Banana Republic 2015 Annual Report Download - page 27

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18
Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
We are a global retailer offering apparel, accessories, and personal care products for men, women, and children
under the Gap, Banana Republic, Old Navy, Athleta, and Intermix brands. We have Company-operated stores in
the United States, Canada, the United Kingdom, France, Ireland, Japan, Italy, China, Hong Kong, Taiwan, and
beginning in October 2015, Mexico. We have franchise agreements with unaffiliated franchisees to operate Gap,
Banana Republic, and Old Navy stores throughout Asia, Australia, Europe, Latin America, the Middle East, and
Africa. Under these agreements, third parties operate, or will operate, stores that sell apparel and related products
under our brand names. Our products are also available to customers online through Company-owned websites
and through the use of third parties that provide logistics and fulfillment services. In addition to operating in the
specialty, outlet, online, and franchise channels, we also use our omni-channel capabilities to bridge the digital
world and physical stores to further enhance our shopping experience for our customers. Our omni-channel
services, including order-in-store, reserve-in-store, find-in-store, and ship-from-store, as well as enhanced mobile
experiences, are tailored uniquely across our portfolio of brands. 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, primarily at our Intermix brand.
We identify our operating segments according to how our business activities are managed and evaluated. As of
January 30, 2016, our operating segments included Gap Global, Old Navy Global, Banana Republic Global,
Athleta, and Intermix. We have determined that each of our operating segments share similar economic and other
qualitative characteristics, and therefore the results of our operating segments are aggregated into one reportable
segment.
As previously announced in January 2015, we closed the Piperlime brand during the first half of fiscal 2015,
including its online platform and the store in New York.
Financial results for fiscal 2015 are as follows:
• Net sales for fiscal 2015 decreased 4 percent to $15.8 billion compared with $16.4 billion for fiscal 2014.
Excluding the impact of foreign exchange, our net sales decreased 2 percent for fiscal 2015 compared with
fiscal 2014. See Net Sales discussion for impact of foreign exchange.
• Comparable ("Comp") sales for fiscal 2015 decreased 4 percent compared with flat for last year.
• Gross profit for fiscal 2015 was $5.7 billion compared with $6.3 billion for fiscal 2014. Gross margin for fiscal
2015 was 36.2 percent compared with 38.3 percent for fiscal 2014.
• Operating margin for fiscal 2015 was 9.6 percent compared with 12.7 percent for fiscal 2014. Operating margin
is defined as operating income as a percentage of net sales.
• Net income for fiscal 2015 was $920 million compared with $1.3 billion for fiscal 2014. Diluted earnings per
share was $2.23 for fiscal 2015 compared with $2.87 for fiscal 2014.
• During fiscal 2015, we distributed $1.4 billion to shareholders through share repurchases and dividends.
In June 2015, we announced a series of strategic actions to position Gap brand for improved business
performance in the future, including right-sizing the Gap brand store fleet, streamlining the brand's headquarter
workforce, and developing a clear, on-brand product aesthetic framework that will help strengthen the Gap brand
to compete more successfully on the global stage. During fiscal 2015, the Company completed the closure of
about 150 global specialty stores related to the strategic actions. The Company also incurred certain charges
during fiscal 2015 in connection with the strategic actions, primarily consisting of impairment of store assets, lease
termination fees and lease losses, employee related expenses, and impairment of inventory that did not meet
brand standards.