This summary is based on the fourth quarter fiscal 2007 earnings call as presented by Gap Inc. (GPS: chart) on February 28, 2008

Management

- Chairman and CEO: Glenn Murphy
- EVP and CFO: Sabrina Simmons
- VP, IR: Evan Price

Key Investors Issues

- Net earnings were $265 million or 35 cents per share, up 46%.
- Total sales were $4.7 billion, down 5% versus last year.
- The firm repurchased about 30 million shares for a total of $613 million.

Full Year Highlights:

- Earnings rose 7.1% to $833 million or $1.10 a share.
- Net sales were $15.8 billion, down slightly from $15.9 billion in 2006.
- Comparable store sales decreased 4% compared with a decrease of 7% for the prior year.

Fourth Quarter Highlights

Net earnings were $265 million or 35 cents per share, a 46% increase from $219 million or 27 cents a share in the prior year due to an increase in margins.

- Gross margin increased 220 basis points to 34.8% as merchandise margins improved 370 basis points, and were partially offset by 150 basis points of occupancy deleveraging.
- Total sales were $4.7 billion, down 5% from $4.9 billion in the prior year as the firm’s comparable store sales were down 3%, versus a 7% drop last year.
- The 3 percentage points spread between the comparable store sales and total sales was driven primarily by net new store openings and continued online growth.

Operating expenses were $1.2 billion, down $30 million versus the prior year, driven by lower payroll.

- Marketing expenses for the quarter were $149 million, down $9 million versus last year, driven by the absence on television of Gap brand.
- Reported operating expenses in the prior year were reduced by the $14 million in expense recovery related to the Visa/MasterCard settlement, and $31 million in income from a change in the estimate for unredeemed gift cards.
- Inventory was $1.6 billion, down 12% from 2006 as inventory per square foot was $37, down 15%, versus up 2% in 2006 and the decline is below prior guidance of a decrease in the mid-single digit, driven by Old Navy.
-Given the level of markdown units carried into January at Old Navy, the firm took aggressive actions to clear through those liable units.

Companywide, the firm ended with 3,167 stores, and square footage increased 1.8%.

- The firm repurchased a total of 30 million shares for $613 million, concluding the $1.5 billion share repurchase program.
- The company announced that its board of directors authorized an additional $1 billion share repurchase program, and that it has entered into purchase agreements with individual members of the Fisher family whose ownership represents approximately 16% of the outstanding shares.
- The firm expects that about $158 million (approximately 16%) of the $1 billion share repurchase program will be purchased from these Fisher family members.
- It also ended the period with about $1.9 billion in cash and short-term investments.

Fiscal 2008 Outlook

The primary objective in 2008 is to drive bottom line earnings.

- The firm will also continue its'' cost management discipline, and increase focus on return on invested capital.
- This includes working to drive sales per square foot within existing stores.
- Regarding cash, the firm remains committed to distributing excess cash to shareholders through continued share repurchases and dividends.

Diluted earnings per share are expected to be $1.20 to $1.27 in 2008, operating margin to be 8.5% to 9.5%, interest expense for the year to be about $20 million.

- Capital expenditures, are expected to decrease by about $200 million compared to 2007 to about $500 million, with stores contributing $350 million with around $130 million for new stores and around $220 million for existing stores, IT about $100 million, headquarters and distribution centers about $50 million.
- The firm is expected to open about 100 stores in 2008. Excluding about 35 new stores in the international division, this leaves about 65 new stores in North America across all the brands.
- 85 stores that are weighted towards Gap brands are expected to be closed.
- Depreciation and amortization is forecasted to be about $550 million.

Full year net square footage growth is expected to be less than half a percentage point.