This summary is based on the second quarter fiscal 2007 earnings call conducted by Gap Inc. (GPS: chart) on August 23, 2007.

Management:

Chairman and CEO: Glenn Murphy
Director: Bob Fisher
CFO: Byron Pollitt
SVP, Corporate Finance: Sabrina Simmons
Vice President, IR: Evan Price

Key Investors Issues

- Earnings increased 19% to $152 million.
- EPS guidance increased to 83 cents to 88 cents.
- A new share repurchase authorization of $1.5 billion was announced.
- A total of 2,200 positions were eliminated.

Second Quarter Fiscal 2007 Financial Highlights

Net earnings were up 19% to $152 million, resulting in earnings per share rising to 19 cents from 15 cents per share last year.

Forth & Towne was represented as a discontinued operation resulting in $9 million of pretax losses. Earnings also include $20 million of pretax expenses incurred as a result of the ongoing cost reduction initiatives.

Gross profit rose 3% over last year to $1.3 billion leading to a 130 basis points increase in gross margin to 34.3% compared to last year from higher merchandise margins offset by occupancy deleveraging.

Operating expenses amounted to $1.04 billion, up $8 million from 2006, with marketing expenses declining 26% from $119 million in the prior year to $88 million.

The decrease was driven by reductions primarily from headquarter or other management. Including Forth & Towne, 2,200 positions have been eliminated, of which about one third were open positions. The elimination of the filled positions is expected to generate annualized payroll and benefits savings of about $100 million pretax and a reduction of corporate office space by 380,000 square feet, or 16%.

Total sales were down 1% from $3.71 billion a year ago to $3.68 billion.

Total company sales declined 5% as in the prior year. An important contributor to this spread between total sales and same store sales was the growth of online, which grew 26%. Sales from Gap and Old Navy declined 6% and 9% respectively to $1.1 billion and $1.6 billion respectively while Banana and International recorded an increase in sales of at least 3%.

Inventory was down 2% from 2006 to $2 billion. Inventory per square foot at $47 was 6% less than last year. The inventory levels were considered adeaquate.

Capital expenditures amounted to $322 million following the opening of 73 new stores and closure of 61 stores.

Total stores numbered 3,143 or a 1% increase in square footage, with Gap North America opening the most stores with 10 new openings.

Cash from operations, less capital expenditures, was an inflow of $347 million compared with $300 million last year.

Cash and short term investments amounted to $2.7 billion, as a result of cash distributions following the repurchase of 11 million shares in an average price of $18.65 including commissions.

Share repurchase program:

- The $750 million authorization was completed following the repurchase of 11 million shares of stock for $200 million during the quarter.
- A new share repurchase authorization of $1.5 billion was announced, bringing repurchase authorizations total to $6 billion since October of 2004.
- Following separate purchase agreements, the company expects that 17% or about $250 million of the $1.5 billion share repurchase program will be purchased from the Fisher family members.