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What changed in GAP INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of GAP INC's 2023 and 2024 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 2024 report.

+270 added−304 removedSource: 10-K (2024-03-19) vs 10-K (2023-03-14)

Top changes in GAP INC's 2024 10-K

270 paragraphs added · 304 removed · 214 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

50 edited+14 added−11 removed12 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. 7
Biggest changeGurmeet Singh , 54, Chief Digital and Technology Officer effective July 2022; Chief Technology and Chief Information Officer, Big Lots Inc. from July 2021 to July 2022; Group Chief Digital Officer, Al Futtaim Group from February 2020 to July 2021; Chief Digital, Information and Marketing Officer, 7-Eleven from January 2019 to September 2019, and Chief Digital Officer and Chief Information Officer, 7-Eleven from November 2017 to January 2019. 7 Sandra Stangl , 56, 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.
Our Board of Directors Committee Charters (Audit and Finance, Compensation and Management Development, and Governance and Sustainability Committees) and Corporate Governance Guidelines are also available on our website under “Investors, Governance.” Our Code of Business Conduct is available on our website under “Investors, Corporate Compliance, Code of Business Conduct.” Any waivers to the Code of Business Conduct will be publicly disclosed.
Our Board of Directors Committee Charters (Audit and Finance, Compensation and Management Development, and Governance and Sustainability Committees) and Corporate Governance Guidelines are also available on our website under “Investors, Governance.” Our Code of Business Conduct is available on our website under “Investors, Corporate Compliance.” Any waivers to the Code of Business Conduct will be publicly disclosed.
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.
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 , 53, 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.
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 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.
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.
Environmental, Social, Governance ("ESG") Information about our ESG efforts is available on our website (www.gapinc.com) under "Values, Sustainability" which provides information on our public commitments, policies, social and environmental programs, sustainability strategy, and ESG data.
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.
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 risks or goals related thereto; and the Company's general approach to broad-based compensation, benefits, workplace, and employment practices, as outlined in its charter.
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.
Our major trademarks include the Old Navy, Gap, Gap Kids, babyGap, Gap Body, GapFit, Banana Republic, and Athleta trademarks and service marks, and certain other trademarks and service marks.
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 , 56, 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.
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.
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 numerous copyright registrations.
Item 1. Business. General The Gap, Inc. (Gap Inc., the "Company," "we," and "our") is a collection of purpose-led, lifestyle brands offering apparel, accessories, and personal care products for women, men, and children under the Old Navy, Gap, Banana Republic, and Athleta brands.
Item 1. Business. General The Gap, Inc. (Gap Inc., the "Company," "we," and "our") is a collection of lifestyle brands offering apparel, accessories, and personal care products for women, men, and children under the Old Navy, Gap, Banana Republic, and Athleta brands.
Government Regulation As a company with global operations, we are subject to the laws of the United States and multiple foreign jurisdictions in which we operate and the rules and regulations of various governing bodies, which may differ among jurisdictions.
Government Regulation As a company with global operations, we are subject to the laws of the United States and the multiple foreign jurisdictions in which we operate and the rules, reporting obligations, and regulations of various governing bodies, which may differ among jurisdictions.
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.
Also available 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.
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.
Katrina O'Connell , 54, Executive Vice President, 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.
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.
For additional information on risks related to our human capital management, see the section entitled “Risk Factors—Risks Related to Our Business Operations—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.
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.
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. We also have licensing agreements with licensees to sell products using our brand names.
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.
Sally Gilligan , 51, Executive Vice President, Chief Supply Chain and Transformation Officer effective January 2024; Chief Supply Chain, Strategy and Transformation Officer from March 2023 to January 2024; 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.
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.
We intend to continue to strategically register, both domestically and internationally, trademarks, domain names, and copyrights that we utilize today and those we develop in the future. We will continue to aggressively police our intellectual property and pursue those who infringe, both domestically and internationally.
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 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.
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.
Compliance with these laws, rules, reporting obligations, and regulations, which can change, could result in significant costs but 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.
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.
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 February 3, 2024, we had Company-operated stores in the United States, Canada, Japan, and Taiwan. In fiscal 2022, we signed agreements with a third party, Baozun Inc.
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.
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 Our Business Operations—Our business is subject to risks associated with global sourcing and manufacturing," • "Risks Related to Our Business Operations—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 Our Business Operations—Trade matters may disrupt our supply chain,” and • “General Risks—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.” Seasonal Business Our business typically follows a seasonal pattern, with sales peaking during the end-of-year holiday period.
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.
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; creating a culture of equality and belonging; ensuring pay equity; gathering and actioning on employee feedback; and supporting the health, wellness, and safety of our employees, customers, and communities. 4 Building Talent.
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.
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 30 countries. Our two largest vendors accounted for approximately 9 percent and 7 percent of the dollar amount of our total fiscal 2023 purchases.
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.
With this accreditation, Gap Inc. is one of the largest publicly-traded retail companies with a B Corp certified subsidiary apparel brand. 1 We ended fiscal 2023 with 2,562 Company-operated stores and 998 franchise store locations.
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.
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 Competition, Brand Relevance and Brand Execution—We must successfully gauge apparel trends and changing consumer preferences to succeed," • "Risks Related to Our Business Operations—If we are unable to manage our inventory effectively, our results of operations could be adversely affected," • "Risks Related to Our Business Operations—Failure to protect our inventory from loss and theft may adversely affect our results of operations," and • “General Risks—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.
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.
Of our merchandise purchased during fiscal 2023, substantially all purchases, by dollar value, were from factories outside the United States. Approximately 29 percent of our fiscal 2023 purchases, by dollar value, were from factories in Vietnam. Approximately 18 percent of our fiscal 2023 purchases, by dollar value, were from factories in Indonesia.
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.
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, Brand Relevance and Brand Execution—Our business is highly competitive” in Item 1A, Risk Factors, of this Form 10-K. Human Capital As of February 3, 2024, we had a workforce of approximately 85,000 employees.
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.
In addition, as of that date, approximately 82 percent of employees were located in the U.S. and approximately 18 percent of employees were located outside of the U.S., with a majority of those non-U.S. based employees located in Canada and Japan.
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.
Established in 1998 and acquired by Gap Inc. in 2008, Athleta integrates technical features and innovative design across its women's and girls' collection to carry her through a life in motion, from yoga, training, and sports to everyday activities and travel.
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.
Product Development We design, develop, market, and sell a wide range of apparel and accessory 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.
Product cost increases or events causing disruption of imports from Vietnam, Indonesia, or other foreign countries, including the imposition of additional import restrictions or taxes, vendors temporarily closing or potentially failing due to political, financial, or regulatory issues, public health crises such as the coronavirus disease ("COVID-19") pandemic, or supply chain disruptions, could have an adverse effect on our operations.
Product cost increases or events causing disruption of imports from Vietnam, Indonesia, or other foreign countries, including the imposition of additional import restrictions or taxes, or vendors temporarily closing or potentially failing due to political, financial, or regulatory issues, could have an adverse effect on our operations.
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.
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, with accountability and transparency.
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.
We have modernized our approach to soliciting employee feedback through the use of pulse surveys 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.
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.
Julie Gruber , 58, Executive Vice President, Chief Legal and Compliance Officer, and Corporate Secretary effective May 2021; Executive Vice President, Chief Legal, Compliance and Sustainability Officer, and Corporate Secretary from March 2020 to May 2021; and Executive Vice President, Global General Counsel, Corporate Secretary, and Chief Compliance Officer from February 2016 to March 2020. Ms.
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 also hire seasonal employees, primarily during the peak holiday selling season. As of February 3, 2024, approximately 83 percent of employees worked in retail locations, approximately 9 percent of employees worked in distribution centers, and approximately 8 percent of employees worked in headquarters locations.
Under these agreements, third parties operate, or will operate, stores and websites that sell apparel and related products under 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 also have licensing agreements with licensees to sell products using our brand names.
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.
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 Franchise and Licensing We have franchise agreements to operate Old Navy, Gap, Banana Republic, and Athleta in about 40 countries around the world.
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.
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. Human Capital Management Oversight. The Board of Directors (the "Board") and its Compensation and Management Development Committee oversee human capital management issues.
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.
Our omni-channel services, including 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 a North American value apparel brand that makes on-trend fashion accessible to everyone. The brand democratizes style through its combination of on-trend product, consistent quality, and affordable pricing.
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.
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 in the U.S. and Canada, as well as franchise stores around the world. Gap.
The Committee regularly receives reports on talent, succession planning, and diversity and inclusion. On a quarterly basis, the Committee receives a talent dashboard with key metrics, including employee survey feedback and turnover information. The Committee engages periodically on compensation program design for all employees at all levels.
The Compensation and Management Development Committee regularly receives reports on talent management, succession planning, and diversity, equity, and inclusion, and engages periodically on compensation program design for all employees at all levels.
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 value our employees' feedback and use opinion surveys as a critical component of our ongoing listening strategy. We use these insights to understand what is important to our employees, to determine where we should focus our efforts, and to inform ongoing programs and strategies, all to help us create a thriving, productive work environment.
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.
Additionally, other macroeconomic conditions such as the uncertainty surrounding global inflationary pressures, acts of terrorism or war, global credit and banking markets, and new legislation have had and may continue to have an impact on customer behavior that could result in temporary changes in the seasonality of our business.
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.
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.
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.
For additional information on risks related to our franchise and licensing business, see the below sections in Item 1A, Risk Factors, of this Form 10-K. • “Risks Related to Strategic Transactions and Investments—Our efforts to expand internationally may not be successful,” and • “Risks Related to Strategic Transactions and Investments—Our franchise and licensing businesses are subject to certain risks not directly within our control that could impair the value of our brands.” 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.
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.
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. We are focused on increasing the lifetime value of our loyalty members through greater personalization, including leveraging first party data and increasing promotions with targeted content, offers, and experiences.
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.
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 premium lifestyle retailer celebrating exploration and self-expression through timeless quality, versatile fabrics, and exceptionally made womenswear, menswear, and home designs.
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.
Although each brand expression has a different look and feel, customers can earn and redeem rewards across all of our brands. All of our brands issue and redeem gift cards.
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.
Old Navy is committed to creating an accessible, frictionless, and delightful shopping experience including a fun store environment, a dynamic online channel, and convenient omni-channel capabilities.
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.
We invest in our employees through accessible resources and structured training programs that offer opportunities for professional and personal development. Our Retail Academy for our headquarters employees combines classroom, e-learning, and experiential programming to onboard new hires, develop early talent, and provide functional and technical training. Our Rotational Management Program develops leaders across a range of functions.
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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.
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Founded in San Francisco in 1969, Gap is an authority on modern American style and continues to build on its heritage of championing originality. The brand includes adult apparel and accessories, GapKids, babyGap, Gap Maternity, GapBody, and GapFit collections. Gap connects with customers online, in Company-operated and franchise retail locations globally, and through licensing partnerships.
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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.
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Customers can purchase Banana Republic products globally in the brand's specialty stores, factory stores, online, and franchise stores. Athleta. Athleta is a premium fitness and lifestyle brand whose mission is to foster empowerment, confidence, strength, and well-being through movement.
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Athleta is a premium fitness and lifestyle brand creating beautiful, technical, sustainable apparel to inspire a community of active, confident women and girls.
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We continue to invest in our business and enhance the customer experience through ongoing supply chain, digital, marketing, and omni-channel initiatives.
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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.
Added
For additional information on risks related to building our brands, see the section entitled “Risk Factors—Risks Related to Strategic Transactions and Investments—Our investments in customer, digital, and omni-channel shopping initiatives may not deliver the results we anticipate” in Item 1A, Risk Factors, of this Form 10-K.
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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.
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Full-time U.S.-based employees who have completed one year of employment receive a tuition reimbursement benefit. We also offer functional and technical training to our employees in our stores and distribution centers. Equality and Belonging.
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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.
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Our Equality and Belonging Strategy leverages our people, brands, and voice to unlock opportunities and enable a culture of belonging for our teams, customers, and future generations. Within Gap Inc., we offer year-round programming, including heritage month celebrations, and opportunities for employees to participate in our Equality & Belonging Groups.
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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.
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We also continue to annually disclose our people data on our website (www.gapinc.com). Pay Equity. In 2014, we were the first Fortune 500 company to announce that we pay women and men equally for equal work, and since then we have conducted internal pay equity reviews using a third-party firm. Employee Feedback.
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Since 2014, we have conducted annual reviews of our pay data by gender, and in 2020 we began using an external firm to assess our pay data by race for all U.S. employees. Employee Feedback. We value our employees' feedback and use opinion surveys as a critical component of our ongoing listening strategy.
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The health and safety of our employees, customers and communities is a top priority. For our employees, we provide an array of financial incentives and health, well-being and leave benefits to help them make the most of their professional and personal lives.
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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.
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For additional information on risks related to our ESG efforts, see the section entitled “Risks Related to Sustainability and Climate Change” in Item 1A, Risk Factors, of this Form 10-K.
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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.
Added
Chris Blakeslee , 46, President and Chief Executive Officer, Athleta effective August 2023; President, BELLA+CANVAS and Alo Yoga from January 2020 to July 2023; and Executive Vice President, Color Image Apparel from October 2017 to December 2019.
Removed
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.
Added
Eric Chan , 47, Executive Vice President, Chief Business and Strategy Officer effective January 2024; Chief Financial Officer, LA Clippers from August 2018 to December 2023; Chief Operating Officer, Bouqs Company from February 2017 to August 2018; and Chief Financial Officer, Loot Crate from October 2015 to February 2017.
Added
Richard Dickson , 55, President and Chief Executive Officer, Gap Inc. effective August 2023; President and Chief Operating Officer, Mattel, Inc. from 2015 to 2023; Chief Brands Officer, Mattel, Inc. from 2014 to 2015; and President and Chief Executive Officer, Branded Businesses of The Jones Group (now Premier Brands Group Holdings), which owned a portfolio of premier apparel, footwear, and accessories brands, from 2010 to 2014.
Added
Gruber previously held various senior roles within the Company's Legal department.
Added
Amy Thompson , 48, Executive Vice President, Chief People Officer effective January 2024; Chief People Officer, Mattel, Inc. from 2017 to 2023; and Chief People Officer, TOMS Shoes from 2012 to 2017. Ms. Thompson previously held several executive and leadership roles at Starbucks Coffee Company from 2006 to 2012. 8

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

101 edited+20 added−32 removed48 unchanged
Biggest changeData and security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information.
Biggest changeData and security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. 15 The global regulatory environment surrounding data privacy and cybersecurity is increasingly demanding, and we are required to comply with new and constantly evolving laws, such as various state-level privacy laws in the United States and international laws such as the General Data Protection Regulation in the European Union and United Kingdom, which give consumers the right to control how their personal information is collected, used, shared and retained.
Risks Related to Our Credit Card Arrangement Reductions in income and cash flow from our credit card arrangement related to our private label and co-branded credit cards could adversely affect our results of operations and financial condition.
Financial Risks Reductions in income and cash flow from our credit card arrangement related to our private label and co-branded credit cards could adversely affect our results of operations and financial condition.
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.
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 diverse market segments and geographic locations; 9 • 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.
The nature of the global apparel retail business requires us to carry a significant amount of inventory, especially prior to the peak holiday selling season when we build up our inventory levels. Merchandise usually must be ordered well in advance of the season and frequently before apparel trends are confirmed by customer purchases.
The nature of the global apparel retail business requires us to carry a significant amount of inventory, especially prior to the peak holiday selling season when we build up our inventory levels. Merchandise usually must be ordered well in advance of the applicable selling season and frequently before apparel trends are confirmed by customer purchases.
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.
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 result in changes to the assumptions and estimates used when preparing our Consolidated Financial Statements.
We maintain a complex technology platform consisting of both legacy and modern systems, and we also increasingly rely on third party providers for public cloud infrastructure that powers our e-commerce platform and other systems. Our owned and operated systems require continual maintenance, upgrades and changes, some of which are significant.
We maintain a complex technology platform consisting of both legacy and modern systems, and we also increasingly rely on third-party service providers for public cloud infrastructure that powers our e-commerce platform and other systems. Our owned and operated systems require continual maintenance, upgrades and changes, some of which are significant.
In addition, for any new manufacturing source, we may encounter delays in production and added costs as a result of the time it takes to train our vendors in our methods, products, quality control standards, and environmental, labor, health, and safety standards.
In addition, for any new manufacturing source, we may encounter delays in production and added costs as a result of the time it takes to train our vendors in our methods and products, as well as our quality control, environmental, labor, health, and safety standards.
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.
Executing these transactions may require significant time and attention from our senior management and employees, which could disrupt our ongoing business and adversely 13 affect our results of operations.
Increases in transportation costs and/or delays in the shipment or delivery of our products due to the availability of transportation, work stoppages, port strikes, port and infrastructure congestion, public health emergencies, social unrest, changes in local economic conditions, political upheavals, or other factors, and costs and delays associated with transitioning between vendors, could adversely affect our results of operations.
Increases in transportation costs or delays in the shipment or delivery of our products due to the availability of transportation, work stoppages, port strikes, port and infrastructure congestion, public health crises, social unrest, changes in local economic conditions, political upheavals, or other factors, and costs and delays associated with transitioning between vendors, could adversely affect our results of operations.
This could impact the quality of our decisions to enter into leases, exercise lease options and/or renew expiring leases at negotiated rents.
This could impact the quality of our decisions to enter into leases, exercise lease options or renew expiring leases at negotiated rents.
The failure to successfully transition and assimilate key employees, including our new CEO, the effectiveness of our leaders, and any further transition, could adversely affect our results of operations. In addition, 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.
The failure to successfully transition and assimilate key employees, including our new CEO, the effectiveness of our leaders, and any further transitions could adversely affect our results of operations. 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.
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.
Our 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; • 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 17 • limit our ability to adjust to changing market conditions.
In such case, the market price of our common stock could decline. Risks Related to Macroeconomic Conditions Global economic conditions have and will likely continue to adversely affect our business, financial condition and results of operations. Our business is affected by global economic conditions and the related impact on consumer spending worldwide.
In such case, the market price of our common stock could decline. Risks Related to Macroeconomic Conditions Global economic conditions have and could continue to adversely affect our business, financial condition and results of operations. Our business is affected by global economic conditions and the related impact on consumer spending worldwide.
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.
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, geopolitical instability, or regulation of energy inputs and greenhouse gas emissions) 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.
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 and may in the future adversely affect our gross margins.
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.
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 these conflicts could escalate and result in broader economic and security concerns which could adversely affect our business, financial condition or results of operations.
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.
We have strategic initiatives designed to optimize our inventory levels and increase the efficiency and responsiveness of our supply chain, including vendor fabric platforming, product testing, and in-season response to demand.
Additionally, certain of our franchisees have been unable to, and may in the future be unable to make payments to landlords, distributors and suppliers, as well as payments to service any debt they may have outstanding, including to us.
Additionally, certain of our franchisees have in the past and may in the future be unable to make payments to landlords, distributors and suppliers, as well as payments to service any debt they may have outstanding, including to us.
Conversely, 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.
Conversely, 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. Any of these risks could adversely affect our results of operations.
Examples include, but are not limited to, assumptions and estimates used for inventory valuation, income taxes and valuation allowances, sales return and bad debt allowances, and the impairment of long-lived assets.
Examples include, but are not limited to, assumptions and estimates used for inventory valuation, income taxes and valuation allowances, sales return and bad debt allowances, deferred revenue, and the impairment of long-lived assets.
Risks Related to Governmental and Regulatory Changes Failure to comply with applicable laws and regulations, and changes in the regulatory or administrative landscape, could adversely affect our business, financial condition and results of operations. Laws and regulations at the local, state, federal, and international levels frequently change, and the ultimate cost of compliance cannot be precisely estimated.
Failure to comply with applicable laws and regulations, and changes in the regulatory or administrative landscape, could adversely affect our business, financial condition and results of operations. Laws and regulations at the local, state, federal, and international levels frequently change, and the ultimate cost of compliance cannot be precisely estimated.
These ESG-related initiatives and goals could be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and we could be criticized for the accuracy, adequacy or completeness of the disclosure.
These ESG-related initiatives and goals could be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and we could be criticized for the accuracy, adequacy or completeness of our disclosures.
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.
A variety of factors affect comparable sales and margins, including but not limited to apparel trends, competition, current economic conditions (including due to macroeconomic pressures and geopolitical instability), 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.
Our business is subject to evolving regulations and expectations with respect to environmental, social and governance matters that could expose us to numerous risks. Increasingly regulators, customers, investors, employees and other stakeholders are focusing on ESG matters and related disclosures.
Risks Related to Sustainability and Climate Change Our business is subject to evolving regulations and expectations with respect to environmental, social and governance (“ESG”) matters that could expose us to numerous risks. Increasingly regulators, customers, investors, employees and other stakeholders are focusing on ESG matters and related disclosures.
Compliance with these and the other covenants in the ABL Facility may restrict our ability to implement our business plan, finance future operations, respond to changing business and economic conditions, secure additional financing, and engage in opportunistic transactions, such as strategic acquisitions.
Compliance with these and the other covenants in the ABL Facility may restrict our ability to implement our business plan, finance future operations, respond to changing business and economic conditions, secure additional financing, and engage in strategic transactions.
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.
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.
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.
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.
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.
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.
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.
In addition, over the past five fiscal years, our reported operating margins have ranged from a high of 4.9 percent in fiscal 2021 to a low of negative 6.2 percent in fiscal 2020.
For example, developing and acting on ESG-related initiatives, including design, sourcing and operations decisions, and collecting, measuring and reporting ESG-related information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the SEC’s proposed climate-related reporting requirements.
For example, developing and acting on ESG-related initiatives, including design, sourcing and operations decisions, and collecting, measuring and reporting ESG-related information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the SEC’s recently approved climate-related reporting requirements and sustainability reporting requirements in the European Union.
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 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. We could also be 10 required to take significant impairment charges on delayed or unproductive inventory, which we experienced in 2022.
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.
If our vendors, or any raw material suppliers on which our vendors rely, suffer prolonged manufacturing or transportation disruptions due to pandemics and public health crises, extreme weather conditions and natural disasters, geopolitical instability, or other unforeseen events, our ability to source product could be adversely impacted which would adversely affect our sales and results of operations.
Our properties and operations, and those of our franchisees, vendors and other business partners, may be vulnerable to the adverse effects of climate change, which may include an increase in the frequency and severity of weather conditions and other natural cycles such as wildfires and droughts and shifts in climate patterns.
There are inherent climate-related risks wherever business is conducted. Our properties and operations, and those of our franchisees, vendors and other business partners, may be vulnerable to the adverse effects of climate change, which may include an increase in the frequency and severity of weather conditions and other natural cycles such as wildfires and droughts and shifts in climate patterns.
Any violation that is not waived could result in an event of default and, as a result, our lenders under the ABL Facility could declare all outstanding principal and interest to be due and payable, could suspend commitments to make any advances or could require any outstanding letters of credit to be collateralized by an interest bearing cash account, any or all of which could adversely affect our business, financial condition and results of operations.
Any violation that is not waived could result in an event of default and, as a result, our lenders under the ABL Facility could declare all outstanding principal and interest to be due and payable, could suspend commitments to make any advances or could require any outstanding letters of credit to be collateralized by an interest bearing cash account, any or all of which could adversely affect our business, financial condition and results of operations. 18 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.
Accordingly, developments, settlements, or resolutions may occur and impact income in the quarter of such development, settlement, or resolution. An unfavorable outcome could adversely affect our business, financial condition and results of operations.
Accordingly, developments, settlements, or resolutions may occur and impact income in the quarter of such development, settlement, or resolution. An unfavorable outcome could adversely affect our business, financial condition and results of operations. Item 1B. Unresolved Staff Comments. None. 20
Risks Related to Data Privacy and Cybersecurity We are subject to data and security risks, which could adversely affect our results of operations and consumer confidence in our security measures.
Risks Related to Data Privacy and Cybersecurity We are subject to data and security risks, which could adversely affect our operations and consumer confidence in our security measures or result in liability.
Fluctuations in foreign currency exchange rates could impact consumer spending or adversely affect the profitability of our foreign operations or those of our franchisees and licensees. Global economic and geopolitical uncertainty, such as the ongoing conflict between Russia and Ukraine, has resulted and in the future could result in volatility in foreign exchange rates.
Fluctuations in foreign currency exchange rates could impact consumer spending or adversely affect the profitability of our foreign operations or those of our franchisees and licensees. Global economic and geopolitical uncertainty, such as the ongoing conflicts between Russia and Ukraine and Israel and Hamas, have in the past and may in the future result in volatility in foreign exchange rates.
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.
Risks Related to Strategic Transactions and Investments We have and may continue to engage in or seek to engage in strategic transactions, such as acquisitions, partnerships, divestitures and other dispositions, that are subject to various risks and uncertainties and which could disrupt or adversely affect our business.
Advances in computer capabilities, new technological discoveries, or other developments may result in the technology used by us to protect transaction or other data being breached or compromised.
Advances in technological capabilities, new technological discoveries, or other developments may result in the technology used by us to protect transactions and other data being more easily breached or compromised.
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.
Some of the factors that may influence consumer spending patterns include higher unemployment levels, pandemics (such as the COVID-19 pandemic, or the resurgence of the pandemic or the emergence of new strains or variants), extreme weather conditions and natural disasters, higher consumer debt levels, inflationary pressures, recession or fear of recession, global geopolitical instability (including the ongoing Russia-Ukraine and Israel-Hamas conflicts), 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.
We and our franchisees compete with local, national, and global department stores, specialty and discount store chains, independent retail stores, and online businesses that market similar lines of merchandise.
The global apparel retail industry is highly competitive. We and our franchisees compete with local, national, and global department stores, mass-market retailers, specialty and discount store chains, independent retail stores, and online businesses that market similar lines of merchandise.
Such events have the potential to disrupt our operations and those of our franchisees, vendors and other business partners, cause store and factory closures, and impact our customers, employees and workers in our supply chain, all of which may cause us to suffer losses and additional costs to maintain or resume operations.
Such events have the potential to disrupt our operations and those of our franchisees, vendors and other business partners, cause store and factory closures, and impact our customers, employees and workers in our supply chain, all of which may adversely affect our business .
If we or our franchisees are not able to respond effectively to competitive pressures, changes in retail markets or customer expectations in the United States or internationally, our results of operations would be adversely affected.
If we or our franchisees are not able to respond effectively to competitive pressures, changes in retail markets or customer expectations in the United States or internationally, our results of operations would be adversely affected. We must successfully gauge apparel trends and changing consumer preferences to succeed.
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.
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. In many of these locations, we face major established competitors.
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.
These arrangements could have an adverse effect on our liquidity and results of operations. 14 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.
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.
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. Beginning in fiscal 2020 through the end of fiscal 2023, we closed, net of openings, 344 Gap and Banana Republic stores in North America.
We are also developing additional capabilities to analyze customer behavior and demand, which we believe will allow us to better localize assortment and improve store-level allocations, such as size allocation, to further tailor our assortments to customer needs and increase sell-through.
We are also developing additional capabilities to analyze customer behavior and demand, which we believe will allow us to better localize assortment and improve store-level allocations to further tailor our assortments to customer needs and increase sell-through. These capabilities involve changes to our inventory management systems and processes.
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.
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.
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.
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 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.
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 maintain our reputation and brand image. Our brands have wide recognition, and our success has been due in large part to our ability to maintain, enhance and protect our brand image and reputation and our customers’ connection to our brands.
We must maintain our reputation and brand image. Our brands have wide recognition, and the success of our business depends in large part on our ability to maintain, enhance and protect our brand image and reputation and our customers’ connection to our brands.
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.
We may not successfully maintain or launch these systems as planned or implement them 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.
In challenging and uncertain economic environments such as the current one, we cannot predict whether or when such circumstances may improve or worsen, or what impact, if any, such circumstances could have on our business, financial condition and results of operations, or on the price of our common stock.
In challenging and uncertain economic environments, we cannot predict whether or when such circumstances may improve or worsen, or what impact, if any, such circumstances could have on our business, financial condition and results of operations, or on the price of our common stock. Risks Related to Competition, Brand Relevance and Brand Execution Our business is highly competitive.
For example, the current political landscape, including with respect to U.S.-China relations, and recent tariffs and bans imposed by the United States and other countries (such as the Uyghur Forced Labor Prevention Act) has introduced greater uncertainty with respect to future tax and trade regulations.
For example, the United States has imposed tariffs and bans on goods imported from China (such as the Uyghur Forced Labor Prevention Act). The current political landscape, including with respect to United States-China relations, has introduced greater uncertainty with respect to future tax and trade policy.
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.
Risks Related to Our Business Operations 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 maintained by apparel retailers.
If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our ESG-related goals on a timely basis, or at all, our reputation, business, financial performance and growth could be adversely affected.
If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our ESG-related goals on a timely basis, or at all, our reputation, business, financial condition and results of operations could be adversely affected. Climate change may have an adverse impact on our business.
Our sourcing operations may be adversely affected by trade limits or political and financial instability, resulting in the disruption of trade from exporting countries, significant fluctuations in the value of the U.S. dollar against foreign currencies, restrictions on the transfer of funds, or other trade disruptions.
Our sourcing operations could also be adversely affected by geopolitical and financial instability in our sourcing countries, as well as U.S. or foreign labor strikes, work stoppages, or boycotts, resulting in the disruption of trade from our sourcing countries, significant fluctuations in the value of the U.S. dollar against foreign currencies, restrictions on the transfer of funds, or other trade disruptions.
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.
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. Failure to protect our inventory from loss and theft may adversely affect our results of operations.
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.
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. Changes in our business strategy or restructuring our operations may not generate the intended benefits or projected cost savings we anticipate.
Significant or continuing noncompliance with such standards and laws by one or more vendors, suppliers or other third parties could subject us to liability, and could adversely affect our reputation, business and results of operations.
Significant or continuing noncompliance with such standards and laws by one or more vendors, suppliers or other third parties could subject us to liability, and could adversely affect our reputation, business and results of operations. 12 Trade matters may disrupt our supply chain. Our operations are subject to complex trade and customs laws, regulations and tax requirements.
We have also provided loan guarantees to various lenders on behalf of certain franchisees, and have guaranteed or are contingently liable for certain franchisees' leases. These arrangements could have an adverse effect on our liquidity and results of operations.
We have also provided loan guarantees to various lenders on behalf of certain franchisees, and have guaranteed or are contingently liable for certain franchisees' leases.
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.
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, including hiring a new President and Chief Executive Officer in 2023.
Moreover, while the franchise and licensing agreements we have entered into and plan to enter into in the future provide us with certain termination rights, the value of our brands could be impaired to the extent that these third parties do not operate their stores or websites or sell our branded products in a manner consistent with our requirements regarding our brand identities and customer experience standards.
The value of our brands could be impaired to the extent that these third parties do not operate their stores or websites or sell our branded products in a manner consistent with our requirements regarding our brand identities and customer experience standards.
As part of our normal operations, we receive and maintain confidential, proprietary, and personally identifiable information, including credit card information, and information about our customers, our employees, job applicants, and other third parties. Our business employs systems and websites that allow for the secure storage and transmission of this information.
As part of our normal operations, we receive and maintain confidential, proprietary, and personally identifiable information, including credit card information, and information about our customers, our employees, job applicants, and other third parties.
Any failure by our third party providers could disrupt our operations and adversely affect our results of operations. 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.
General Risks 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.
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.
Our business is subject to risks associated with global sourcing and manufacturing. 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.
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.
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. Our level of indebtedness may adversely affect our ability to operate and expand our business.
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.
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.
Any reduction in our credit ratings could result in reduced access to the credit and capital markets, more restrictive covenants in future financing documents and higher interest costs, and potentially increased lease or hedging costs.
We currently have corporate credit ratings of BB with a negative outlook from Standard & Poor's and Ba3 with a negative outlook from Moody’s. Any reduction in our credit ratings could result in reduced access to the credit and capital markets, more restrictive covenants in future financing documents and higher interest costs, and potentially increased lease or hedging costs.
We may engage in or seek to engage in strategic transactions, such as acquisitions, divestitures or other dispositions, which we may not be able to complete on anticipated terms or time frames or at all, or which may not generate some or all of the strategic, financial, operational or other benefits we expect to realize from such transactions on such anticipated time frames or at all.
We may not be able to complete strategic transactions on anticipated terms or time frames or at all, and such transactions may not generate some or all of the expected strategic, financial, operational or other benefits if and when completed on such anticipated time frames or at all.
Although we use financial instruments to hedge certain foreign currency risks, these measures may not succeed in fully offsetting the negative impact of foreign currency rate movements and generally only delay the impact of adverse foreign currency rate movements on our business and results of operations .
Financial instruments that we use to hedge certain foreign currency risks may not succeed in fully offsetting the negative impact of foreign currency rate movements and generally only delay the impact of adverse foreign currency rate movements on our business and results of operations . 16 We experience fluctuations in our comparable sales and margins, which could adversely affect the market price of our common stock, our credit ratings and our liquidity.
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.
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. Our investments in customer, digital, and omni-channel shopping initiatives may not deliver the results we anticipate.
While the uptime, performance, and security of our third party public cloud infrastructure providers are generally equal to or better than our own systems, as we continue to move to their platforms, our reliance on third parties means that any downtime or security issues they experience poses a greater risk of a single point of failure.
As we continue to move to their platforms, our reliance on third-party systems means that any downtime or security issues they experience poses a greater risk of a single point of failure. Any failure by our third-party service providers could disrupt our operations and adversely affect our results of operations.
Loss may be caused by error or misconduct of employees, customers, vendors or other third parties including through organized retail crime and professional theft.
Risk of loss or theft of assets, including inventory shortage, is inherent in the retail business. Loss may be caused by error or misconduct of employees, customers, vendors or other third parties including through organized retail crime and professional theft, which may be further impacted by macroeconomic factors, including the enforcement environment.
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.
As of February 3, 2024, the aggregate principal amount of our total outstanding indebtedness was $1.5 billion under the Senior Notes. As of February 3, 2024, we had $2.2 billion in principal amount of undrawn commitments available for additional borrowings under the ABL Facility, subject to borrowing base availability.
If the income and cash flow that we receive from our credit card arrangement decreases significantly, our results of operations and financial condition could be adversely affected.
If the income and cash flow that we receive from our credit card arrangement decreases significantly, our results of operations and financial condition could be adversely affected. Our business is exposed to the risks of foreign currency exchange rate fluctuations and our hedging strategies may not be effective in mitigating those risks.
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.
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. We have not always predicted our customers’ preferences and acceptance levels of our trend items with accuracy.
Even if we react appropriately to negative posts or comments about us and/or our brands on social media and online, our customers’ perception of our brand image and our reputation could be negatively impacted. Customer sentiment could also be shaped by our partnerships with artists, athletes and other public figures.
We must also adapt to a rapidly changing media environment, including our increasing reliance on social media and online dissemination of advertising campaigns. Even if we react appropriately to negative posts or comments about us or our brands on social media and online, our customers’ perception of our brand image and our reputation could be negatively impacted.
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.
In addition, executing strategic initiatives may require us to hire and develop employees with appropriate and specialized experience. We must also attract, develop, and retain a sufficient number of qualified field and distribution center personnel. Competition for talent is intense and the turnover rate in the retail industry is generally high.
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.
Over the past five fiscal years, our reported annual comparable sales have ranged from a high of 6 percent in fiscal 2021 to a low of of negative 7 percent in fiscal 2022.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe 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.
Biggest changeWe own approximately 0.8 million square feet of corporate office space located in: San Francisco, Pleasanton, and Rocklin, California. We lease approximately 0.5 million square feet of corporate office space located in: San Francisco, California; New York, New York; Albuquerque, New Mexico; and Hyderabad, India. We also lease regional offices in North America and in various international locations.
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
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. 22 Part II
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 own approximately 9.6 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 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 lease approximately 0.5 million square feet of distribution space located in: 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.
Item 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.
Item 2. Properties. As of February 3, 2024, we had 2,562 Company-operated stores in the United States, Canada, Japan, and Taiwan, which totaled approximately 30.6 million square feet. 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.
Removed
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 changeTOTAL 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.
Biggest changeTOTAL RETURN TO STOCKHOLDERS (Assumes $100 investment on 2/2/2019) Total Return Analysis 2/2/2019 2/1/2020 1/30/2021 1/29/2022 1/28/2023 2/3/2024 The Gap, Inc. $ 100.00 $ 73.30 $ 85.25 $ 76.56 $ 60.21 $ 95.36 S&P 500 $ 100.00 $ 121.68 $ 142.67 $ 175.90 $ 161.45 $ 195.06 Dow Jones U.S.
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.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers In February 2019, the Board approved a $1.0 billion share repurchase authorization (the "February 2019 repurchase program"), which has no expiration date.
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.
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 13, 2024 was 5,394.
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.
The February 2019 repurchase program had $476 million remaining as of February 3, 2024. 23 Stock Performance Graph The graph below compares our cumulative total stockholder return on our common stock for the five-year period ended February 3, 2024, with the cumulative total returns of (i) the S&P 500 Index and (ii) the Dow Jones U.S. Apparel Retailers Index.
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.
There were no shares repurchased, other than shares withheld to settle employee statutory tax withholding related to the vesting of stock units, during the 14 weeks ended February 3, 2024.
Apparel Retailers $ 100.00 $ 108.68 $ 121.14 $ 129.51 $ 143.36 $ 156.59 Source: Research Data Group, Inc. Item 6. [Reserved] 23
Apparel Retailers $ 100.00 $ 111.46 $ 119.16 $ 131.90 $ 144.08 $ 161.22 Source: Research Data Group, Inc. Item 6. [Reserved] 24
Removed
The table below sets forth the dividends declared and paid for each of the fiscal quarters in fiscal 2022 and 2021.
Added
The Company has paid dividends on a quarterly basis and expects to continue to do so, subject to approval by the Board. Additional dividend information can be found in Liquidity and Capital Resources in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-K.
Removed
Dividends 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.
Removed
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.

Item 7. Management's Discussion & Analysis

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

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Biggest changeCost 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 $83 million on sale of building; • a decrease in advertising expense primarily at Old Navy Global; and • a decrease in costs incurred related to strategic initiatives completed in fiscal 2022, which included the transition of our Old Navy Mexico business, compared with fiscal 2021, which included divestiture activity and the review of our European operating model.
Biggest changeThe impact of commodity costs was relatively flat for fiscal 2023 compared with fiscal 2022. • Occupancy expenses increased 0.4 percentage points as a percentage of net sales in fiscal 2023 compared with fiscal 2022, primarily driven by a decrease in Comp Sales without a corresponding decrease in fixed occupancy expenses. 29 Operating Expenses and Operating Margin ($ in millions) Fiscal Year 2023 2022 Operating expenses $ 5,215 $ 5,428 Operating expenses as a percentage of net sales 35.0 % 34.8 % Operating margin 3.8 % (0.4) % Operating expenses decreased $213 million, but increased 0.2 percentage points as a percentage of net sales during fiscal 2023 compared with fiscal 2022, due to a decrease in net sales as well as the following: • a decrease in advertising expenses; • a decrease in payroll expenses related to our operating model and structure changes; • a decrease due to the transition of our China business to a partnership model; • a decrease in technology-related investments; • a gain on sale of building of $47 million that occurred during fiscal 2023; and • a loss on divestiture activity of $35 million that occurred during fiscal 2022 related to the transition of the Old Navy Mexico business; partially offset by • an increase in performance-based compensation; and • restructuring expenses of $89 million incurred during fiscal 2023 as a result of actions taken to simplify and optimize our operating model and structure.
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. Most of the products sold under our brand names are designed by us and manufactured by independent sources.
Our omni-channel services, including 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. Most of the products sold under our brand names are designed by us and manufactured by independent sources.
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.
Such adverse impacts may be material. 34 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.
On a recurring basis, we assess the need for a valuation allowance related to our deferred income tax assets, which includes consideration of both positive and negative evidence to determine, based on the weight of the available evidence, whether it is more likely than not that some or all of our deferred tax assets will not be realized.
On a recurring basis, we assess the need for valuation allowances related to our deferred income tax assets, which includes consideration of both positive and negative evidence to determine, based on the weight of the available evidence, whether it is more likely than not that some or all of our deferred tax assets will not be realized.
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.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Our Business We are a collection of lifestyle brands offering apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands.
Our effective tax rate in a given financial statement period may also be materially impacted by changes in the geographic mix and level of income or losses, changes in the expected or actual outcome of audits, and changes in the deferred tax valuation allowance or new tax legislation.
Our effective tax rate in a given financial statement period may also be materially impacted by changes in the geographic mix and level of income or losses, changes in the expected or actual outcome of audits, and changes in the deferred tax valuation allowances or new tax legislation.
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.
See Note 5 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. 31 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.
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.
However, this non-GAAP financial measure is not intended to supersede or replace our GAAP results. 32 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 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.
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 and operating leases, respectively.
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. We paid an annual dividend of $0.60 per share in fiscal 2022 and $0.36 per share in fiscal 2021.
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. We paid an annual dividend of $0.60 per share in fiscal 2023 and fiscal 2022.
In determining the need for a valuation allowance, management is required to make assumptions and to apply judgment, including tax planning strategies, forecasting future income, taxable income, and the geographic mix of income or losses in the jurisdictions in which we operate.
In determining the need for valuation allowances, management is required to make assumptions and to apply judgment, including tax planning strategies, forecasting future income, taxable income, and the geographic mix of income or losses in the jurisdictions in which we operate.
We record a valuation allowance against our deferred tax assets when it is more likely than not that some portion or all of such deferred tax assets will not be realized.
We record valuation allowances against our deferred tax assets when it is more likely than not that some portion or all of such deferred tax assets will not be realized.
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.
As of February 3, 2024, we had Company-operated stores in the United States, Canada, Japan, 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.
In fiscal 2022, cash used for purchases of property and equipment was $685 million primarily related to information technology, store investments, and supply chain to support our omni and digital strategies.
In fiscal 2023, cash used for purchases of property and equipment was $420 million primarily related to information technology, store investments, and supply chain to support our omni and digital strategies.
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.
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 February 3, 2024, while others are considered future obligations.
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.
However, if estimates regarding consumer demand are inaccurate, or if economic conditions including global inflationary pressures change beyond what is currently estimated by management, our operating results could be affected. 33 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 percentage change in Comp Sales by global brand and for The Gap, Inc., as compared with the preceding year, is as follows: Fiscal Year 2022 2021 Old Navy Global (12) % — % Gap Global (4) % 8 % Banana Republic Global 9 % 24 % Athleta Global (5) % 12 % The Gap, Inc.
The percentage change in Comp Sales by global brand and for The Gap, Inc., as compared with the preceding year, is as follows: Fiscal Year 2023 2022 Old Navy Global (1) % (12) % Gap Global 1 % (4) % Banana Republic Global (7) % 9 % Athleta Global (12) % (5) % The Gap, Inc.
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.
See Note 5 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for further details. 30 Liquidity and Capital Resources We consider the following to be measures of our liquidity and capital resources: ($ in millions) February 3, 2024 January 28, 2023 Cash and cash equivalents $ 1,873 $ 1,215 Debt 3.625 percent Senior Notes due 2029 750 750 3.875 percent Senior Notes due 2031 750 750 Working capital 1,299 1,361 Current ratio 1.42:1 1.42:1 As of February 3, 2024, the majority of our cash and cash equivalents were held in the United States and are generally accessible without any limitations.
The ending balance for Old Navy North America excludes these stores and the ending balance for Franchise includes these stores. (2) The 11 Gap Italy stores that were transitioned to OVS during the period are not included as store closures or openings for Company-operated and Franchise store activity.
The ending balance for Old Navy North America excludes Old Navy Mexico stores and the ending balance for Franchise includes Old Navy Mexico stores. (3) The 11 Gap Italy stores that were transitioned to OVS S.p.A. ("OVS") during the period are not included as store closures or openings for Company-operated and Franchise store activity.
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.
In February 2024, the Board authorized a dividend of $0.15 per share for the first quarter of fiscal 2024. Share Repurchases Certain financial information about the Company's share repurchases is set forth under the heading "Share Repurchases" in Note 10 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
We identify our operating segments according to how our business activities are managed and evaluated. As of January 28, 2023, our operating segments included Old Navy Global, Gap Global, Banana Republic Global, and Athleta Global.
We identify our operating segments according to how our business activities are managed and evaluated. As of February 3, 2024, our operating segments included Old Navy Global, Gap Global, Banana Republic Global, and Athleta Global.
Fiscal Year ($ 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.
Fiscal Year ($ in millions) 2023 2022 Net cash provided by operating activities $ 1,532 $ 607 Less: Purchases of property and equipment (420) (685) Free cash flow $ 1,112 $ (78) 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.
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.
Overview Financial results for fiscal 2023 are as follows: • Net sales for fiscal 2023 decreased 5 percent to $14.9 billion compared with $15.6 billion for fiscal 2022. • Store and franchise sales for fiscal 2023 decreased 3 percent compared with fiscal 2022 and online sales for fiscal 2023 decreased 7 percent compared with fiscal 2022. • Gross profit for fiscal 2023 was $5.8 billion compared with $5.4 billion for fiscal 2022.
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.
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 our online channel. The calculation of Comp Sales excludes the results of the franchise and licensing business.
We require regular capital expenditures including technology improvements to automate processes, engage with customers, and optimize our supply chain in addition to building and maintaining stores. We use this metric internally, as we believe our sustained ability to generate free cash flow is an important driver of value creation.
We require regular capital expenditures including technology improvements as well as building and maintaining our stores and distribution centers. We use this metric internally, as we believe our sustained ability to generate free cash flow is an important driver of value creation.
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.
The seasonality of our operations, in addition to the impact of global economic conditions such as the uncertainty surrounding global inflationary pressures, acts of terrorism or war, global credit and banking markets, and new legislation, 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.
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.
There were no borrowings under the ABL Facility as of February 3, 2024. 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.
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.
See Note 3 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for related revenue disclosures.
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.
Gross margin for fiscal 2023 was 38.8 percent compared with 34.3 percent for fiscal 2022. • Operating income for fiscal 2023 was $560 million compared with operating loss of $(69) million for fiscal 2022. • Effective tax rate for fiscal 2023 was 9.7 percent compared with negative 45.3 percent for fiscal 2022. • Net income for fiscal 2023 was $502 million compared with net loss of $(202) million for fiscal 2022. • Diluted earnings per share was $1.34 for fiscal 2023 compared with diluted loss per share of $(0.55) for fiscal 2022. • Merchandise inventory as of the fourth quarter of fiscal 2023 decreased 16 percent compared with the fourth quarter of fiscal 2022.
(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.
(2) % (7) % 27 Store count, openings, closings, and square footage for our stores are as follows: January 28, 2023 Fiscal 2023 February 3, 2024 Number of Store Locations Number of Stores Opened Number of Stores Closed Number of Store Locations Square Footage (in millions) Old Navy North America 1,238 25 20 1,243 19.8 Gap North America 493 1 22 472 5.0 Gap Asia (1) 232 2 11 134 1.2 Banana Republic North America 419 2 21 400 3.3 Banana Republic Asia 46 4 7 43 0.2 Athleta North America 257 25 12 270 1.1 Company-operated stores total 2,685 59 93 2,562 30.6 Franchise (1) 667 293 96 998 N/A Total 3,352 352 189 3,560 30.6 Increase (decrease) over prior year 6.2 % (3.8) % 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 (2) 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 (3) 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 (2)(3) 564 138 70 667 N/A Total 3,399 228 275 3,352 31.8 Decrease over prior year (1.4) % (4.5) % __________ (1) The 89 Gap China stores that were transitioned to Baozun during the period are not included as store closures or openings for Company-operated and Franchise store activity.
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.
Cash Flows from Operating Activities Net cash provided by operating activities increased $925 million during fiscal 2023 compared with fiscal 2022, primarily due to the following: Net income (loss) • Net income compared with net loss in the prior year; Changes in operating assets and liabilities • an increase of $582 million related to accounts payable primarily due to the timing of payments for inventory during fiscal 2023 compared with fiscal 2022; and • an increase of $255 million related to accrued expenses and other current liabilities primarily due to an increase in performance-based compensation during fiscal 2023 compared with fiscal 2022; partially offset by • a decrease of $342 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; and • a decrease of $171 million related to merchandise inventory primarily due to a continued reduction of inventory during fiscal 2023 that was less than the reduction of inventory during fiscal 2022.
We have determined that each of our operating segments share similar economic and other qualitative characteristics, and, therefore, the results of our operating segments are aggregated into one reportable segment.
We have determined that each of our operating segments share similar economic and other qualitative characteristics, and, therefore, the results of our operating segments are aggregated into one reportable segment. 26 Results of Operations A discussion regarding our results of operations for fiscal year 2023 compared with fiscal year 2022 is presented below.
The estimated fair value of the asset or asset group is based on discounted future cash flows of the asset or asset group using a discount rate commensurate with the related risk.
For impaired assets, we recognize a loss equal to the difference between the carrying amount of the asset or asset group and its estimated fair value. The estimated fair value of the asset or asset group is based on discounted future cash flows of the asset or asset group using a discount rate commensurate with the related risk.
The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets.
The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets. For our Company-operated stores, the individual store generally represents the lowest level of independent identifiable cash flows and the asset group is comprised of both property and equipment and operating lease assets.
Cost of Goods Sold and Occupancy Expenses ($ in millions) Fiscal Year 2022 2021 2020 Cost of goods sold and occupancy expenses $ 10,257 $ 10,033 $ 9,095 Gross profit $ 5,359 $ 6,637 $ 4,705 Cost of goods sold and occupancy expenses as a percentage of net sales 65.7 % 60.2 % 65.9 % Gross margin 34.3 % 39.8 % 34.1 % Cost of goods sold and occupancy expenses increased 5.5 percentage points as a percentage of net sales in fiscal 2022 compared with fiscal 2021. • Cost of goods sold increased 5.0 percentage points as a percentage of net sales in fiscal 2022 compared with fiscal 2021, primarily driven by higher promotional activity and increased average unit costs.
Cost of Goods Sold and Occupancy Expenses ($ in millions) Fiscal Year 2023 2022 Cost of goods sold and occupancy expenses $ 9,114 $ 10,257 Gross profit $ 5,775 $ 5,359 Cost of goods sold and occupancy expenses as a percentage of net sales 61.2 % 65.7 % Gross margin 38.8 % 34.3 % Cost of goods sold and occupancy expenses decreased 4.5 percentage points as a percentage of net sales in fiscal 2023 compared with fiscal 2022. • Cost of goods sold decreased 4.9 percentage points as a percentage of net sales in fiscal 2023 compared with fiscal 2022, primarily driven by a decrease in air freight expenses and improved promotional activity.
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.
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 February 3, 2024, our purchase obligations and commitments were approximately $4 billion. We expect that the majority of these purchase obligations and commitments will be settled within one year.
The ending balance for Gap Europe excludes these stores and the ending balance for Franchise includes these stores. (3) 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.
The ending balance for Gap Asia excludes Gap China stores and the ending balance for Franchise includes Gap China locations transitioned during the period. (2) 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.
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 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. During fiscal 2023, the Company repaid an aggregate of $350 million to reduce the outstanding borrowing under the ABL Facility to zero.
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.
These restructuring costs were primarily recorded within operating expenses on the Consolidated Statement of Operations. 25 The Company has also completed its initiative of rationalizing the Gap and Banana Republic store fleet by closing, net of openings, 344 Gap and Banana Republic stores in North America from the beginning of fiscal 2020 to the end of fiscal 2023.
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.
Cash Flows from Financing Activities Net cash used for financing activities was $567 million during fiscal 2023 compared with $6 million of net cash provided by financing activities during fiscal 2022, primarily due to the following: • $350 million from the ABL Facility that was borrowed during fiscal 2022 and repaid during fiscal 2023; partially offset by • $123 million in repurchases of common stock during fiscal 2022 compared with no repurchases during fiscal 2023.
The foreign exchange impact is the translation impact if net sales for fiscal 2021 were translated at exchange rates applicable during fiscal 2022.
Fiscal 2023 also includes incremental sales attributable to the 53rd week. Additionally, there was an unfavorable impact of foreign exchange of $74 million. The foreign exchange impact is the translation impact if net sales for fiscal 2022 were translated at exchange rates applicable during fiscal 2023.
Income Taxes ($ in millions) Fiscal Year 2022 2021 2020 Income tax expense (benefit) $ 63 $ 67 $ (437) Effective tax rate (45.3) % 20.7 % 39.7 % The decrease in the effective tax rate for fiscal 2022 compared with fiscal 2021 was primarily due to changes in the jurisdictional mix of pre-tax operations and divestiture activities.
Income Taxes ($ in millions) Fiscal Year 2023 2022 Income tax expense $ 54 $ 63 Effective tax rate 9.7 % (45.3) % The change in the effective tax rate for fiscal 2023 compared with fiscal 2022 was primarily due to changes in the amount and jurisdictional mix of pre-tax earnings, partially offset by prior year divestiture activity, the current year benefit from the impact of changes in valuation allowances, and current year benefit from a U.S. transfer pricing settlement related to our sourcing activities.
Outlet and factory stores are reflected in each of the respective brands. 28 Net Sales Discussion Our net sales for fiscal 2022 decreased $1.1 billion, or 6 percent, compared with fiscal 2021, driven primarily by Old Navy Global as a result of inventory delays related to global supply chain disruptions, as well as size and assortment imbalances in the first half of fiscal 2022.
Outlet and factory stores are reflected in each of the respective brands. 28 Net Sales Discussion Our net sales for fiscal 2023 decreased $727 million, or 5 percent, compared with fiscal 2022, driven primarily by a decrease in Comp Sales, the transition of our Gap China business to a partnership model, and other strategic store closures.
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.
Cash Flows from Investing Activities Net cash used for investing activities increased $107 million during fiscal 2023 compared with fiscal 2022, primarily due to the following: • $76 million in net proceeds from the sale of a building during fiscal 2023 compared with $458 million in net proceeds from the sale of buildings during fiscal 2022; partially offset by • $265 million less purchases of property and equipment during fiscal 2023 compared with fiscal 2022, largely due to rationalizing our technology investments and a decrease in new store and supply chain spend.
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.
The impact upon divestiture was not material to our results of operations for fiscal 2023. The Gap Taiwan operations will continue to operate as usual until regulatory approvals and closing conditions are met.
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.
Current year foreign exchange rates are applied to both current year and prior year Comp Sales to achieve a consistent basis for comparison.
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.
During the first quarter of fiscal 2023, the Company also sold a building for $76 million and recorded a pre-tax gain on sale of $47 million within operating expenses on the Consolidated Statement of Operations.
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.
The ending balance for Gap Europe excludes Gap Italy stores and the ending balance for Franchise includes Gap Italy stores.
Removed
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.
Added
Fiscal 2023 consisted of 53 weeks versus 52 weeks in fiscal 2022. Net sales and operating results, as well as other metrics derived from the Consolidated Statement of Operations, include the impact of the additional week; however, the comparable sales calculation excludes the 53rd week. Effective August 22, 2023, Richard Dickson became the Company's President and Chief Executive Officer.
Removed
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.
Added
Bob L. Martin, who had been serving as the Company's Chief Executive Officer on an interim basis, remained as the Executive Board Chair until October 28, 2023, when he transitioned to a non-employee Board Chair role.
Removed
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.
Added
On April 25, 2023, the Company's management committed to a restructuring plan (the "Plan") as part of the Company's previously announced efforts to simplify and optimize its operating model and structure. The Plan included a reduction in workforce of approximately 1,800 employees, primarily in headquarters locations.
Removed
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.
Added
The actions associated with the reduction of the Company's workforce under the Plan were substantially completed in the first half of fiscal 2023 . In connection with the Plan, the Company incurred $93 million in pre-tax restructuring costs during fiscal 2023 , which included employee-related costs of $64 million and consulting and other associated costs of $29 million.
Removed
The Company did not incur material charges in connection with these steps during fiscal 2022.
Added
The majority of the selected stores had leases that expired between these fiscal years, which allowed us to exit stores with a minimal net impact to our Consolidated Statements of Operations.
Removed
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.
Added
We are focused on the following strategic priorities in the near term: • maintaining and building upon the financial and operational rigor, through an optimized cost structure and disciplined inventory management; • reinvigorating our brands to drive relevance and an engaging omni-channel experience; • strengthening our platform and evolving with a digital first mindset; • energizing our culture by attracting and retaining strong talent; and • continuing to integrate social and environmental sustainability into business practices to support long-term growth.
Removed
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.
Added
A discussion regarding our results of operations for fiscal year 2022 compared with fiscal year 2021 can be found under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on the Form 10-K for the year ended January 28, 2023, filed with the SEC on March 14, 2023.
Removed
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.
Added
Comp Sales included the results of certain foreign operations until their respective transitions to third-party franchise partners. See Note 17 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for further details.
Removed
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.
Added
Additionally, there was a decrease in inventory impairment charges compared with fiscal 2022.
Removed
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 $83 million within operating expenses on the Consolidated Statement of Operations during the 52 weeks ended January 28, 2023.
Added
Interest Expense ($ in millions) Fiscal Year 2023 2022 Interest expense $ 90 $ 88 Interest expense primarily includes interest on outstanding borrowings and obligations mainly related to our Senior Notes.
Removed
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.
Added
Interest Income ($ in millions) Fiscal Year 2023 2022 Interest income $ (86) $ (18) Interest income increased $68 million during fiscal 2023 compared with fiscal 2022 primarily due to higher cash balances and higher interest rates, as well as tax-related interest income.
Removed
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.
Added
Our voluntary supply chain finance ("SCF") program provides certain suppliers with the opportunity to sell their receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions.
Removed
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.
Added
We are not a party to the agreements between our suppliers and the financial institutions and our payment terms are not impacted by whether a supplier participates in the SCF program. See Note 18 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K, for disclosures on the Company's SCF program.
Removed
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.
Added
See Note 5 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. Revenue Recognition The Company’s revenues primarily include merchandise sales at stores, online, and through franchise and licensing agreements.
Removed
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.
Added
We also receive revenue sharing from our credit card agreement for private label and co-branded credit cards, and breakage revenue related to our gift cards, merchandise return cards, and outstanding loyalty points, which are realized based upon historical redemption patterns.
Removed
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.
Added
For online sales, the Company has elected to treat shipping and handling as fulfillment activities and not a separate performance obligation. Accordingly, we recognize revenue for our single performance obligation related to online sales at the time control of the merchandise passes to the customer, which is generally at the time of shipment.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+2 added−3 removed1 unchanged
Biggest changeWe 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.
Biggest changeDerivative Financial Instruments Certain financial information about the Company's derivative financial instruments is set forth under the heading "Derivative Financial Instruments" in Note 9 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K. 35 We have performed a sensitivity analysis as of February 3, 2024 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 $14 million as of January 28, 2023.
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 $18 million as of February 3, 2024.
The foreign currency exchange rates used in the model were based on the spot rates in effect as of January 28, 2023.
The foreign currency exchange rates used in the model were based on the spot rates in effect as of February 3, 2024.
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.
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.
Removed
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Derivative Financial Instruments Certain financial information about the Company's derivative financial instruments is set forth under the heading "Derivative Financial Instruments" in Note 9 of Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
Added
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Removed
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.
Added
On March 27, 2023, Moody's downgraded our corporate credit rating from Ba2 to Ba3 with a negative outlook and downgraded the rating of our Senior Notes from Ba3 to B1 with a negative outlook. These reductions and any future reduction in our credit ratings could result in an increase to our interest expense on future borrowings. 36
Removed
We 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

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