WEBVTT - Gap CEO Richard Dickson Talks Sales Outlook

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Gap cut its annual sales out look after weaker than

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<v Speaker 2>expected results at Old Navy, Banana Republic, and Athleta. The CEO,

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<v Speaker 2>Richard Dixon, blamed merchandising missteps, especially dresses at Old Navy,

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<v Speaker 2>while saying the company is still early in its turnaround.

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<v Speaker 2>And fortunately, surveillance anchor Lisa Abramowitz has got Richard Dixon

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<v Speaker 2>on the show for us. So Richard, Lisa take it

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<v Speaker 2>away with Richard. Thank you so much.

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<v Speaker 1>I really appreciate it. Matt. This is a real question,

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<v Speaker 1>and I am so pleased to say that Richard Dixon,

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<v Speaker 1>the CEO of the Gap company, is with us here today.

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<v Speaker 1>And Richard, I want to just start with what went

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<v Speaker 1>wrong with respect to the disappointing earnings and specifically how

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<v Speaker 1>hard it is to get certain fashion calls right.

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<v Speaker 3>Yeah, Lisa, it's a great question, but I want to

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<v Speaker 3>zoom out. First of all, we actually delivered progress this quarter,

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<v Speaker 3>and we delivered it against several key metris. Important to

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<v Speaker 3>recognize this is our ninth consecutive quarter of positive comparable sales.

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<v Speaker 3>Three out of our four brands are growing. Comps were

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<v Speaker 3>up two percent and that's building on two percent comp

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<v Speaker 3>growth from last year. We outperformed our gross margin outlook

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<v Speaker 3>by thirty basis points. We won across all income cohorts

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<v Speaker 3>gained share as our value proposition across the board continues

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<v Speaker 3>to resonate, and we returned four hundred and fifty million

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<v Speaker 3>dollars in cash to shareholders through dividends and share repurchases.

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<v Speaker 3>As you call out, performance at the brand level was varied.

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<v Speaker 3>First standout quarter at Gap brand up double digit ten

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<v Speaker 3>percent on top of five percent last year. Old Navy

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<v Speaker 3>delivered growth up one percent comp on top of last

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<v Speaker 3>year's three percent growth. Now that also marks the brand's

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<v Speaker 3>six consecutive quarter of positive comps. We've been pursuing categories

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<v Speaker 3>like Denim, Active, Kids, and Baby all which posted growth

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<v Speaker 3>versus last year, and they continue to build relevance with

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<v Speaker 3>our customers. Seasonal categories have gotten off to a weaker start,

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<v Speaker 3>in particular dresses, where we just did not have the

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<v Speaker 3>right fashion and value equation. We actually overinvested some sales

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<v Speaker 3>in inventory and didn't necessarily correctly anticipate what ended up

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<v Speaker 3>to be a decline in the dress market. Where our

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<v Speaker 3>dress assortment actually did resonate was in occasion dressing, which

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<v Speaker 3>has more specific end use like weddings and easter. We've

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<v Speaker 3>seen a change in customer acceptance of dresses during key

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<v Speaker 3>peak moments, so summer stock up instead shifting more diversal

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<v Speaker 3>categories and styles that can be worn. Let's call it

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<v Speaker 3>year round.

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<v Speaker 1>One thing that I've had as.

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<v Speaker 3>We get as we get through the seasonal dynamic. We're

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<v Speaker 3>looking forward obviously to the back half, and I'm very

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<v Speaker 3>confident in our ability to drive improvement.

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<v Speaker 1>You know, it is really notable, Richard, that both you

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<v Speaker 1>and American Eagle came out reported certain pockets of disappointment

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<v Speaker 1>amid otherwise robust performance and talked about how it wasn't

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<v Speaker 1>because the consumer demand wasn't there, it was because of

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<v Speaker 1>specific missteps. Is there something about the environment right now

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<v Speaker 1>that makes it harder to get these things right? Because

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<v Speaker 1>two different companies called out something similar in terms of

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<v Speaker 1>style issues fashion issues? Is it a moment or is

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<v Speaker 1>it just the fashion industry?

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<v Speaker 3>Look, I probably think it's both, but both. I mean,

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<v Speaker 3>the fashion industry is a dynamic industry. To your point,

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<v Speaker 3>we are seeing consistency and strength and consumer behavior. But ultimately,

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<v Speaker 3>you know, this is a dialogue with consumers that you

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<v Speaker 3>have to follow and ultimately drive. And in this particular case,

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<v Speaker 3>again when you back up and you look at our

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<v Speaker 3>whole portfolio, gain share consistency in growth nine consecutive quarters,

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<v Speaker 3>three out of four brands, growing growth across all income cohorts,

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<v Speaker 3>very specific call out on a category that, by the way,

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<v Speaker 3>as we enter the second half, is very small. And

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<v Speaker 3>so again you know this was to some extent, you know,

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<v Speaker 3>dynamic the business that we're in, softness in the women's

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<v Speaker 3>dress business. But ultimately we believe as a portfolio we've

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<v Speaker 3>got great room and a great back half ahead of us.

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<v Speaker 1>Why do you think then that investors don't seem to

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<v Speaker 1>be feeling that. This morning, you see shares lower by

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<v Speaker 1>more than sixteen percent. Year to date, shares are also

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<v Speaker 1>lower by a similar amount. Why aren't they reflecting the

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<v Speaker 1>strength that you're talking about.

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<v Speaker 3>Look, we feel very confident in where we're at and

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<v Speaker 3>where we're going. We see great strength at the Gap brand,

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<v Speaker 3>which again is is incredible double digit growth. We've got

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<v Speaker 3>now continued growth of Bin out of Republic. We just

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<v Speaker 3>reported our fourth consecutive quarter Old Navy did deliver one

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<v Speaker 3>percent comp and well, we expect sales to deliver flat

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<v Speaker 3>to one percent now low single digits in the Q

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<v Speaker 3>two and then moderated growth in the second half with

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<v Speaker 3>the seasonal categories off to a weaker start in particular Dress,

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<v Speaker 3>we are obviously on balance taking a more moderated view

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<v Speaker 3>of the total year. We are also holding our operating

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<v Speaker 3>margin outlook. Our gross margin outlook is unchanged at flat

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<v Speaker 3>to up slightly. We're continuing to maintain cost disciplines with

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<v Speaker 3>SGNA as a rate to sales that's flat, and despite

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<v Speaker 3>the lower sales outlook, which by the way, still represents growth,

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<v Speaker 3>we're raising our earnings outlook from two dollars and thirty

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<v Speaker 3>cents to two dollars and forty cents, which reflects eleven

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<v Speaker 3>percent growth year over year at the midpoint. And while

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<v Speaker 3>this is our outlook currently on the top line, we

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<v Speaker 3>aspired to outperform it as the brand strive for continuous improvement.

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<v Speaker 3>That's why we're a long game. The companies in a

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<v Speaker 3>healthy space and we're excited about what we have ahead.

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<v Speaker 1>Richard, I am curious how much upside there is potentially

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<v Speaker 1>if you do get some of those those terra freebates

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<v Speaker 1>that a lot of people were talking about, are you

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<v Speaker 1>expecting that to potentially lead to an upside surprise?

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<v Speaker 3>You know, we we are. You know, we're an importer

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<v Speaker 3>of record, so we qualify for a refund. That said,

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<v Speaker 3>we use the reconciliation method, which has currently been excluded

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<v Speaker 3>from Phase one. We've been encouraged by the progress that

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<v Speaker 3>has been made for Phase one applicants in our industry. However,

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<v Speaker 3>without being included in Phase one, the situation does remain

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<v Speaker 3>fluid as to when and what amount of refund will

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<v Speaker 3>ultimately be realized. Therefore, we're not providing a quantification at

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<v Speaker 3>this point. We haven't assumed any benefit in our outlook.

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<v Speaker 3>But of course, you know, we anticipate that we'll share

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<v Speaker 3>more as things become more tangible.

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<v Speaker 1>So Richard, just before I let you go, the takeaway

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<v Speaker 1>here is casual dresses for the summer not really in anymore?

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<v Speaker 1>Is that sort of not what's going on? That and said,

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<v Speaker 1>we're going to be in Jans.

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<v Speaker 3>I think we overweighted our expectation of the dress category.

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<v Speaker 3>Dresses are still an important category. People are still wearing dresses.

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<v Speaker 3>What we do see is it's just more a Hasian

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<v Speaker 3>based Whereas we drove more of that everyday dressing in mind,

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<v Speaker 3>and we did see a shift and so dresses are

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<v Speaker 3>still important. We've got this. We're doing our best to

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<v Speaker 3>move through the seasonal product and again as we move

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<v Speaker 3>into the back half and the seasonal seasonal products are

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<v Speaker 3>behind us, we think we've got great programs in place

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<v Speaker 3>to drive growth.

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<v Speaker 1>Richard Dixon, always wonderful to speak with you. Thank you

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<v Speaker 1>so much for being with us. That is the gap

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<v Speaker 1>inc CEO and Matt. Evidently my casual dresses this summer.

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<v Speaker 3>Maybe I'm still a fan.

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<v Speaker 2>I'm still a fan.

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<v Speaker 1>Yes,