WEBVTT - Gap CEO Talks Expanding in Beauty and Accesories

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

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<v Speaker 2>I am here on site at the Golden SAX conference

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<v Speaker 2>with Richard Dixon, the CEO of GAP and encompassing GAP,

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<v Speaker 2>the namesake brand, as well as Old Navy Athleta and

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<v Speaker 2>of course Banana Republic, which you are decked out in today.

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<v Speaker 2>I want to start. It's great to see you, thank

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<v Speaker 2>you for being here. I want to start with the

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<v Speaker 2>announcement that you put out today about expanding the beauty

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<v Speaker 2>and accessory line in stores later this fall, maybe at

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<v Speaker 2>Old Navy first.

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<v Speaker 3>Why now, Well, I think one of the reasons why

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<v Speaker 3>now is also sort of a reflection of where we've been,

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<v Speaker 3>and as you know, we've been working really hard at

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<v Speaker 3>fixing fundamentals of our business.

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<v Speaker 1>Our core assets.

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<v Speaker 3>As you mentioned Old Navy, GAFF and m Republic Athleta.

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<v Speaker 3>These are iconic American brands, but ultimately brands that we've

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<v Speaker 3>been working to rebuild the core category apparel into consistent growth.

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<v Speaker 1>We've proven that at this point.

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<v Speaker 3>In fact, we reported our last earning six quarters of

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<v Speaker 3>comping the comm our three largest brands also comping, we're

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<v Speaker 3>growing our share, which means the consumers voting for us

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<v Speaker 3>from a financial perspective, We've stabilized, if you will, in

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<v Speaker 3>the middle of the P and L, and we're starting

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<v Speaker 3>to see growth cash balance really strong.

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<v Speaker 1>So we're at a.

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<v Speaker 3>Very good position now where we're sort of moving into

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<v Speaker 3>the next phase of our transformation strategy, which is about

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<v Speaker 3>building momentum and accelerating growth. And when we look at

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<v Speaker 3>our brand and portfolio, there are categories within our business

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<v Speaker 3>that are small businesses that could be much larger important businesses.

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<v Speaker 3>In those two our beauty and accessories, high margin, really

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<v Speaker 3>exciting categories. Customers resonate with those categories in our stores already,

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<v Speaker 3>and so we know we've got that relationship with consumers

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<v Speaker 3>that are looking for that product in our stores and

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<v Speaker 3>we can really dial that those up to be meaningful

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<v Speaker 3>businesses for our future.

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<v Speaker 2>The impulse purchases as you get to the as you

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<v Speaker 2>get to the counter. If you talk about the turnaround

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<v Speaker 2>plan and you have had two years and there has

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<v Speaker 2>been meaningful growth in a number of the brands, I'm

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<v Speaker 2>just wondering. You've talked about the terraff related hit to

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<v Speaker 2>profits being up to one hundred and seventy five million dollars.

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<v Speaker 2>How much does that set that turnaround plan back.

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<v Speaker 3>Look, I think in any business, you're always dealing with

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<v Speaker 3>things that are not necessarily in your control. And I

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<v Speaker 3>think the reflection of a healthy company and a healthy

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<v Speaker 3>culture is how resilient that culture is, how they remain

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<v Speaker 3>agile and flexible to deal with circumstances that come our way,

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<v Speaker 3>and tariffs is one of those circumstances. It certainly is

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<v Speaker 3>a headwind, but we've done a really good job mitigating

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<v Speaker 3>as much as we can at this juncture.

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<v Speaker 1>We did also.

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<v Speaker 3>Commit in twenty twenty six to see no further degradation

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<v Speaker 3>in the context of.

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<v Speaker 1>The impact of tariffs.

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<v Speaker 3>We have our mitigation strategies that we've shared, working with

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<v Speaker 3>our suppliers, diversifying our manufacturing footprint, ultimately challenging our own

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<v Speaker 3>choices of investments, not compromising our long term integrity, but

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<v Speaker 3>being choiceful about when we invest in, how much we invest,

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<v Speaker 3>and making sure at the end of the day that

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<v Speaker 3>while there are price increases that are part of our

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<v Speaker 3>pricing strategy every year, that we don't lose the value

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<v Speaker 3>proposition to the consumer that we've been really re igniting

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<v Speaker 3>across our portfolio in.

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<v Speaker 2>Order to maintain margin. How much you're looking at efficiencies

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<v Speaker 2>read either cutting back on staffing, not hiring, or even

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<v Speaker 2>looking at using technology to increase the output with fewer people.

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<v Speaker 1>Yeah.

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<v Speaker 3>Well, look, there's a lot of componentry that goes into margin.

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<v Speaker 1>What you could see.

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<v Speaker 3>In the context of our transformation and arguably even longer

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<v Speaker 3>than that, our history. We're operating right now at gross

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<v Speaker 3>margin highs. I mean, we've had a credible expansion of

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<v Speaker 3>our gross margin.

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<v Speaker 1>Now we've done that through real savings and efficiencies.

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<v Speaker 3>We've done it through better assortment planning, cutting our inventory,

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<v Speaker 3>pulling back on unprofitable doors, through that merchandising edit, and

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<v Speaker 3>better storytelling using our playbook as a form of execution.

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<v Speaker 3>We've created more demand and more interest in our brands

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<v Speaker 3>and are driving more full price selling, less discounting, and

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<v Speaker 3>more resonance. And so those are the most important healthy

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<v Speaker 3>components of building back our margin. And I think as

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<v Speaker 3>you look at our margin expansion over the last couple

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<v Speaker 3>of years, we believe that we're sort of at a

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<v Speaker 3>historical high in reference point, but that there's more opportunity

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<v Speaker 3>for us as we get more efficient and as our

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<v Speaker 3>brands get more relevant in the marketplace.

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<v Speaker 2>You keep talking about relevancy which goes to the core

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<v Speaker 2>of your cultural relevancy and bringing cultural relevancy back to

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<v Speaker 2>the gaping brands. Is it more difficult to bring relevancy

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<v Speaker 2>or adapt to current fashions without, say Asia as the

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<v Speaker 2>reliable supply or the manufacturer avctor rejigger supply chains the

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<v Speaker 2>same time as remaining relevant and current.

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<v Speaker 3>Yeah, Look, it is all a challenge and retail, as

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<v Speaker 3>we've talked about, is as a challenging business. It is

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<v Speaker 3>about the detail, but at the end of the day,

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<v Speaker 3>it's about the consumer.

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<v Speaker 1>And as long as you focus on the consumers.

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<v Speaker 3>Wants, needs, driving narratives that connect with consumers and product

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<v Speaker 3>that ultimately appeals to consumers, you can create a winning

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<v Speaker 3>business in any complex industry. And fortunately, again our team

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<v Speaker 3>and talent, particularly in the supply chain, our merchandising teams,

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<v Speaker 3>created teams. They're driving this playbook with agility and conviction,

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<v Speaker 3>and we're winning in a marketplace that's clearly challenged.

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<v Speaker 2>And we have seen the growth in a number of

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<v Speaker 2>the gap brands today. We also saw American Eagle come

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<v Speaker 2>out with better than expected earnings. Their shares rows the

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<v Speaker 2>most ever after the Sydney Sweety advertising campaign highly controversial

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<v Speaker 2>also highly.

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<v Speaker 1>Profitable for them.

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<v Speaker 2>Does that make you think about edge or campaigning or

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<v Speaker 2>edgeer types of advertising that could gain momentum and a

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<v Speaker 2>sort of viral sense.

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<v Speaker 3>Look, I think how I think about it is we

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<v Speaker 3>execute against our playbook and our playbok. It's no secret,

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<v Speaker 3>you know, we talk about it all the time. We

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<v Speaker 3>start it with sort of why do we exist? You know,

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<v Speaker 3>what does each one of our brands mean and represent

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<v Speaker 3>to consumers? And then we execute against that playbook relentlessly,

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<v Speaker 3>and ultimately through that process you do create campaigns or

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<v Speaker 3>what we call releases that drive cultural relevance and connectivity.

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<v Speaker 3>And in the case, for instance, of Gap, which is

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<v Speaker 3>probably the most developed brand within our portfolio, against that playbook,

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<v Speaker 3>we're not just creating cultural conversations.

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<v Speaker 1>We created a cultural takeover.

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<v Speaker 3>Our Better and Denim campaign is by far the best

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<v Speaker 3>in our history. But in the context of the consumer connection,

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<v Speaker 3>it's the number one search on TikTok, eight billion views,

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<v Speaker 3>four hundred million, twenty million in the first three days,

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<v Speaker 3>and we're just getting started. So again we're not necessarily

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<v Speaker 3>look looking left and right, We're looking center and executing

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<v Speaker 3>with conviction. I do think it's really great for the

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<v Speaker 3>industry when there are multiple campaigns and the industry is

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<v Speaker 3>sort of activated through various different points of creativity, and

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<v Speaker 3>it drives industry interest, which helps all of us.

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<v Speaker 2>You talk about consumer demand and driving consumer demand just generally,

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<v Speaker 2>how have you seen the back to school season and

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<v Speaker 2>the shopping. We've heard from the likes of Walmart, We've

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<v Speaker 2>heard from the likes of Macy's. It's been pretty good,

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<v Speaker 2>pretty solid. Do you see that being resilient going forward.

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<v Speaker 1>Yeah, we're off to a good start.

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<v Speaker 3>We're very pleased with the progress the connectivity that our

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<v Speaker 3>merchandise and merchandising is having with consumers. We haven't seen

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<v Speaker 3>any significant change in consumer behavior or sentiment. So we're

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<v Speaker 3>very encouraged with the early start back to school and

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<v Speaker 3>fall season. And I know as I look at the

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<v Speaker 3>product that's coming and some of the other marketing and

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<v Speaker 3>culturally relevant conversations that we're about to have, that will

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<v Speaker 3>be keeping the heat.

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<v Speaker 2>Just thirty seconds, which is your brand, not your favorites,

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<v Speaker 2>All of your babies are your favorites, but going forward

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<v Speaker 2>that you expect to have the greatest momentum over the

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<v Speaker 2>next twelve months.

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<v Speaker 3>Oh, look, I think each brand is in a different

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<v Speaker 3>stage of its reinvigoration process. Clearly, we're very proud of

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<v Speaker 3>our flagship namesake brand GAP. I think that is furthest

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<v Speaker 3>along in the cultural conversation and certainly the metrics four

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<v Speaker 3>percent COMP growth on top of three percent COMP growth

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<v Speaker 3>Old Navy, number one apparel specialty brand in the country,

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<v Speaker 3>consistent deliverables and executing with excellence. We're most proud of

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<v Speaker 3>Banana Republic clearly posting four percent COMP a significant milestone

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<v Speaker 3>in its progress. And as you know, we're working on Athleta,

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<v Speaker 3>which is an important brand in the industry.

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<v Speaker 1>So I can't pick one.

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<v Speaker 3>They're all individually driving and I think as you look ahead,

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<v Speaker 3>we've got a really powerful portfolio of growth.

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<v Speaker 2>Richard Dixon, thank you so much for being with us.

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<v Speaker 2>Was Richard Dixon, the gap In CEO.