The Gap, Inc.
Q2 2022 Earnings Call Transcript

Published: 25 Aug 2022

[Operator:]

Good afternoon, ladies and gentlemen. My name is Austin, and I shall be your conference operator today. I would like to welcome everyone to The Gap Inc., Second Quarter ‘22 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] I would now like to introduce your host, Cammeron McLaughlin, Head of Investor Relations. Cammeron, you may proceed.

[Cammeron McLaughlin:]

Good afternoon, everyone. Welcome to Gap Inc.’s second quarter fiscal 2022 earnings conference call. Before we begin, I’d like to remind you that the information made available on this webcast and conference call contains forward-looking statements that are subject to risks that could cause our actual results to be materially different. For information on factors that could cause our actual results to differ materially from any forward-looking statements as well as the description and reconciliation of any financial measures not consistent with generally accepted accounting principles, please refer to the cautionary statements contained in our latest earnings release, the information included on Page 2 of the slides shown on the Investors section of our website, gapinc.com, which supplement today’s remarks and the risk factors described in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission on March 15, 2022, and any subsequent filings with the Securities and Exchange Commission, all of which are available on gapinc.com. These forward-looking statements are based on information as of today, August 25, 2022, and we assume no obligation to publicly update or revise our forward-looking statements. Joining me on the call today are Interim Chief Executive Officer; Bobby Martin; and Chief Financial Officer, Katrina O’Connell. With that, I’ll turn the call over to Bobby.

[Bobby Martin:]

Thank you, Cameron, and good afternoon everyone. It’s a pleasure to speak with you all. I want to provide some brief remarks before turning it over to Katrina to cover our second quarter results and outlook. While we search for a new leader, I’m taking on the role as Interim President and Chief Executive Officer of Gap Inc., with a deep commitment to the Company’s success and in inpatients for change. Having navigated the global retail industry serving millions of customers across brands and markets, I’m not approaching this work from the sidelines. To change the trajectory of our business, we need to take action. There are brands in our portfolio that are underperforming today. And like many other companies, the macro environment is testing us with simultaneous shifts in consumer behavior and increased cost pressures. While our elevated inventory and preferred margins are certainly current realities against unseen market conditions, they do not define Gap Inc.’s ability to capitalize on its strengths to win. We can and we should win in any environment. That is the goal, our goal and the management team and I are holding the Company accountable for that. We are taking several immediate actions, including reductions in operating costs and the impairment of unproductive inventory to better optimize profitability and cash flow in the near term, which Katrina will share in detail in a moment. While these measures will help us in the short term, ultimately, they represent a down payment towards a larger pursuit. We must demand both a selling and a cost-conscious culture with a focus on the core levers that truly drive our business. Let me take a moment and comment on our brand. We remain bullish on Old Navy’s particular for growth by delivering the democracy of style and service to a wide range of consumers. Old Navy is the number two brand in apparel market share according to NPD Research, and that remains our foothold for acceleration and expansion. As you know, Haio Barbeito joined us at the beginning of August, bringing an authentic leadership style, backed by a strong track record of delivering growth through challenging times. Old Navy is working diligently to recover from recent missteps, and I’m confident Haio is the right leader to bring the brand back to winning again. Gap brand is continuing to shift its core business model by rightsizing its fleet, increasing online penetration and partnering for capital-efficient growth in North America as well as around the world. During the quarter, Gap announced its partnership with Reliance Retail to bring Gap’s modern American optimism to Indian consumers to a mix of store expressions and digital commerce platforms. On Banana Republic, Banana Republic is maintaining its focus on two simple ingredients, beautiful, high-quality products and an elevated customer experience, both online and in store. During the second quarter, Banana Republic launched a redesigned, product-led web experience, which supports its elevated brand positioning, further creating a differentiated and immersive experience for digital shoppers and, again, showcasing its product focus. The early results have been favorable with strong consumer feedback as well as conversion metrics. We believe Athleta has tremendous growth potential as it continues to drive brand awareness and establish authority in the active market. However, we are experiencing softness in the near term. We are quickly pivoting and reacting to meet her needs with performance lifestyle products while remaining true to our DNA. That said, we continue to see a path towards delivering a mid-teens revenue CAGR over the long term as we capitalize on the continued secular shift and growth in the health and wellness categories broadly. I’m realistic about the hard work lays ahead. We know what we need to deliver to our customers, and we know that it has to fully measure up. It has to be compelling. It has to be worth the trip every time. I’m confident that our team has the capabilities needed to deliver what our customers and shareholders expect and what is needed for long-term profitable growth. And it will take an aligned focus on adopting organizational behaviors that will enable change and unleash our potential. Lastly, I’m sure that many of you have questions about our search for a permanent CEO, so I will briefly address them now. The Board is actively evaluating potential candidates, working swiftly and thoughtfully to ensure that we find the most qualified person for this role. We are focused on someone who can lead Gap Inc. from defense to offense, vitalize our creators while returning us to a position where we are gaining market share across our brands, a leader who can build upon the Company’s strong foundation, powerful assets, well-established values to further sell our omni platform and market leadership. Ultimately, a leader focused on delighting our customers through every experience and driving the change and momentum necessary to deliver value creation for our people and our shareholders over the long term. And with that, I will turn the call over to Katrina.

[Katrina O’Connell:]

Thank you, Bobby, and thanks, everyone, for joining us this afternoon. As Bobby just discussed, we have four strong brands and leverage in the portfolio that will enable us to compete and win. However, the current execution challenges, combined with our volatile operating environment, are requiring us to move swiftly to manage the levers in our control and take the actions necessary to drive immediate and long-term improvements across our entire business. These actions include

[Operator:]

[Operator Instructions] Our first question is with Lorraine Hutchinson from Bank of America. Lorraine, your line is open.

[Lorraine Hutchinson:]

I was hoping to follow up on the comments you made about Athleta and see if you could expand on any of the actions that you plan to take to improve comp? And then also comment on profitability of that concept today, and where you think it can go?

[Katrina O’Connell:]

I think what’s important to note about Athleta is the following. First of all, according to NPD, the women’s athleisure market in the quarter did slow. And Athleta did maintain share within that slower athleisure market. That said, we expect Athleta to be gaining share. And so as we’ve looked at the performance, I think there’s a couple of things we’d point to. First of all, if you remember, they did have about 50% of their inventory sourced from Vietnam. And the supply chain issues from the back half of last year did continue to impact the performance in the first half of the year, whether it was late product or assortment imbalances that resulted from that, that all did play through their performance as well. And then as we talked about, they did have some print and color that just didn’t resonate well with the consumer. And so the team has definitely acknowledged that. And as you look towards the fall merchandise, I think it’s a more focused assortment and a more balanced assortment with great product in the performance ware that they need to be delivering as well as really versatile product in the lifestyle ware that we know they’re using for some of the work and ability to sort of do everything in addition to working out. So we feel good about the actions they’ve taken, and know that they’ll navigate through this shifting consumer and the supply chain issues over the long term.

[Bobby Martin:]

Nothing else for me, Katrina, I think the real highlight there is it is product. And again, the fall product hitting soon and just underline again, my confidence as well that the balance with performance lifestyle as well as we commented on saying toward to the DNA of that brand, I think we’ll see results turn around the way we want them to. So, we’re eager to get into that.

[Operator:]

Our next question is with Matthew Boss from JPMorgan. Matthew, your line is open.

[Matthew Boss:]

So two questions. I guess first, how would you separate the macro from the micro that you think that your business is facing? And maybe touch on what you think the drivers of improvement you’ve seen so far in August? And then, separately, Katrina, is there a way to speak to the quantity and composition of the inventory that you have today across your concepts? And just the time line to clear the excess inventory back to normalized levels in your view?

[Katrina O’Connell:]

Yes, Matt. So I think I can start. I don’t know, Bobby, if you wanted to say something first or I’m happy to dive in?

[Bobby Martin:]

No. I mean I think the comments around the macro, micro, I mean we’ll do it on both ends. But I mean clearly highlighting that we have seen, I believe that the impact on the lower end consumer, there’s been an impact there that’s obviously affected trips, and the challenge of keeping conversion maximized is where we focus. The inventory transitions has been somewhat both macro and micro. But, again, I think we’ve already talked about how we work to clear those things out. So we can come back, Katrina, I think, after you address a bigger question. We’ll come back to you if there’s anything else to answer their for Matthew.

[Katrina O’Connell:]

Yes. I mean I think what we said in our prepared remarks is that July and August trends are right in line with our prior expectations. In June, we did see a dip in performance really with peak inflation and peak gas prices. So we’re pleased to see July and August come back to sort of about our prior expectations. To Bobby’s point on inventory, we announced that our inventory at the end of the quarter was up 37%. We said 10 points of that is pack and hold and seven points of that is in transit. And the balance is really sitting in slower basic product, which we can cut receipts and work down over time as well as seasonal fashion. Seasonal fashion, as we head into Q3, is pretty in line with how we owned Q2. And so we’ll see how that plays out, but could indicate some near-term pressure depending on how the customer responds to the content and how the customer overall is -- as well as what the promotional environment in the industry is. As we look forward, we said that ending of Q3, the inventory will moderate substantially as we were able to cut our holiday inventory and we start to basics. And then heading into next year, we expect inventories to be negative on a year-over-year basis. And the good news about spring and first quarter is, we’ve been able to stand back up our responsive inventory levers, which, on top of that negative inventory, will allow us to stay open and be able to chase back into trends. So near term, inventory is higher than we’d like it to be. We did take the inventory write-off, and we think that helps, at least in third quarter, present the Old Navy inventory to the customer in a better experience. And then, we have taken aggressive actions over the next six months to really get our inventory levels back down.

[Operator:]

Our next question is with Bob Drbul from Guggenheim Partners. Bob, your line is open.

[Bob Drbul:]

I guess, Katrina, on the SG&A, can you unpack your expectations a little bit more, just maybe on some numbers around Q3, Q4, at least how that help us model it for the remainder of the year, that would be helpful?

[Katrina O’Connell:]

Yes. Sure, Bob. As we look at SG&A for the year, our current outlook is that full year SG&A could be about $5.6 billion, which we acknowledge is just too high of a cost structure for the performance of the Company as well as for the current operating environment. And so while we’ve made tremendous progress on the restructuring of a lot of the fixed costs in the business through closing of stores and partnering of markets, which -- and selling of small businesses, which I know you guys are well familiar with, we have made strategic investments in marketing, building technology to support our digital growth and other areas of the business as well as adding headcount. And in light of our performance and in light of the outlook, we are really committed, and I think that’s what you’ve heard today, to putting in place real action against working that SG&A level down to a much more appropriate level. So more to come on the actual levers, we will take. We are in the process of standing those actions up, and we will provide clarity on those actions as they happen. But many of those actions will take place, like we said, the overhead actions in the third quarter and then more to come. But likely mostly those actions will impact 2023 given the timing in the year.

[Operator:]

Our next question is with Brooke Roach from Goldman Sachs. Brooke, your line is open.

[Brooke Roach:]

Our question is about the promotional levels that you saw in 2Q. Your outlook for promotion into 3Q and holiday and what your current plans are with regard to the discount rate on both a year-on-year basis and versus 2019? Do you feel like you’re going to be in a better place with the Old Navy promotional activity into 4Q? And how should we be thinking about that promotional level overall in terms of recapturing the Old Navy brand margin as we look into 2023?

[Katrina O’Connell:]

Yes. Brook, as we dimensionalize the first half margin, we were trying to be helpful in breaking out all the pieces since there’s so much happening in the margin dynamics. So as we said in the first half, we saw a deleverage based on all the airfreight of about 300 basis points, 220 basis points of the front half deleverage was discounting, so put that aside and let’s talk about that in a minute. 220 basis points was inflation and 100 bps was ROD. So what we said as we move forward is -- the air becomes a benefit in the back half as we lapped last year’s substantial airfreight, so a 400-basis-point benefit. Inflation remains about the same at about 200 basis points, and ROD could be flat to slight deleveraged. So I’ll let you model what that means, but it means that we’re leaving ourselves sort of a range in there that could be worse than less than the first half. It could be better than the first half. And I think that’s where, again, we’re focused on the actions we’re taking to drive a different outcome everything from re-changing the assortment away from active and casual into more wear to work, the BODEQUALITY inventory changes we’ve made and the write-offs there to try and get the sizing back in place, and then really getting back to the true value proposition of Old Navy, which is jaw-dropping value on great fashion for the family. And all of that, we think we’re better set up for. But acknowledging as well that inventory in third quarter is still -- fashion inventory still relatively in line with second quarter and then it gets a lot better for fourth quarter. And I think the X Factor, too, as we said, Brook, is mean, you’ve been seeing the reports as well. The industry is a wash and inventory. And so we’re just being careful, too, a little bit about what we will be navigating with others promoting. So lots of dynamics, which is part of the reason why we’ve left that as sort of the open variable, but we will stay close as we read our own performance on product and pricing as well as what’s happening with the consumer and the competitive environment.

[Operator:]

Our next question is with Dana Telsey from Telsey Advisory Group. Dana, your line is open.

[Dana Telsey:]

Obviously, you have a new leader at Old Navy. I’m just wondering as -- and he hasn’t been there very long. But just wondering, as you see the game plan to improve Old Navy whether it’s in the size and assortment imbalances, what is the path that we should be looking for? And as you think about the core Gap brand, and the enhancements that could come there, what trajectory are you on now? And how do you see the leadership in terms of the role of CEO? Is that -- do you see that being fulfilled within the next six months? And is there any particular qualifications that you’re looking for in the CEO role?

[Bobby Martin:]

Yes. Let me start with that, Katrina, and then you can come back on the back side. Again, Dana, hi to you and yes, Haio, he’s just barely three weeks in his job, but again, he’s hit the ground running. And I think as we’ve talked about earlier, and I’ll just highlight relative to the brand and what you might expect how he sees Old Navy, we appointed him and he’s the right balance, particularly with product focus, the premium and personal customer experience, very strong, proven operator, and, again, managed in challenging time. So understanding value and executing in the format that Old Navy serves, I think we’ll see him really strengthen a lot of the category execution and so forth and make sure that we rightsize the assortment. We’re going to have to give him time. He’s right now focusing on the next two quarters while also looking at the commitments and plans and product for spring and summer ahead. But again, we just need to give him a little bit of time. Let me just shift on the back side since you asked about the CEO search. Because again, I commented in my prepared remarks, and I’m sure a number of you really wanting to understand what are we doing, and again the Board has commissioned the search. We’re well into it and looking to move this aggressively and as swiftly as we can, but as you would imagine and expect also very thoughtfully. And in terms of Gap, this is a very attractive company to lead. So, we’re seeing plenty of interest, but again, we want to make sure we put the right leader in place. And as we look at that, I mean, clearly, we are looking for a leader that will move Gap Inc. in total from [indiscernible] and position us back where we’re seeing meaningful share gains across our brands. We’re very strong, the foundation of this company and powerful iconic brands that we believe that we still own and compete with as long as we continue to move forward in the progress that we are. We’re going to continue to build on those strengths. The well-established values of the Company and our scale of our omni platform are things that we’re going to be looking for in the next leader. So a very modern-minded transformative executive that, again, can, again, strengthening us back into our position of leadership, while also then moving us hopefully even toward newer existing categories and potentially diversification in areas that we feel might make sense. But ultimately, as you would expect, a leader that we believe can deliver on what our customers expect. And again, what’s going to drive the value creation that all of our shareholders expect. So more to come on that.

[Operator:]

Next question is with Mark Altschwager from Baird. Mark, your line is open.

[Mark Altschwager:]

First, on the margin, obviously, a lot of headwinds impacting 2022. What are the areas where you have the greatest amount of visibility or greatest amount of confidence [indiscernible] we capture next year? And then separately, on Athleta, I’m curious if you could speak to the Company’s current thinking on potential strategic actions there and whether there’s been any change to making our approach since we heard from you back in May?

[Katrina O’Connell:]

Mark, it’s Katrina. I’m sorry. You were breaking up a lot, so I’m going to do my best with your questions. I’ll go ahead and take the 2023 margin question, which is I think what you asked, and then maybe I’ll let Bobby talk about strategic actions for the Company. When I think about next year’s margin, I think we have a lot of things to still work through. And so, we’ll have to owe that when we have more insight. The levers will be similar to the levers we’ve been talking about. I think the one lever we know is that, we don’t plan to be using airfreight going forward. I think that’s the one thing we know that it’s an expensive lever, and we’ve created responsive levers back in the business so we shouldn’t have to do that again. And then as it relates to inflation and some of these other areas of the business, I think it’s too soon to comment on that. So we will be committed to providing color as we have more insights into 2023. And then, Bobby, I don’t know if you want to talk about strategic options?

[Bobby Martin:]

Yes, I did really -- I’m sorry, I didn’t -- Mark, I didn’t hear your question as you asked it.

[Mark Altschwager:]

Okay. Sorry to the bad connection, I’ll try to get here. Just with respect to Athleta, I’m wondering if there’s been any change to the Company’s thinking with respect to strategic actions there since we heard from you in May?

[Bobby Martin:]

Yes. No, look, I think what we will always see stating here, I mean, we’re always looking at the best ways to bring value creation. And so, we’re constantly evaluating those things. The brands play a lot of strength off of the scalability of the Company combined and so forth. But Athleta is a brand that we’re very proud of and have a lot of promise in. But again, the Board is always constantly looking at options. So certainly, nothing to talk about, but always looking.

[Operator:]

Our next question is with Oliver Chen from Cowen. Oliver, your line is open.

[Oliver Chen:]

As we think about the product assortment at Old Navy, which classifications and/or lack of classifications have the most opportunity? And it sounded like you said impact in terms of creative would be in the back half of next year just given the timing, is that a true statement? With respect to that question also, the good, better, best matrix. Would love your thoughts on how you need to tackle that as you continue to refine the inventory? And then, Katrina, on the response of inventory plans, could you just be more specific about what you’re talking about, and how it could help the financials with that programming in the fall?

[Katrina O’Connell:]

Sure. So on the Old Navy assortment, Oliver, what hasn’t been working really, not just with Old Navy, but in general, is a shift away from the cozier categories like active and fleece as well as like T-shirts and casual shorts. And so that’s less about the product not being great and more about the fact that the consumer, as you know, is really buying a lot less of that this year and really wanting to spend more on things like dresses, pants, even dressier denim and woven tops, things that she can wear out to parties or to work. And so the pivot that we’ve been making at Old Navy, but also at Gap is really less of those casual categories and more of the going-out categories. And as we talked about, that is better in fall and much better by holiday. As far as the fashion elements that didn’t resonate at Old Navy, that’s really holiday that we’re able to change the aesthetic more dramatically based on some of the learnings we had in first quarter. I know you asked about good, better, best. I think at Old Navy, maybe the best items got a little too high on the best side. And so the team will be looking at really making sure we have enough of the good and better product as we head in the spring, which is especially important as we navigate this consumer environment. And then on responsive, when we say responsive, we have a couple of levers that we use. First of all, we have vendor-managed inventory, which means we’re working closer with our vendors to buy inventory on a more regular basis, and they hold it for us, and we pull it as opposed to buying so much in advance. And then platforming a fabric with our vendors that allows us to chase into styles and colors as we read the consumer. So those are a couple of examples of where we’ll get speed and flexibility back. But those levers, as you can imagine, when the manufacturing base was so disrupted, we’re just not at our ability to leverage. So we’re looking forward to getting that back as the manufacturing base has stabilized.

[Operator:]

Our next question is with Simeon Siegel from BMC. Simeon, your line is open.

[Simeon Siegel:]

Good afternoon, everyone. Hope you’re having a nice end to the summer. Sorry if I missed it, and I know you don’t normally talk about it, but just given the orders of magnitude, any way to talk about Old Navy’s AUR versus pre pandemic? And then maybe just how you’re thinking about the Old Navy long-term revenue opportunity? Have you stress tested whether there might -- I just wondering if you might be better served, I think, some of the elevated revenues from recent years settle in a little bit to protect margins even on lower volume. And then just lastly, did you say if you’re seeing any meaningful deviation in product category? I guess I’m wondering are you seeing the same athleisure softness at Old Navy?

[Katrina O’Connell:]

We didn’t comment specifically on AURs by brand, but I would say, overall, while we’re reverting on discount levels to last year, still, as a company, we are up to 2019 as far as our ability to be less discounted. So whether that’s being aided by Banana Republic’s turnaround, or we did do a significant amount of improvement in Old Navy over the long term, we are still seeing some stickiness on that discount rate improvement to 2019. Now, we’ll see how the back half plays out, but that’s sort of so far what we’ve seen. And again, the reversion is really the year-over-year reversion to last year’s big gains. Remind me of your second question, sorry?

[Simeon Siegel:]

Just thinking through you stress tested volume versus margin and validated revenue from last year, whether that’s the right base or whether you could do better, you can make more with less?

[Katrina O’Connell:]

Yes. I mean I think it’s a great question, Simeon. And certainly, one we’ll tackle as we head into 2023. I think fundamentally, as you heard today, we are highly committed to inventory productivity as we move forward and making sure we have a much sharper view on tight inventories. And so, finding that right balance between unit velocity and AUR and margin will be critical, and we’ll have more to say about that as we think about the architecture for 2023. But we’re early days in shaping what that looks like.

[Simeon Siegel:]

Great. Thank you. And then just the last one was -- and sorry, if I missed it. Did you talk about Old Navy athleisure, so that you talk about product category and whether you saw the similar softness there?

[Katrina O’Connell:]

So I think, fundamentally, active continues to be a massive business at Old Navy. They’re dominant shareholders of active -- and which is the true statement for Athleta as well. They continue to do a significant amount of their business out of active. I think what we’re seeing in both of those businesses or all of our businesses is really just a step back off of last year’s massive growth based on the shift of the consumer now towards workwear. But Old Navy’s active business is still quite large and important and still quite healthy, just not as big growth as we had planned for before we saw this big shift in the consumer demand.

[Operator:]

Our next question is with Paul Lejuez from Citigroup. Paul, your line is open.

[Paul Lejuez:]

A couple of quick ones. The improvement that you saw in July and into August, can you talk about that where you saw the biggest pickup by brand, and if that was promotionally driven or if you’re happy with the margin performance? Second, the $50 million write-off, where is that product, is you write that to zero? Was that destroyed? Is it still in stores? Just wanted a little bit more color there. And then, just early or early thoughts, but thoughts on AUC for first half of ‘23?

[Katrina O’Connell:]

Yes. Thanks, Paul. As we said, July and August are sort of relatively in line with our prior expectations. We haven’t commented on the margin component of that. I think, in general, you’ve heard a lot today about how we’re thinking about margin. And so we’ll let you work through your model on that. As it relates to the write-off, so most of that inventory is Old Navy inventory it’s summer -- spring and summer fashion that we determined was going to be really hard to clear in the quarter as we moved into third quarter, combined with a lot of the extended size inventory that we’ve talked about before, really not resonating with customers. That will be taken out of Old Navy stores over the next couple of weeks as the teams are able to navigate the workload between back-to-school and pulling that inventory out of stores. We have determined some level of recovery for that, and that’s embedded in that $58 million. And then, your last AUC, early days. I think certainly, in the first quarter, as we’ve been buying spring, we still see inflationary pressure, primarily coming from cotton, wage pressure, and freight and all that -- oil and all that other stuff, but more to come on where those buys settle and how that ends up settling through our financials.

[Operator:]

Our next question is with Janet Kloppenburg from JJK Research. Janet, your line is open.

[Janet Kloppenburg:]

I wanted to ask, Katrina, as you think about the brand positioning of Old Navy and the Gap in contrast to the dress-up trends, the casual positioning of both of those brands in contrast to the dress-up trends that we’re seeing now, is there a thought to pivoting the brands to more formal dress up where work looks? What should we expect as the assortments evolve in the holiday season and into next year?

[Katrina O’Connell:]

Yes. Thanks, Janet. Certainly, we don’t expect to broadly pivot the brand’s DNA. I think by nature, those are casual brands, and that’s how they’ve won. That said, there are lots of elements within each of those brands, whether you think of dressed up denim or pants like the pixie pants, or khakis at Gap, woven tops, outerwear, even sweaters that we believe we can put together into versatile looks that should take her from day and tonight. And so think that’s the commitment that the team has is in the near term, they’ve been working on really rebalancing out of the casual into more of those looks. I think we all know that, right now, we have a little bit of a whipsaw from casual into work, and we want to be careful to keep the balanced DNA of both of those brands because I think we can win with both elements of products. So, we’ll stay balanced, but certainly, we’ll be showcasing that more versus dressed up look as we head into the back half of the year.

[Operator:]

Our last question will come from the line of Marni Shapiro with Retail Tracker. Marni, your line is open.

[Marni Shapiro:]

I actually want to follow up on a question that was asked, but you guys didn’t answer if that’s okay, and maybe I’m just calling something slightly more positive. You said trends picked up in July and into August. I’m curious if that was related specifically to Old Navy, less across the board? Was it driven by back-to-school in the kids business? If you could just walk us through a little bit what those trends look like? And I know it’s early innings for back-to-school and fall, but just have some idea as to where you’re seeing the turn.

[Katrina O’Connell:]

Yes, Marni, I mean we haven’t said by brand, but I think that we continue to feel quite good about the fact that we have big and important denim and kids and baby businesses in both Gap and Old Navy. And we also have active wear, as we talked about, which we still think plays an important role in back-to-school. So back-to-school is a long season. We’ll see how that plays out. But we’re also really pleased, as you’ve seen over the last couple of quarters with Banana Republic and with the way they’ve been competing on their repositioning and feel like they’ve done a great job. So, more to come on where the quarter plays out, I think the trends are on our expectation, but we’re remaining prudent in sort of what the outlook looks like. So, we’ll see how that all settles for the quarter and for the year.

[Bobby Martin:]

Katrina, I think it’s worth noting a seeing a little more positive pickup in the online penetration is well then encouraging.

[Marni Shapiro:]

Well, that’s to look for the rest of the back-to-school and fall season guys.

[Katrina O’Connell:]

Thanks, Marni.

[Operator:]

Thank you. That does conclude our conference call. You may now disconnect.