Banana Republic 2005 Annual Report Download - page 18

Download and view the complete annual report

Please find page 18 of the 2005 Banana Republic annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 68

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68

G A P I N C . F I N A N C I A L S 2 0 0 5
16 gap inc. 2005 annual report
MANAGEMENT’S DISCUSSION AND ANALYSIS
Of Financial Condition and Results of Operations
Our Business
We are a global specialty retailer operating retail and outlet stores selling casual apparel, accessories, and personal care products for men, women
and children under the Gap, Banana Republic, Old Navy, and Forth & Towne brand names. We operate stores in the United States, Canada, the
United Kingdom, France and Japan. In addition, our U.S. customers may shop online at gap.com, bananarepublic.com and oldnavy.com. We design
virtually all of our products, which are manufactured by independent sources, and sell them under our brands:
Gap. Founded in 1969, Gap stores offer extensive selections of classically styled, high quality, casual apparel at moderate price points. Products
range from wardrobe basics such as denim, khakis and T-shirts to fashion apparel, accessories and personal care products for men and women, ages
teen through adult. We entered the children’s apparel market with the introduction of GapKids in 1986 and babyGap in 1989. These stores offer ca-
sual apparel and accessories in the tradition of Gap style and quality for children, ages newborn through pre-teen. We launched GapBody in 1998
offering women’s underwear, sleepwear, swimwear and personal care products.
Old Navy. We launched Old Navy in 1994 to address the market for value-priced family apparel. Old Navy offers broad selections of apparel, shoes
and accessories for adults, children and infants as well as other items, including personal care products, in an innovative, exciting shopping environ-
ment. Old Navy also offers a line of maternity and plus sizes in its stores.
Banana Republic. Acquired in 1983 with two stores, Banana Republic now offers sophisticated, fashionable collections of dress-casual and tailored
apparel, shoes and accessories for men and women at higher price points than Gap. Banana Republic products range from apparel, including intimate
apparel, to personal care products.
Forth & Towne. We opened the first stores of our newest retail concept in August 2005, targeting women over the age of 35. Forth & Towne offers
customers smart, fashionable clothing and accessories tailored to a range of lifestyles. Forth & Towne offers great style and a dependable fit, along
with a beautiful setting and exceptional service.
Online. We established Gap Online, a web-based store located at www.gap.com, in 1997. Products comparable to those carried in Gap, GapKids and
babyGap stores can be purchased online. Banana Republic introduced Banana Republic Online, a web-based store located at www.bananarepublic.
com, in 1999, which offers products comparable to those carried in the store collections. In 2000, we established Old Navy Online, a web-based store
located at www.oldnavy.com. Old Navy Online also offers apparel and accessories comparable to those carried in the store collections. Our online
businesses are offered as an extension of our store experience and are intended to strengthen our relationship with our customers.
Overview
In fiscal 2005, we made continued progress against our strategic priorities and continued to position ourselves for long-term growth. Despite
disappointing top line results, we continued to deliver solid earnings, completed our $2 billion share repurchase program, doubled our dividend, and
delivered on our growth initiatives. We successfully launched Forth & Towne, introduced Banana Republic in Japan, developed a franchising capabil-
ity, and introduced a new e-commerce platform.
We delivered an increase in diluted earnings per share from $1.21 per share to $1.24 per share. However, continued product acceptance challenges
leading to additional promotions and markdowns resulted in a 3 percent decrease in net earnings from $1.2 billion to $1.1 billion in 2005.
We have also continued to generate strong free cash flow and in fiscal 2005 our free cash flow was $951 million, which represented 85% of fiscal
2005 net earnings and reflects our ability to generate solid earnings. We define free cash flow as the net cash provided by operating activities less
the purchase of property and equipment. For a reconciliation of free cash flow, a non-GAAP measure, to a GAAP measure, see the Liquidity section
in this Management’s Discussion and Analysis. Our solid earnings and healthy balance sheet yielded higher capital returns. Our return on average
assets increased from 11.1 percent in fiscal 2004 to 11.8 percent in fiscal 2005.