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Start Time: 17:00 January 1, 0000 6:02 PM ET
The Gap, Inc. (NYSE:GPS)
Q2 2019 Earnings Conference Call
August 22, 2019, 17:00 PM ET
开始时间：美国东部时间1月1日17:00 00:00 6:02
Art Peck - President and CEO
Teri List-Stoll - EVP and CFO
Tina Romani - Senior Director, IR
- Art Peck - 总裁兼首席执行官
- Teri List-Stoll - 执行副总裁兼首席财务官
- Tina Romani - IR高级总监
Mark Altschwager - Robert W. Baird
Paul Lejuez - Citi Research
Dana Telsey - Telsey Advisory Group
Matthew Boss - JPMorgan
Kate Fitzsimons - RBC Capital Markets
Westcott Rochette - Evercore ISI
Ike Boruchow - Wells Fargo
Oliver Chen - Cowen and Company
Alexandra Walvis - Goldman Sachs
Lorraine Hutchinson - Bank of America Merrill Lynch
- Mark Altschwager - Robert W. Baird
- Paul Lejuez - 花旗研究
- 达纳特尔西 - 特尔西咨询集团
- Matthew Boss - 摩根大通
- 凯特菲茨西蒙斯 - 加拿大皇家银行资本市场
- Westcott Rochette - Evercore ISI
- Ike Boruchow - 富国银行
- Oliver Chen - Cowen and Company
- 亚历山德拉沃尔维斯 - 高盛
- Lorraine Hutchinson - 美国银行美林证券
Good afternoon, ladies and gentlemen. My name is Cody, and I will be your conference operator today. At this time, I would like to welcome everyone to The Gap, Inc. Second Quarter 2019 Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions].
I would now like to introduce your host, Ms. Tina Romani, Senior Director of Investor Relations.
女士们，先生们，下午好。 我叫科迪，今天我将成为您的会议运营商。 在这个时候，我想欢迎大家参加The Gap，Inc。2019年第二季电话会议。 此时，所有参与者都处于只听模式。 [操作员说明]。
Good afternoon, everyone. Welcome to Gap, Inc's second quarter 2019 earnings conference call. Before we begin, I'd like to remind you that the information made available on this webcast and conference call contains forward-looking statements.
For information on factors that could cause our actual results to differ materially from the forward-looking statements as well as the description and reconciliation of non-GAAP financial measures as noted on Page 2 of the slides supplementing Teri's remarks, please refer to today's earnings press release as well as our most recent annual report on Form 10-K and our subsequent filings with the SEC, all of which are available on gapinc.com. These forward-looking statements are based on information as of August 22, 2019 and we assume no obligation to publicly update or revise our forward-looking statements.
Joining me on the call today are President and CEO, Art Peck; and Executive Vice President and CFO, Teri List-Stoll. As mentioned, we will be using slides to supplement our remarks, which you can view by going to the Investors section at gapinc.com.
With that, I'd like to turn the call over to Art.
今天与我联系的是总裁兼首席执行官Art Peck;和执行副总裁兼首席财务官Teri List-Stoll。如上所述，我们将使用幻灯片来补充我们的评论，您可以访问gapinc.com的投资者部分查看。
Good afternoon and thank you for joining us today. I’ll start with an overview of the quarter at the enterprise level and then walk you through our performance by brands. From there, Teri will take you through the financials. Our separation activities remain on track and we’re making excellent progress. We’ll provide more details at our September 12 Meet the Management event.
Turning to our results, traffic remained a challenge which contributed to overall demand falling below expectation. Our inventory levels going in combined with a competitive environment resulted in elevated promotional activity to clear through inventory once the weather turned.
We have more work to do to position ourselves for consistent delivery in this challenging retail environment, but we have a clear action plan in place and are seeing sequential improvement in the areas that will drive improved results, better product quality, acceptance, increased responsiveness, marketing effectiveness, proved productivity and an optimized store fleet.
We’ll talk about these as Teri and I go through the brand results and even more at our Meet the Management event in September, but let me spend a moment on inventory productivity which is a key element in improving our go-forward results.
In the quarter, we were disciplined in managing inventory and I am pleased that each of our brands ended the quarter largely clean from a liability inventory perspective. We’ve adjusted back half inventory buys to better match the traffic trends that we’re seeing, adjusting Q3 as much as possible and even more aggressively adjusting Q4.
As it stands today, we have planned our back half inventory to be down. We will use our responsive capabilities to chase empty units as the quarters actualize and demand materialize. Increased focus on operating discipline, improved execution and measured investment in marketing and talent across all brands is driving slow but positive momentum that gives me confidence as we head into the important back-to-school and holiday seasons.
While I’m optimistic about the progress we’ll see in the back half, our results and performance across the industry demonstrate the need for continued discipline around SG&A, reducing inventory commitments, increasing store conversion and improving marketing effectiveness. With that in mind, let me take you through how we’re thinking about our current performance and positioning beginning with Old Navy.
Just to start and to remind you, Old Navy is an exceptional business with exceptional economics. It’s a big box, family value, category killer with excellent four-wall economics and a disciplined cost structure. It’s grown sales and comp over the last three fiscal years and we see a lot of white space for continued store expansion that you’ll hear about in September.
We know the fundamental economic model works and we have had some significant misses on execution. Let me remind you of where we’ve been so you can better understand our outlook for the second half of the year.
我们将谈论这些作为Teri和我在9月份的Meet the Management活动中更多地了解品牌结果，但让我花一点时间了解库存生产力，这是改善我们前进结果的关键因素。
As we moved into Q4 last year, softness in women’s became more broad based. She quickly began to diagnose the drivers of the issue and determine the product offering was too narrow. She wanted more choice and more newness. Because this diagnosis came over holiday, we were limited in our ability to meaningfully impact first two quarters of the year from a product design and merchandizing perspective, and this is reflected in our results.
The teams began a redesign of Q3 incorporating the key learnings to the extent that they could and since work on Q4 had not yet begun, the holiday assortment, the commercial and marketing plans were all built from the ground up with the benefit of key learnings from Q4 2018. In addition, as we saw slowing traffic trends to the start of this fiscal year, we worked to cut units out of Q2 and brought inventory leaner to reflect trends.
So coming back to Q2, while I’m obviously not pleased with our performance, we did come into the quarter knowing it would be challenging. We knew the product wasn’t quite where it needed to be and we reacted quickly.
During the quarter, the teams appropriately focused clearing through summer product and ending the quarter clean in order to better position the redesign fall product for the important back-to-school season. As we look ahead to Q3, we are still facing some challenging traffic trends. Teams are hyper-focused on this. And while we’ve hit a bump in the road in the past with product issues, it has been predictable latency in terms of traffic catching up.
Understanding this dynamic, we’re leading with our strengths in the back half from a product perspective, specifically leaning into denim where we are pleased with the results; active, which is performing; and fleece, which we believe we have a lot of upside in, all of which had positive comps in Q2. We’re amplifying our category strengths with focused powerful marketing to drive brand relevance and buzz and we’re also implementing traffic driving initiatives to bring her back into the store.
Most recently, we re-merchandized inside the store in terms of product placement 50 Old Navy locations. And while we did this very recently, we’re seeing very early but positive results that we will intend to roll across the Old Navy fleet as we read the test results.
While the first half has been challenging, there’s a lot to be proud of and even more we’re excited about the future. Our views on the fundamental strength of the business and the power of the Old Navy brand remain unchanged. Old Navy’s market share position holds strong at 3.1%. It remains the number two largest apparel brand and the number nine largest retailer according to NPD.
Before I move from Old Navy, I also want to talk about the talent shift we recently made as the brand moves toward operating as a stand-alone public company. Last month, we announced that Nancy Green who has served as Brand President at Athleta for the last six years would join Old Navy.
This is Nancy’s third time at Old Navy and unites the product and marketing functions under a single leader. This will provide significant support to the Old Navy’s CEO, Sonia Syngal, as her remit [ph] expands to leadership over a public company.
在我离开旧海军之前，我还想谈谈我们最近在品牌作为一家独立的上市公司运营时所做的人才转变。上个月，我们宣布过去六年担任Athleta品牌总裁的Nancy Green将加入Old Navy。
We’ve not yet named a replacement for Nancy at Athleta, but this is quite honestly a coveted role and interest has been tremendous. In the meantime we have a strong aligned senior leadership team guiding the brand and I am providing additional support to that team until we’re ready to name a new leader.
Now, let’s turn to Gap brand. Traffic remains challenging and it’s the biggest challenge of the brand but it’s also important to note as we previously called out that we intentionally shifted marketing dollars to very late in Q2 and into Q3 corresponding with Gap brands new denim launch and back to school.
Despite the traffic challenges, we did see all channels of the brand deliver positive sales over traffic for the quarter indicating improvement in the customer response to product. Gap is an excellent example where the intense focus of the team on operational discipline is beginning to show results.
We’ve made meaningful improvements to the product engine of the brand with tighter strategic priorities, process improvements and talent and structure changes. Women’s bottoms is a bellwether category. When the turnaround starts, it’s around a bottoms customer. That’s why we’ve been so focused on accelerating denim. While the product has only been in stores for a few weeks, early returns are very encouraging.
As we look ahead to the back half of the year, we have a better assortment, increased marketing investment, momentum building in denim, a tops to bottoms ratio that is in the right balance and inventories in better shape; leaner and with liable down 25%.
In terms of product marketing in Gap brand, our focus for the fall is clear. Kids and baby for back to school and denim, there are clear areas where we can and will win and where we’re ready to reassert the authority of the brand. Over the past few weeks you may have seen our marketing campaigns in both of these areas and we’ll continue to turn up the volume in this space.
Our specialty store fleet rationalization efforts at Gap brand are also on track. We’ll provide more detail here in September and we’re also experimenting with some promising new store formats at the brand as well as low investment improvements that make a major difference in the experience of our customers.
For those of you in New York, please consider visiting our Flatiron location at 17th and 5th to see how minor changes can make a big difference when you put great product, in this case denim, front and center. For those of you outside New York, I would encourage you to stop by Garden State Plaza and see how this concept executes in a traditional mall environment.
Gap is a large and complex business. And when we say Gap brand, we’re really referring to an assortment of components, including a specialty business, an outlet business, online channels and an international footprint. To that end, let me highlight an area of demonstrable progress, Gap outlet.
We’ve bought that part of the brand under a new leadership a little over a year ago and now we’ve seen five consecutive quarters of positive SOT and four quarters of positive gross margin over traffic. The trend is improving.
Finally, while the comp sales at Gap brand this quarter were unsatisfactory, this is a brand that remains powerful and relevant. To give just a couple of examples, while anecdotal, our loyalty program has now launched across all Gap brand stores and in July surpassed 5 million members who tend to spend 20% more than non-members.
We also see strength and demand globally for Gap logo product. Based on unit sold in fiscal '18, an interesting statistic is that we sell 1.3 Gap brand logo products a second 365 all around the world.
Let’s move to Banana Republic. While Q2 results at BR are disappointing, we did deliver a positive June, cleared inventory and settled in the new field organizational structure which had gone through significant changes in the first quarter. The first August flow hit stores. The initial response is positive though traffic remains down at the brand.
As we already discussed, increasing traffic starts with improving product. From a product perspective, we’ve had a carryover of basics at Banana that we referred to previously which has made it harder for newness in fashion to cut through in our stores.
While we’re addressing that by working to grow capacity with our fastest spenders, they have more depth and confidence in key products with a clear point of view and to cut through in stores with a flat or higher gross margin.
We’re also innovating at Banana to make it easier to shop and to attract a younger customer. Buy Online, Pick-Up in Store will launch later in August in BR and in September consumers will be able to take advantage of a rental subscription service we’re calling Style Passport.
Finally, to Athleta, I’m pleased with the acceleration of the Athleta business from Q1 as we cleared through the softer swim categories and the momentum we see as we head into the second half of the year.
We’ve reinvested in marketing of the brand which drove increased demand and healthy customer growth and we’re on track to end the year with 185 Athleta stores and we’re accelerating store openings with approximately 25 new stores this year.
As we look at the second half, the team is excited about the launch of Supersonic, a new highly technical Fair Trade Certified fabric made with recycled nylon from pre-consumer waste designed specifically for high-intensity activity and this has helped reduce 15 tons of waste to date, which interestingly is enough to wrap around the earth 247x. More importantly, the early reads on consumer acceptance and engagement with the various products that this fabric is in has been very positive.
Perhaps one of the most exciting developments for Athleta this quarter was the announcement of our first-ever athlete sponsorship with Allyson Felix. Allyson is the most decorated female track field athlete in U.S. Olympic history. Allyson, who will support as an athlete and as a mother and an activist, will wear Athleta in competitions and in her daily life and will continue to work with us to enhance the technical performance of all of our products.
也许本季度Athleta最令人兴奋的发展之一就是我们首次与Allyson Felix一起赞助运动员。艾莉森是美国奥运历史上装饰最多的女子田径运动员。 Allyson将作为运动员，母亲和活动家提供支持，将在比赛和日常生活中佩戴Athleta，并将继续与我们合作，以提高我们所有产品的技术性能。
I’m really excited about our partnership with Allyson and all of the new programs we’re launching across new co-brands brands like inclusive sizing at Athleta, rental subscription service we’re launching it first at Banana, a personalized digital experience we’re testing at Athleta and the loyalty program being offered across all Gap brand assets. Programs like these will provide key learnings and insights that can be leveraged across the portfolio to drive process improvement, innovation and growth.
We’re also incredibly proud of new initiatives announced this year that highlight our commitment to inclusivity and sustainability across the company. In June, we partnered with United Nations Foundation during Pride Month to raise awareness and funds for the United Nations Free & Equal campaign to promote equal rights and fair treatment for lesbian, gay, bisexual, transgender and intersex people globally.
We also see climate change fundamentally as a human rights issue as well as an environmental and business issue. We recently announced the signing of our largest renewable energy contract, which is one of the largest offsite renewable energy contracts by an apparel retailer and is the third renewable energy contract signed by the company in the past 18 months.
Building on the commitments established by several of our brands, Gap, Inc. also announced an enterprise-wide goal to source 100% cotton from sustainable sources by 2025, by sourcing sustainably farmed and sourced cotton for supporting farmers to use water efficiently through better irrigation practices.
As we move toward separation, investments like these are one thing that won’t change as we become two independent companies. There are commitments we have made to our employees, our shareholders and our customers around the world. I look forward to talking to you more about the planned separation when we meet in September.
And now, I’ll turn it over to Teri to take you through the detailed financials. Teri?
Thanks, Art, and good afternoon, everyone. As Art indicated, our results this quarter are not where we want them to be. We talked about the tough start to May in our last call and despite sequential improvement in comp trends at all brands, with the exception of Banana Republic, the tough start weighed on the quarter.
That said, I am pleased that we have continued to make progress in two key areas; operating discipline and productivity. Let me use inventory as an example. Again, we’re not fully where we want to be. We made progress with ending inventories clean in second half, planned receipts much leaner. We ended the quarter with inventory favorably positioned for Q1.
In the productivity area, we continue to leverage the work initiated last year to inform the operating model design and spending target of the two planned new companies. We are seeing meaningful cost savings in the current year but more importantly the productivity mindset is taking hold as a part of our culture.
Turning to second quarter performance, as a reminder, our reported results include approximately $70 million in costs associated with our planned separation, certain tax adjustment related to new guidance from the Tax Cuts and Jobs Act of 2017 and cost related to our previously announced fleet restructuring. We’ve excluded these costs in our adjusted results and comparisons to provide a better view of the base business.
So starting with sales, net sales for the quarter were $4 billion, down 2% to last year. Comp sales were down 4% compared with positive 2% last year. Spread for the quarter was largely driven by new store openings at Old Navy and Athleta as well as non-comp Janie and Jack sales partially offset by Gap store closures.
As Art talked through, while disappointed with the buy brand comp performance in Q2, we’re more confident with the setup heading into the third quarter with the work the teams have done to strengthen product, particularly in key categories like denim in addition to the adjustments we’ve made to our inventory level and in our commercial and marketing plan.
Moving to gross margin, our second quarter gross margins were down 90 basis points to 38.9%, an improvement from our original expectation. Old Navy continued to be the primary driver of deleverage in the quarter. Merch margin was down 70 basis points, primarily driven by Old Navy, partially offset by Gap brand.
As Art discussed, the margin deleverage at Old Navy was primarily driven by our efforts to clear the underperforming women’s product and summer liable in order to end the quarter clean and to better position the improved fall product.
At Gap brand, the team continues to focus on maximizing yield through improving product assortment and a leaner inventory composition. Rent and occupancy deleveraged 20 basis points primarily driven by lower net sales.
Regarding SG&A, on a reported basis, second quarter total operating expenses were $1.3 billion. When excluding cost associated with our planned separation and fleet restructuring, SG&A as a percentage of net sales deleveraged 40 basis points, again, primarily driven by the lower sales. Given the challenging business, we remained prudent on expenses within our control which helps drive the improvement from Q1 trend.
转向毛利率，我们的第二季度毛利率下降90个基点至38.9％，比我们原先的预期有所改善。旧海军继续成为本季度去杠杆化的主要推动力。 Merch利润下降70个基点，主要由Old Navy推动，部分被Gap品牌所抵消。
Moving to taxes and interest. The effective tax rate was 38% for the second quarter. Excluding the impact from adjustments to our fiscal 2017 tax liability related to tax reform guidance issued during the quarter as well as the non-cash tax impact related to restructuring charges, our normalized tax rate was about 12 points lower.
We expect our full year reported effective tax rate to be about 30%. Excluding the current quarter one-time adjustment to our fiscal year 2017 tax liability for tax reform guidance and certain non-cash tax impacts related to expected restructuring charges, we continue to expect our full year adjusted effective tax rate to be about 26%.
Turning to earnings. On a reported basis, earnings per share were $0.44. Excluding cost associated with separation and specialty fleet restructuring, our adjusted earnings per share were $0.63. FX was a detriment of about a penny for the quarter, so we do not expect FX to have a meaningful impact for the year.
On inventory, we ended the quarter with inventory up 6% compared to last year. Consistent with Q1, there are a couple of drivers behind the increase including about a 3-point impact driven by an increase in in-transit time, about a 2-point impact from the Janie and Jack acquisition and about a 1-point impact from store openings net of closures.
On a normalized basis, that means inventory was about flat to last year, a significant improvement from normalized Q1 levels which were up 5%. While we have more work to do, I’m pleased with the progress and the engagement within the organization to improve inventory productivity. We’ve invested in many of the core capabilities that should eliminate the waste in our buying process, including responsive capabilities that allow us to reduce the risk in our buys and chase into styles that are working.
We’re driving leaner initial buys and building stronger open to buy processes that better leverage the responsive capabilities we have built. We expect inventory levels to continue to decrease in the back half to approximately negative low-single digits while noting that in-transit could cause fluctuations in this point in time metric on a reported basis.
Ultimately, over time, we would target inventory growth at less than the rate of net sales. We also will be working to improve allocations based on channel demand in localizing our assortment. Improvements in each of these areas are expected to drive higher yield and gross margin return on investment as well as improve our working capital profile.
Turning to cash flow. Year-to-date, free cash flow was $259 million, an increase of $39 million over last year. We ended the quarter with $1.5 billion of cash, cash equivalents and short-term investments ahead of our historical target of $1 billion to $1.2 billion.
Year-to-date capital expenditures were $324 million. As we mentioned last quarter, there are meaningful capital investments needed to facilitate the separation, primarily in technology and logistics. We continue to assess the expected capital needed to execute the separation and will provide updates as we move forward.
We continue to expect our fiscal 2019 capital expenditures to be about $675 million inclusive of 100 million of non-routine expansion costs related to one of our headquarter building and a build out of our Ohio distribution center and 575 million of base capital with priorities continuing to be focused on profitable growth opportunities at Old Navy and Athleta and investing prudently in technology and supply chain initiatives that position each of the future companies for sustainable growth.
Additionally, we remain committed to returning cash to shareholders. We completed an additional $50 million of share repurchases during the quarter and we continue to expect to repurchase approximately $50 million per quarter for the balance of the year. Our philosophy has not changed and we remain committed to our dividend. Year-to-date, we paid dividends of $183 million.
Regarding store count, year-to-date, we had 39 Old Navy and Athleta stores on a net basis and acquired 140 Janie and Jack locations. At Gap brand, we closed 16 stores primarily in North America, net of openings primarily in Asia. We ended the quarter with 3,356 company operated stores. We continue to expect 30 net store closures for the year.
With regard to our earnings outlook for the remainder of the year, on a reported basis we now expect earnings per share to be in the range of $1.88 to $2.08 for the full year. For the full year, we now expect restructuring-related costs to be about $0.14 versus our prior guidance of $0.29. This reduction in costs is primarily related to the shift of certain lease buyouts from 2019 to 2020.
We remain on track to close about 230 specialty stores by 2020 and we continue to expect total cost of the program to be about $250 million to $300 million with the majority expected to be cash expenditures. For the full year, we now expect cost associated with preparing for and executing the separation to be in the range of $0.20 to $0.30. I would caution that this is still a preliminary estimate and we’ll provide additional information and context as we move forward.
Excluding the first quarter gain on building sale, cost associated with preparing for and executing the separation, restructuring cost and any related tax impacts as well as the second quarter tax reform adjustment, we continue to expect adjusted earnings per share to be in the range of $2.05 to $2.15.
Regarding gross margin, let me take a second to give you some color around the cadence of the back half of the year. For the third quarter, we expect gross margin deleverage to be slightly better than our first half trends. For the back half, we expect year-over-year leverage to be about flat as we lap the easier fourth quarter compares from last year.
Regarding tariffs, as others have mentioned, we continue to closely monitor the tariff discussions. Our teams have contingency plans in place for the back half related to the List 4 tariffs including partnering with our vendors to share in the cost as well as pricing actions.
On pricing, the teams are working on a targeted pricing strategy in certain categories where we have pricing authority versus a broad-based increase in pricing. The unmitigated impacts of List 4 tariffs would be an incremental $0.06 impact to our guidance based on current estimates. So through our mitigation and contingency plans, we would expect this impact to be much slower.
Let me close by reiterating our confidence and conviction in our plan to launch Old Navy as a stand-alone public company. We believe this best positions both companies to compete effectively in this evolving retail landscape. Our short-term priorities remain unchanged and we expect that focus on operational discipline to deliver continued progress as we move through the year.
And with that, we’ll open it up for questions.
在定价方面，团队正在制定某些类别的定向定价策略，在这些类别中，我们拥有定价权限，而不是广泛的定价增长。 根据目前的估计，清单4关税的未减缓影响将对我们的指导增加0.06美元的影响。 因此，通过我们的缓解和应急计划，我们预计这种影响会慢得多。
最后，让我重申我们对将旧海军作为一个独立的上市公司发起的计划的信心和信念。 我们认为这最能使两家公司在这个不断变化的零售环境中有效竞争。 我们的短期优先事项保持不变，我们期望着重于运营纪律，以便在我们度过这一年时继续取得进展。
Thank you. [Operator Instructions]. Our first question will come from Mark Altschwager with Baird. Please go ahead.
谢谢。 [操作员说明]。 我们的第一个问题将来自Mark Altschwager和Baird。 请继续。
Good evening. Thanks for taking my question. Looking at Old Navy, I know you were planning a tougher quarter there, but can you give us a sense of what you’re seeing behind the scenes that’s giving you the confidence that some of the process and assortment fixes are in place and any lingering issues that would keep Old Navy from comping positively in the back half?
晚上好。 谢谢你提出我的问题。 看着老海军，我知道你正计划在那里进行更艰难的一个季度，但是你能不能让我们了解你在幕后所看到的东西，让你相信一些过程和分类修复已到位且任何挥之不去 哪些问题会让老海军在后半段不能积极投入？
Yes. Thanks. I sort of detailed a bunch of things obviously that we’ve been working on for a while as well as moving Nancy in there as well, and I think it’s really a combination of all of the above as we look at really understanding and diagnosing where we had issues and again as we noted they’re primarily in places in the women’s assortment and making those changes as we got into Q3 and Q4. What I didn’t spend a lot of time also on in the call during my statement is that we’re looking at and really digging exceedingly deep on our marketing effectiveness to make sure both that we’ve optimized the mix, that we have the right amount of money going against marketing and that we’re getting the pull out of the creative content. So this is a no stones unturned basically pushed against the business to make the business perform the way that we know it can perform. So I’m not going to make a call here on what we expect to see in Q3 and Q4, but I have confidence in business as I stated upfront. It’s an exceptional four-wall model. I know what the runway is in front of the business. And as I noted again, there is some foundational categories where we have continued to see strength; denim being a critical one, active and fleece being other ones as well and those are really important loyalty categories.
I think as we go into fall, those are the categories we’ll be leaning into as Art said in his comments. And while we expect to see progress in the product assortment in fall, I just would point out that it was really holiday when we had the opportunity to really start from scratch, so it will be more like sequential progress from fall into the holiday assortment.
Then the other piece is just – Teri went into this and I mentioned it briefly is where are we on liability and we feel like we’re in a very good spot from an inventory standpoint. And when you’re pushing a bow wave of liability and you’re trying to fix a product problem simultaneously, it’s tough. We are not pushing a bow wave liability. We’re in very good shape from a clean inventory standpoint.
然后另一件就是--Teri进入了这个并且我简单地提到它是我们在哪里负责，我们觉得从库存的角度来看我们处于一个非常好的位置。 当你推动一波负债并且你试图同时解决产品问题时，这很难。 我们并没有推动弓波责任。 从清洁的库存角度来看，我们处于非常好的状态。
That’s great color. Thank you. Maybe just a quick follow up. The other revenue really reaccelerated this quarter. I know there’s a few things in that line and you mentioned some positive trends at Athleta, but any more detail you can share on the drivers there?
那是很棒的颜色。 谢谢。 也许只是一个快速的跟进。 其他收入本季度真正重新加速。 我知道那条线路上有一些东西，你提到了Athleta的一些积极趋势，但是你可以在那里分享驱动器的更多细节吗？
Yes, the biggest piece of that of course is Athleta and we are very pleased with the growth. But as you recall, it was the revenue recognition changes. That’s also where our credit card income is as well now and so there were some stronger trends there as well largely due to some timing issues. We don’t expect a big change in credit card for the year, but definitely in the second quarter first half, there were more favorable trends playing through. But the bulk of it is Athleta and we feel very good of what we’re seeing there.
是的，当然最重要的是Athleta，我们对这一增长感到非常满意。 但是你记得，这是收入确认的变化。 这也是我们的信用卡收入现在也是如此，所以那里有一些更强劲的趋势，主要是由于一些时间问题。 我们预计今年信用卡不会发生重大变化，但绝对是在上半年的第二季度，有更多有利趋势在发挥作用。 但其中很大一部分是Athleta，我们对在那里看到的东西感觉非常好。
Great. Thanks. Best of luck this fall.
大。 谢谢。 祝你今年秋天好运。
Thank you. We’ll take our next question from Paul Lejuez with Citi Research.
谢谢。 我们将接受Paul Lejuez与Citi Research的下一个问题。
Hi, guys. Can you share your assumptions maybe where you expect by brand to see the biggest improvement in the back half? Are you looking for positive comps for any brand by the time we get to the fourth quarter? And then just separately, I’m just curious if – right now we’re dealing with 10% tariff situation. Art, if we were faced with the 25%, does that change your view on the split of the company into two? Is that something that’s better to tackle as a combined entity or do you just stay the course? Thanks.
嗨，大家好。 您是否可以分享您的假设，也许您可以通过品牌看到后半部分的最大改进？ 在我们到达第四季度之前，您是否正在为任何品牌寻找积极的补偿？ 然后单独说，我只是好奇，如果 - 现在我们正在处理10％的关税情况。 艺术，如果我们面对25％，这会改变你对公司分裂为两个的看法吗？ 这是一个更好的解决方案，或者你只是坚持到底？ 谢谢。
Yes, so on the first one, we’re not going to call out comp trends to the back half. I think we’ve been pretty clear that we want quality revenue and that we are focused on yield. And an early indicator to me of getting strength back in the business will be and in places we have seen this where we’re seeing a positive spread over our gross margin dollar comp versus our sales comp call that out in Gap outlet. And so I think in this environment you have to focus on quality revenue first and foremost and that’s why we’ve been super tight and lean on inventory, why we are keeping inventory open, why we are reserving the right to use responsive capabilities where we see that we can feed some fuel into the businesses and right now we’re using that as we’ve seen some success in Gap denim to put some additional units to support the denim business with the fall launch. So it’s really a quality revenue issue first. And do I hope for positive comps? Absolutely, but I want to see that on our foundation of quality revenue rather than we’re out there gutting a bunch of units through the system and it’s low quality revenue. So that’s number one. On the tariffs, we are as Teri noted, we’re steadfastly focused on executing. I’m pleased with where we are on the technical work associated with building the platform for the separation of the companies. The business reason, which is what we’ve been calling out all along for doing so, remains intact. We’re going to use all the weight of this company to participate in the conversation to protect the American consumer. We do not think these tariffs are a constructive – that they have a constructive impact on the consumer. Teri noted that we’re working to mitigate them. Rather than speculate about contingencies, I’d just say we’re focused right now. And obviously we’re reading all aspects of the environment that we’re operating in as we do the work to make sure that we are confidently on the right course and we are quite confident that we are on the right course now.
是的，所以在第一个方面，我们不打算将补偿趋势称为后半部分。我认为我们已经很清楚我们希望获得高质量的收入，而且我们专注于收益率。对我而言，早期的指标就是我们已经看到了这一点，我们已经看到了这一点，我们看到我们的毛利率美元汇率与我们在Gap outlet中出售的销售汇率的积极分布。因此，我认为在这种环境下，您必须首先关注质量收入，这就是为什么我们一直非常紧张并依赖库存，为什么我们要保持库存畅通，为什么我们保留使用响应能力的权利。看到我们可以为企业提供一些燃料，现在我们正在使用它，因为我们已经看到Gap牛仔布取得了一些成功，在秋季推出时增加了一些单位以支持牛仔布业务。所以这首先是一个高质量的收入问题。我希望积极的补偿吗？当然，但我希望看到我们在质量收入的基础上，而不是我们在那里通过系统消除了一堆单位，而且收入质量低。这是第一名。关于关税，我们就像泰瑞指出的那样，我们一直专注于执行。我很高兴我们在与建立公司分离平台相关的技术工作方面。业务原因，我们一直在呼吁这样做，仍然完好无损。我们将利用该公司的所有权重参与对话，以保护美国消费者。我们认为这些关税不具有建设性 - 它们对消费者具有建设性影响。泰瑞指出，我们正在努力减轻它们。而不是推测突发事件，我只是说我们现在关注。显然，我们正在阅读我们正在进行的环境的各个方面，因为我们正在开展工作，以确保我们自信地走在正确的路线上，并且我们相信我们现在正在走上正确的道路。
Thanks. Good luck.
We’ll take our next question from Dana Telsey with Telsey Advisory Group.
我们将接受来自Dana Telsey与Telsey Advisory Group的下一个问题。
Good afternoon, everyone. Going back to Old Navy for a moment, I think when the quarter started, May started off soft. What did you see as you went throughout the quarter? And I saw the denim customization studio in Flatiron, so definitely experience is becoming more part of it. But are we going to see anything like that in Old Navy? And with the down 5% comp that you had, should it improve as we go through basically from product or promotion, how are you thinking about it? Thank you, Art.
大家下午好。 回到老海军一会儿，我想当季度开始时，梅开始变软了。 你整个季度都看到了什么？ 我在Flatiron看到牛仔布定制工作室，所以绝对经验正在成为其中的一部分。 但是我们会在Old Navy中看到类似的东西吗？ 而且，由于我们基本上从产品或促销活动中获得了5％的降低成本，你应该如何改进，你是如何思考它的？ 谢谢，艺术。
That was a lot of questions, Dana.
I’m glad you saw Flatiron. We were pretty excited about how that store showed up and obviously there’s some elements in there that you’re not going to see everywhere, which is why I call out Garden State Plaza which is a pretty traditional mall-based store in a center that’s been around for a long time just to see how presentation shows up there. What you will see executed in every one of our Gap stores is a proud front and center denim moment where we stand for denim and windows that support that. And we feel like she’s getting that and she’s seeing the new fits that we have and she’s reacting to it quite well. On Old Navy, a positive comp is going to come back first and foremost because of product acceptance. We are tight on inventories but we know we have room for an AUR and a yield standpoint even with tight inventories plus bring to bear our responsive capabilities to feed units into the business. So I don’t want to call – again, I’m not going to call what we’re going to see in the back half, but I am confident in the business and all the consumer metrics, the NPS, et cetera, et cetera are all still very strong in the business. And we know we’ve got some product issues that were well into the way in fixing and like I said we’re turning every other stone as well just to make sure that we’re not missing something along the way where we need to be. And then we’re continuing to put marketing in to support the business really across all of our businesses.
我很高兴见到Flatiron。我们对这家商店如何出现感到非常兴奋，显然那里有一些你不会到处看到的元素，这就是为什么我把Garden State Plaza称为一个非常传统的商场商店，这是一个中心的商店。很长一段时间才看到演示文稿如何出现在那里。您将在我们的每个Gap商店中看到的是一个引以为豪的前面和中心牛仔布时刻，我们代表牛仔布和支撑它的窗户。而且我们觉得她已经得到了这一点，她看到了我们所拥有的新款，她对此做出了很好的反应。在旧海军上，由于产品的接受度，积极的补偿将首先回归。我们的库存很紧张，但我们知道即使库存紧张，我们仍有空间获得AUR和收益率的立场，并带来我们的响应能力，以便将单位投入业务。所以我不想打电话 - 再说一遍，我不会打电话给我们后半部分会看到什么，但我对业务和所有消费者指标，NPS等等都充满信心。 cetera在业务方面仍然非常强大。而且我们知道我们有一些产品问题很好地解决了问题，就像我说我们正在转动其他所有石头一样，只是为了确保我们不会错过我们需要的方式。然后，我们将继续进行营销，以便在我们所有业务中真正支持业务。
Dana, to your first question of what did we see within the quarter, we definitely saw sequential progress as we move from May once the weather is inflected [ph] and the product was more seasonally appropriate, we definitely saw sequential progress from June and then into July.
I’ll just comment on weather for a second, because I’ve just had my senior leadership team together yesterday as we were looking at the business and looking forward. And the weather for the rest of August, September, October, November, December is right in the middle of the table and we’ve increasingly build this to how we think about our commercial plan, whether we should put the pedal down and move some product if we’re going to be looking at unseasonable weather or whether we should keep our powder dry if we know that the weather is going to turn. As we look at September, we believe that the weather pattern should be favorable and should for most consumers around the country really pretty definitively signal a seasonal change in the fall and that is something that has historically been a good indicator for the business.
我只会评论天气一秒钟，因为我们昨天刚刚将我的高级领导团队聚集在一起，因为我们正在关注业务并展望未来。 8月，9月，10月，11月，12月剩余时间的天气正好位于中间位置，我们越来越多地考虑我们的商业计划，我们是否应该放下踏板并移动一些 产品，如果我们要看不合时宜的天气，或者如果我们知道天气将要转变，我们是否应该保持粉末干燥。 正如我们在9月份所看到的那样，我们认为天气模式应该是有利的，并且对于全国大多数消费者来说，真正非常明确地表明秋季的季节性变化，这在历史上一直是业务的良好指标。
Thank you. We’ll now take our next question from Matthew Boss with JPMorgan.
谢谢。 我们现在接受Matthew Boss与JPMorgan的下一个问题。
Great. Thanks. Maybe, Teri, on the gross margin, so slight improvement in 3Q relative to 122 basis points of contraction. In the front half implies roughly 100 basis points of expansion in the fourth quarter. How would you rank the drivers of that inflection and just your level of confidence?
大。 谢谢。 也许，Teri，毛利率，第三季度相对于122个基点的收缩略有改善。 前半部分意味着第四季度约有100个基点的扩张。 你如何对这种变化的驱动因素和你的信心水平进行排名？
Well, maybe slight [indiscernible] define better, but I would just point out that as you think about the compares we’re going up against combined with the sequential progress we expect to see in the business, there would be meaningful margin expansion in Q4 versus last year just because of when you look at the combination of those two factors. But the slight might be bigger improvement in Q3 than you’re factoring in.
好吧，也许稍微[音频不清晰]定义得更好，但我只想指出，当你考虑我们正在进行的比较以及我们期望在业务中看到的连续进展时，第四季度会有明显的利润率扩张 与去年相比，仅仅是因为当你看到这两个因素的组合时。 但是第三季度的轻微改善可能比你考虑的更大。
Okay. And then maybe Art just a follow up. In light of your comments regarding the challenging traffic trends heading into 3Q, just any early thoughts on back to school for either Gap or Old Navy and just your confidence as we head into that important season?
好的。 然后也许艺术只是一个跟进。 鉴于你对第三季度挑战性交通趋势的评论，对于Gap或Old Navy重返校园的任何早期想法，以及我们进入那个重要赛季的信心？
I’ve watched as I’ve seen others come out and give some pretty definitive statements about how they see the business based upon pretty short amount of selling. And I think as I’ve mentioned in previous calls that we’ve had, it’s the year-over-year-over-year we’ve really seen back to school become a less acute event and for that demand to spread out really from a July period into post Labor Day depending upon climate, school openings and those kinds of things. Frankly, we’re focused on driving traffic and driving sales across that whole period. Labor Day is big for us. We think the weather trends are going to be attractive. We’ve addressed inventory trends to match with where we think the Q3 is going to come in. So I’m focused on frankly delivering the entire quarter to be honest and would rather not comment on what’s really only a couple of weeks as the season starts to pull up.
我已经看到了，因为我看到其他人出来并就如何根据相当短的销售量看待业务给出一些非常明确的陈述。 而且我认为正如我之前在电话会议中所提到的那样，我们已经看到回到学校的年复一年逐年成为一个不那么严重的事件，而且这种需求实际上是从 劳动节后的7月期间取决于气候，学校开放和各种事物。 坦率地说，我们专注于在整个时期内推动流量和推动销售。 劳动节对我们来说很重要。 我们认为天气趋势将具有吸引力。 我们已经解决了库存趋势，以配合我们认为Q3将要进入的地方。所以我专注于坦诚地交付整个季度，说实话，而不是评论什么是真正的只有几周的季节 开始拉起来。
Great. Best of luck.
We’ll hear now from Kate Fitzsimons with RBC Capital Markets.
我们现在将听到来自KBC Fitzsimons和RBC Capital Markets的消息。
Hi. Thank you for taking my question. Art, I definitely appreciate the more conservative view on inventory units into the back half. Just as we work to get Old Navy back on track, can you speak to chase capability at that brand that makes you think that you can access the units you might need in order to drive comp improvement, or should we think with the back half as really more exclusively an AUR recovery story just where we broadly with lead times in that business and flexibility on the sourcing side and how are you feeling about the supplier base there or just any disruptions to note in light of the trade tension? Thank you.
你好。 谢谢你提出我的问题。 艺术，我绝对欣赏对后半部分库存单位更为保守的看法。 就像我们努力让老海军重回正轨一样，你能否说出追逐该品牌的能力，让你认为你可以使用你可能需要的单位来推动改进，或者我们应该考虑后半部作为 更确切地说是AUR的复苏故事，我们广泛地介绍了该业务的交付时间和采购方面的灵活性，您对那里的供应商基础感觉如何，或者只是因为贸易紧张而需要注意的任何中断？ 谢谢。
Yes, it’s a category specific capability because if you’re looking at outerwear as an example that tends to be long lead times, sweaters are long lead times just because of the nature of the manufacturing process. If you look across key categories in the business, denim in particular, we have adequate capacity to put more than enough units into the business if we saw that we were reading upside there. Now, I can’t put it in, in a week but if I look at Q4 and the reading trends in Q3, we have plenty of open and plenty of vendor capacity to put units in the business and this would be the same thing. To a certain extent certain types of woven tops as well, less capacity in the active space but still some capacity there and that would really be across the entire family. So we can feed the beast and we have demonstrated our ability to do that as we see the demand there. And we’ll talk more about this as we get into our Investor Day, Meet the Management along the way, this is something that we’ve been building over time. We know what the peak looks like in terms of full penetration of responsive. We know where we are. We know what the business outcomes are associated with it and we’re going to give a much more granular perspective about where we are and where we’re going on this. But we do have the capability to put units into the business in many parts of the business right now. I was going through some numbers the other day in Athleta also and they’ve had an incredible bottoms business in the Powervita fabric and that’s really been based upon buying conservatively but then a near season and in-season response capability that’s allowed us to grow that way into the double digits season-over-season-over-season. I’m pretty optimistic quite honestly about Old Navy’s Q4 comp. We’ve got the fuel there to do it. We’ve got the responsive capacity. I think we’re planned well. But again, I don’t want to call it right now. I just want to deliver it.
是的，这是一个特定类别的能力，因为如果你把外衣看作一个往往需要很长的交货时间的例子，那么毛衣的交货时间很长，这只是因为制造过程的性质。如果您查看业务中的关键类别，特别是牛仔布，如果我们看到我们在那里读取更多内容，我们就有足够的能力将足够多的单位投入到业务中。现在，我不能在一周之内把它放进去，但是如果我看看第四季度和第三季度的阅读趋势，我们有足够的开放性和足够的供应商能力将单位投入业务，这也是一回事。在某种程度上某些类型的机织顶部，活动空间的容量较小，但仍有一定的容量，并且真正适用于整个家庭。因此，我们可以喂养野兽，我们已经证明了我们在那里看到需求的能力。当我们进入投资者日，一路上遇见管理层时，我们会更多地讨论这个问题，这是我们一直在建设的事情。我们知道在响应的完全渗透方面，峰值是什么样的。我们知道自己的位置。我们知道业务成果与之相关联的内容，并且我们将更详细地了解我们的位置以及我们的目标。但我们现在确实有能力将业务部门纳入业务的许多部分。前几天我在Athleta中经历了一些数字，他们在Powervita面料上有一个令人难以置信的底部业务，这实际上是基于保守购买但是接近季节和季节内响应能力使我们能够增长进入赛季过季的两位数。我很老实地对Old Navy的Q4 comp非常乐观。我们有燃料在那里做。我们有响应能力。我想我们的计划很好。但同样，我现在不想打电话给它。我只想提供它。
Great. Best of luck.
Thank you. We’ll take our next question from Omar Saad with Evercore ISI.
谢谢。 我们将从Evermar ISI的Omar Saad接下来的问题。
Thanks, guys. This is Westcott Rochette on for Omar. You recently have brought in an outside creative agency Johannes Leonardo I think for the first time in several years. If you think about running that internally versus externally, especially under your new CMO, how do you integrate those – has that changed the process as you integrate the strategy? And looking at the new campaigns, it seems to be really focused on denim. Denim is really a focus category with multiple places. What do you think you need to do to really emphasize the strength and the heritage of Gap denim kind of going forward to make it stand out and win that customer back? Thank you.
多谢你们。 这是Westcott Rochette为Omar。 你最近带来了一个外部创意机构约翰内斯莱昂纳多，我认为这是几年来的第一次。 如果您考虑在内部运行而不是在外部运行，尤其是在新的CMO下运行，那么如何集成这些 - 在整合策略时是否改变了流程？ 看看新的广告系列，它似乎真的专注于牛仔布。 牛仔布真的是一个有多个地方的焦点类别。 你认为你需要做些什么才能真正强调Gap牛仔布的力量和传承，让它脱颖而出并赢得客户的支持？ 谢谢。
Yes. So you are correct that we brought in JL. Really they and our new CMO kind of came in midway in the process and I’m going to be just completely just get it off the top of my head on this one honest with you which is that is always a little scary to do, especially for a big season like we had with fall. We were really re-launching denim and coming out strong and proud about denim. You’ll be the judge on the content. If you see the 60-second anthem that’s been cut all the way down to six-second product post videos for social, I was super pleased with how Alegra as our CMO and the agency got up to the speed and really understood what we were trying to do and balanced the need for a brand message along with a need for a call to action to get in our stores and try our product on. And it makes me feel pretty optimistic because I’ve been through agency startups before, pretty optimistic about what we can get done as we really start to season in with each other and they get dialed in. I will tell you because you called it out that on my mind absolutely is more aggressively mining the heritage and the legacy of the brand. Our consumers tell us it is something that they want to connect to and that they want to understand. Take a look at the denim through the ages that we’ve done. There’s a display of it in a few stores; 17th and 5th has it where we’ve also brought products that we modernized out of the archive and customers are loving it. And always one of my measures is how much of it I’m seeing in the building and I’m seeing a lot of it in the building. So we think that it’s a very, very deep vein that can be mined. I know JL feels exactly the same way about it as well and they’re already building that into some ideas for our holiday campaign as we get into spring and summer next year. And as you know, the CMO came from Adidas. A lot of the resurgence there really came out of reasserting the legitimacy and the relevance of the brand based on the heritage of the brand. And we’re not copying that playbook, but there’s a lot of good ideas there I think that absolutely apply to Gap brand as well.
It does look good and I wish you luck on the fall campaign and going forward. Thanks, guys.
Thank you. We’ll take our next question from Ike Boruchow with Wells Fargo.
谢谢。 我们将接受来自富国银行的Ike Boruchow的下一个问题。
Hi. Good afternoon. Teri, I think for you, I think you’ve mentioned some marketing pullback or maybe it was Art, some marketing pullback when you saw the demand in the product wasn’t really there in the second quarter and then you can kind of see it in the SG&A line. Just my question when we think about SG&A, are you pushing some of those marketing dollars into holiday, meaning should we kind of expect the SG&A growth to maybe tick up a little bit when we get into Q4, just kind of curious how those marketing dollars are shifting around?
你好。 下午好。 Teri，我想对你来说，我认为你已经提到了一些营销回调或者也许是Art，当你看到产品的需求在第二季度真的不存在时会有一些营销回调然后你可以看到它 在SG＆A线。 只是我的问题，当我们考虑SG＆A时，你是否将这些营销资金推入假期，这意味着当我们进入第四季度时，我们应该期待SG＆A增长可能会略微上升，只是好奇这些营销资金如何 正在转移？
Yes, let me clarify. Then I’ll turn it over to Teri. The big one really was intentionally going pretty dark with Gap brand really in the first half and we saw a direct connection to that and traffic. Marketing does matter with the intent being that we would return to more normal marketing levels in Q3. And you’ll note that we have an adult campaign, a social campaign shot separately but related to it and then kids and baby campaign which we haven’t had for a while. And so far the early returns have been very encouraging. I’ll let Teri talk about the specifics here. But for Gap, it was a return more to normal than it was sort of any acceleration or anything like that with an intentional dark period over the bulk of the first half.
是的，让我澄清一下。 然后我会把它交给泰瑞。 在上半年，Gap品牌真的很有意识地变得非常黑暗，我们看到了直接连接到那个和流量。 市场营销确实很重要，我们的目的是在第三季度恢复更正常的营销水平。 而且你会注意到我们有一个成人运动，一个单独的社交活动，但与之相关，然后是我们暂时没有的孩子和婴儿活动。 到目前为止，早期的回报非常令人鼓舞。 我会让泰瑞谈谈这里的具体细节。 但是对于Gap来说，这是一个更加正常的回归，而不是任何加速或类似的事情，在上半场的大部分时间都有故意的黑暗时期。
And as we look at the back half, we will have some I would call it modest uptick in advertising that you’ll see in the SG&A line for reasons Art described and we’ve talked about it in terms of matching it with the product improvement. There will also be some deleverage in SG&A as you remember in the fourth quarter of last year we had some adjustments to our bonus accrual that came through and obviously as we reestablish that this year, that will put some pressure on the back half as well.
Thank you. We’ll take our next question from Oliver Chen with Cowen and Company.
谢谢。 我们将接受Oliver Chen与Cowen and Company的下一个问题。
Hi. The Banana Republic adding rental subscription service sounds quite innovative. What are your thoughts on re-commerce and rental subscription? And also as we are doing a lot of work on the circular economy, what will be your guardrails and framework for thinking about success with the rental subscription at Banana Republic and how might the supply to your larger framework for the other brands and how you see customers focused on sustainability and what that means to them?
你好。 香蕉共和国增加租赁订阅服务听起来很有创意。 您对再商务和租赁订阅有何看法？ 而且，当我们在循环经济方面做了大量工作时，您将在Banana Republic的租赁订阅中考虑成功的护栏和框架，以及如何为其他品牌提供更大的框架以及您如何看待 客户关注可持续性及其对他们意味着什么？
That was a very rich question, Oliver. Thank you. So the subscription service, let me start there. We are looking at it at the moment as a customer acquisition opportunity and we’re doing some pretty rich thinking that I’m pleased with on how we think about customer acquisition, the role of our stores and how do they satisfy a customer in the store who has a 20-minute experience and what would he be willing to pay for that and it helps us think about the value of our stores beyond simply the pure momentary four-wall contribution, but also things like this, service like this that gives the customer to the ability to participate in the brand with less of a permanent financial commitment potentially. So we’ll read it. And first and foremost, we’re going to look at customer acquisition metrics. Can it grow into being a significant and profitable business? The economics certainly work. It will just be a question really what the uptake is as we get it dialed in. So starting in Banana given the price points and given the used occasions, does this have some applicability in the other brands? It might. It’s a treaty in my mind to think about right now with the newborn – not a newborn but a two-year-old in the house; it’s not mine, it’s my daughter’s, how fast babies go through clothes as well and how many of those clothes either wait to get handed down or turned in, is there something interesting there also. So really looking at it and we thought that this was a good place to read. And I’m excited to see what the results are. Obviously, we’re just kicking it off. On sort of the resale and stuff like that, we’re watching all these things and we talk to everybody out there where I do believe there is an opportunity. We had some of this – a little bit of the Gap brand with some vintage items that were bought and then up cycled. We do think there’s a vintage play largely around our brands that we’re exploring and we have been buying some items out of flea markets and other places and bringing them in. I’m not sure there is a big resale market opportunity for us, but our eyes are wide open and so we’re looking at it. Clearly sustainability is a huge issue and we’re increasingly seeing that as we talk to our customers. We think we have an excellent sustainability record and we know we can do a lot more and we intend to do a lot more. I think as you’ve probably heard me say before, one of the biggest elements of waste in our industry is not the clothing that’s bought, it’s the clothing that is bought but unwanted and the long tail that we and many other companies have that end up sad and lonely in the clearance section of the store. And the good news is that limiting that waste also improves our inventory productivity, our margins and our working capital efficiency. And so that’s another place where we’re focused, which I think people really don’t understand but it’s a big economic driver for us and a big waste eliminator. So you’ve got your arms around an issue, we think we’re well positioned to really move on this and more aggressively. Obviously subscription service first but then the whole issue of inventory productivity is kind of the industry’s dirty little secret that we’re committed to tackling.
那是一个非常富有的问题，奥利弗。谢谢。所以订阅服务，让我从那里开始。我们目前正在将其视为客户获取机会，我们正在做一些非常富有的思考，我对我们如何看待客户获取，我们商店的角色以及他们如何满足客户满意度感到满意。拥有20分钟经验的商店以及他愿意为此支付的费用，这有助于我们思考我们商店的价值，而不仅仅是纯粹的瞬间四墙贡献，还有这样的事情，这样的服务给出了客户能够以较少的永久性财务承诺参与品牌。所以我们会读它。首先，我们将着眼于客户获取指标。它能成长为一项重要且有利可图的业务吗？经济学确实有效。这真是一个问题，因为我们接受了它的吸收。所以从Banana开始给出价格点并给出用过的场合，这是否适用于其他品牌？它可能。在我看来，这是一个与新生儿一起思考的条约 - 不是新生儿，而是一个两岁大的孩子;这不是我的，这是我女儿的，婴儿穿衣服的速度有多快，以及有多少衣服等待传世或上交，还有一些有趣的东西。所以真的看着它，我们认为这是一个阅读的好地方。我很高兴看到结果如何。显然，我们只是把它踢掉了。关于转售和类似的东西，我们正在观看所有这些事情，我们会与那里的每个人交谈，我相信那里有机会。我们有一些 - 一点点的Gap品牌，有一些古董物品被买了然后再循环。我们确实认为我们正在探索的品牌主要围绕我们的品牌，我们一直在跳蚤市场和其他地方购买一些物品并将其带入。我不确定我们是否有大的转售市场机会，但是我们的眼睛是敞开的，所以我们正在看它。显然，可持续发展是一个巨大的问题，当我们与客户交谈时，我们越来越多地看到这一点。我们认为我们拥有卓越的可持续发展记录，我们知道我们可以做得更多，我们打算做更多的事情。我想你们之前可能听过我说过，我们这个行业最大的浪费元素之一并不是买的衣服，而是购买的衣服，但不需要的衣服，以及我们和其他许多公司的长尾在商店的清仓部分感到悲伤和孤独。好消息是限制浪费也可以提高我们的库存生产率，利润率和营运资本效率。所以这是我们关注的另一个地方，我认为人们真的不明白，但这对我们来说是一个重要的经济驱动因素，也是一个重要的废物消除者。所以你已经掌握了一个问题，我们认为我们已经准备好真正实现这一目标并且更加积极。显然订阅服务首先，但整个库存生产率问题是我们致力于解决的行业肮脏的小秘密。
Thank you. And a quick modeling question. So as we think about the back half, you’ve had a nice Q2 which beat relative to street estimates and then you reaffirmed your EPS guidance. But has a lot changed as you’re through first half versus your prior expectations in the first quarter as we model the back half?
谢谢。 还有一个快速的建模问题。 因此，当我们考虑后半部分时，你有一个不错的Q2相对于街道估计，然后你重申你的EPS指导。 但是，由于我们对后半部分进行建模，因此在上半年与上一季度的预期相比有很大变化吗？
I don’t think that a lot has changed really. We actually had a little bit better margin performance in this quarter than we had originally expected. But as we’ve modeled the back half, there’s a little bit of shifting I guess between Q3 and Q4, but generally speaking I wouldn’t call it anything notable as a change.
我认为并没有真正改变。 我们本季度的保证金表现实际上比我们原先预期的要好一些。 但是当我们对后半部进行建模时，我猜测在Q3和Q4之间会有一些变化，但一般来说我不会把它称为任何值得注意的变化。
Thank you. Best regards.
We’ll take our next question from Alex Walvis with Goldman Sachs.
我们将接受Alex Walvis与Goldman Sachs的下一个问题。
Great. Good evening and thanks so much for taking the question. I had a question about the impact of tariffs on the business. You helpfully suggested that it might be around a $0.06 impact to the business if unmitigated. I was wondering if you seek to offset that, how much of the $0.06 can be offset by pricing versus other strategies to offset? If there are price increase, where in terms of categories and banners are you likely to be able to take the most price? Thank you.
大。 晚上好，非常感谢你提出这个问题。 关于关税对企业的影响，我有一个问题。 您有帮助地建议，如果不加以解决，可能会对业务产生约0.06美元的影响。 我想知道你是否试图抵消这一点，0.06美元可以通过定价与其他策略相抵消多少？ 如果有价格上涨，那么在类别和横幅方面，您可能能够获得最高价格吗？ 谢谢。
Let me start and then I’ll hand it over to Teri as well. There are various ways to mitigate it in the world. Number one is sharing this with our vendors, which is where we’re starting the conversation. Number two, certainly that we’ve looked at is our other places where we should be adjusting tickets and adjusting those either at the factory or in our DCs or in our stores. We have the capacity to do all of that. What I would also say is that by far the bigger lever is continuing to tighten up our inventories versus the foremost that allows us to improve our yields and reduce our promotional intensity and recover it that way as well. And again, we’ve tried to be really forthright about this and play it right at the middle in terms of what we think the impact is and we do think that we have ample levers to mitigate this. Obviously, our first and foremost would be that we get into a more predictable environment where we aren’t sort of constantly being whipsawed by what’s going to happen tomorrow, but we’re very flexible and we can deal with it as it comes along. We have a bunch of levers to deal with it. Do you want to add to that, Teri?
No, I think you’ve covered it well.
Great. Thanks so much. And then maybe one more from me. You’re leaning into denim on both the Gap and Old Navy brands, can you give us some color on how big denim is for those brands at the moment? How big can it get? Has there been material variance over time and the importance of that category within your assortment?
大。 非常感谢。 然后可能还有一个来自我。 你在Gap和Old Navy两个品牌上都倾向于牛仔布，你能不能给我们一些关于这些品牌目前大牛仔布的颜色？ 它有多大？ 随着时间的推移是否存在重大差异以及该类别在您的分类中的重要性？
Yes, I don’t really see a limit frankly. Old Navy’s continued to gain market share in denim and still has single-digit market share. And Gap had significantly more market share before the sales issues of the last couple of years. And so we have seen denim penetration inside that business substantially higher. So I guess my starting point with Gap is to say, what’s our fair share and where we’ve been even recently and we’re well below that. And we know we have authority in denim. We’ve done the customer research. We know what our functional and emotional equities are. We know where people connect with the brand. We are in an interesting denim trend cycle right now with the diffusion of trend across rise, leg shape and silhouette. You would see us aggressively embrace that inside of Gap and we’re seeing her respond to that. And it’s a real great opportunity. Our tagline is It’s Our Denim Now and we’re really trying to focus on denim for all including inclusive sizing that allows us to reach out to a larger size customer. So I don’t see a limit. We’ve also been in the cycle where denim’s been in a bit of a flat cycle which has always historically been then followed by something that really motivates the consumer to get off her couch and into the stores and we’re seeing some of that right now in leg shape and rise certainly, but we anticipate that we’re going to see some trends emerging in the spring time that are going to play into our denim authority. So I’m excited about it and it’s a loyalty category. And last thing I would say is on Gap is that we knew we were having issues on fit consistency and with this new flow again early days we’re seeing ratings online, et cetera, to be quite positive in terms of how she feels about the fit, which is always a good indicator for us.
Thanks very much.
Thank you. We’ll now take our final question from Lorraine Hutchinson with Bank of America Merrill Lynch.
谢谢。 我们现在将与Lorraine Hutchinson和Bank of America Merrill Lynch提出最后一个问题。
Thanks. Good afternoon. I just wanted to follow up on the comments that you’re continuing to work on the third quarter inventory. Are there particularly categories or brands where you feel like you’re still too heavy or have you been able to get into chase mode as we move to the back-to-school season?
谢谢。 下午好。 我只想跟进您继续处理第三季度库存的评论。 是否有特别的类别或品牌，您觉得自己仍然太沉重，或者当我们进入返校季节时您是否能够进入追逐模式？
Lorraine, I would say that we still have opportunity in each of the brands, obviously the least being Athleta just given their inventory productivity continues to improve as they leverage their capabilities and frankly have strong growth tailwinds behind them. But as we look at each brand and we’ve said this before, as our productivity has declined and in a time when we’ve invested in the many capabilities that Art has mentioned, we really would set much higher standards for our ability to operate with leaner units and not miss a beat in terms of demand as we can chase into it frankly with better styles and better knowledge about what that demand is, not just quantity but also trend. So I do see opportunity really across the brands. I think specifically going into the back half, what we would see primarily is that Old Navy and Gap brand probably have the opportunity just to move through their carryover units and make sure that they are best positioned to be able to capture the product improvements we see in the fall, but it really is across the brands.
Yes, I’d just add to that that as we said, both Teri and I, we do feel like we exited the quarter in pretty good shape. We are focused on clearing. I don’t think you would say, Teri, you feel like we’re super heavy any place else, but we aspire to a higher standard in terms of inventory productivity. It just isn’t where we need to be and we know we can do better right now. But I’m not concerned about – as I said, I’m not concerned about a bow wave liability that we’re going to be fighting our way through during this quarter.
是的，我只是补充一点，正如我们所说的，无论是Teri还是我，我们都觉得我们退出了这个季度的状态非常好。 我们专注于清算。 我不认为你会说，泰瑞，你觉得我们在任何其他地方都非常沉重，但我们渴望在库存生产力方面达到更高的标准。 它不是我们需要的地方，我们知道我们现在可以做得更好。 但是我并不担心 - 正如我所说的那样，我并不担心本季度我们将会遇到的弓波责任。
No, and frankly I think what has been encouraging is to see the organization embrace this as we think about how do we think about it differently, how do we drive accountability in different ways. There is a huge receptivity to the ability to better leverage what we have.
Thank you. That does conclude today’s question-and-answer session as well as that does conclude our conference. Thank you for your participation and you may now disconnect.
谢谢。 这确实结束了今天的问答环节以及我们的会议结束。 感谢您的参与，您现在可以断开连接。
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