purchase prices plus interest that has accrued at the stated rate. 40 As of January 29, 2022, the Company held no available-for-sale debt securities on the Consolidated Balance Sheet, therefore effectively reducing our overall market risk related to short-term investments.
Removed
As of January 30, 2021, the Company held $410 million of available-for-sale debt securities with original maturity dates greater than three months and less than two years within short-term investments on the Consolidated Balance Sheet.
Removed
In addition, as of January 30, 2021, the Company held $90 million of available-for-sale debt securities with original maturities of three months or less at the time of purchase within cash and cash equivalents. Unrealized gains or losses on available-for-sale debt securities included in accumulated other comprehensive income were immaterial as of January 30, 2021. 41

Other GAP 10-K year-over-year comparisons