The Gap 2008 Annual Report Download - page 30

Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
We are a global specialty retailer offering clothing, accessories, and personal care products for men, women,
children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, and Athleta brands. We operate stores in
the United States, Canada, the United Kingdom, France, Ireland, and Japan. We also have franchise agreements
with unaffiliated franchisees to operate Gap and Banana Republic stores in many other countries around the
world. Under these agreements, third parties operate or will operate stores that sell apparel, purchased from us,
under our brand names. In addition, our U.S. customers can shop online at www.gap.com, www.oldnavy.com,
www.bananarepublic.com, www.piperlime.com, and www.athleta.com. Most of the products sold under our brand
names are designed by us and manufactured by independent sources. We also sell products that are designed and
manufactured by branded third parties.
In September 2008, we acquired all of the outstanding capital stock of Athleta, Inc. (“Athleta”), a women’s sports
and active apparel company based in Petaluma, California, for an aggregate purchase price of $148 million. The
acquisition will allow us to enhance our presence in the growing women’s active apparel sector in the United
States. We believe this acquisition complements our brands and allows us to leverage our online platform to
expand into this significant retail sector. See Note 3 of Notes to the Consolidated Financial Statements.
We identify our operating segments according to how our business activities are managed and evaluated.
Beginning in the fourth quarter of fiscal 2008, we have two reportable segments: Stores and Direct.
Fiscal 2008 and 2007 had 52 weeks versus 53 weeks in fiscal 2006. Net sales numbers for the fourth quarter
and year for fiscal 2006 include this additional week; however, comparable store sales calculations exclude the
53rd week.
Financial highlights include:
• Net sales for fiscal 2008 were $14.5 billion compared with $15.8 billion for fiscal 2007, and comparable store sales
decreased 12 percent compared with a decrease of 4 percent last year.
• Net earnings for fiscal 2008 increased 16 percent to $967 million, or $1.34 per share on a diluted basis, compared
with $833 million, or $1.05 per share on a diluted basis for fiscal 2007.
• Net earnings from continuing operations for fiscal 2008 increased 12 percent to $967 million, or $1.34 per share
on a diluted basis, compared with $867 million, or $1.09 per share on a diluted basis for fiscal 2007.
• Our Direct sales for fiscal 2008 increased 14 percent to $1.0 billion, compared with $903 million for fiscal 2007.
Our Direct segment includes our online business and, beginning in September 2008 with the acquisition of
Athleta, our catalog business.
• We generated cash flows from operating activities of $1.4 billion during fiscal 2008. Our capital expenditures in
fiscal 2008 were $431 million.
• In fiscal 2008, we generated free cash flow of $981 million compared with free cash flow of $1.4 billion in fiscal
2007. Free cash flow is defined as net cash provided by operating activities less purchases of property and
equipment. For a reconciliation of free cash flow, a non-GAAP financial measure, from a GAAP financial measure,
see the Liquidity and Capital Resources section.
• We repurchased approximately 46 million shares of our common stock for a total of $745 million under our share
repurchase program in fiscal 2008. We also declared and paid a cash dividend of $0.34 per share in fiscal 2008.
• We opened 101 new stores and closed 119 stores in fiscal 2008.
18 Gap Inc. Form 10-K