GPS
#Thanks.
Appreciate the question, <UNK>.
And I can see you are thinking about the business in the right way.
Not surprising.
Right now, as I mentioned, we're seeing a little bit of life in denim and the Resolution Denim has gotten a pretty good reception from customers.
They're really finding that they like the whole notion of it, the fit, the fabric, et cetera.
Obviously denim has been ---+ I characterize it as the customer has taken a bit of a pause in denim over the course of the last several quarters.
And I would say, as much from our business but also having just been in New York during fashion week and seeing what was being talked about, what was in the showrooms, what the news was in denim, I'm not going to call a turn in the denim business, but I'm feeling, for the most part ---+ I'm feeling now differently than I felt for a while, which is that she's probably coming back to denim in a way that we haven't seen her be for several quarters.
So encouraged there.
But it's early days.
Tops is tough right now.
And it's wovens and knits.
It's a fit issue.
It's a fit intent issue.
It's an aesthetic issue.
And so we're very much focused on that.
And very much focused on fixing that as quickly as possible.
And so if I had to go to one category, I would definitely say it's in the tops business.
And obviously both knits and wovens for Gap Brand are very material categories and the product is just not ---+ she's just not responding to the product there right now at all.
So let me just stop there.
That's work that we need to do.
On the issue of the tension of consistency and creativity, I actually think that's a false dichotomy, to tell you the truth.
And let me just give you an example.
Fit.
Fit in bottoms ---+ so fit for us, which is a huge issue with respect to a women's loyalty towards her pants, we should be the experts at fit.
We had been the experts at fit and shame on us when we lose consistency on fit because then she can't count on us.
It also, as you might imagine, has an impact on the digital business because if she counts on the fit and the fit has changed, then we obviously have an issue with returns right now.
And so fit consistency is a science.
It's a discipline.
In no way does it impede what we need in terms of the great creativity of our design teams.
So I guess I've worked in other creative businesses during my career and I've always found that, rather than being a trade-off between consistency and discipline and creativity on the other side, consistency and discipline enables creativity.
And, frankly, takes a lot to work away from what the team has to do at the end of the day.
So this is really the reaction I see from our design teams as well.
They want to win and they want to have a foundation that they can build on every season.
So the words that I use when I describe Gap, which I think are very relevant, are casual, optimistic and American.
And if you haven't been in our stores and looked at the women's assortment, I would suggest that you do, but I suspect that you have.
And I would challenge you to find that we are consistently expressing casual American optimism through the product expression that we have in our stores.
And so those are the words that we're using.
And what does that mean tangibly.
In summer what you will see is there some more ---+ it was a very neutral summer that we had last year.
You will see more color, brand-appropriate color, coming back into the business by the time we get to summer.
So that's a change that has been made.
Print and pattern, obviously, as we get into late spring and summer ---+ not so much in spring, but you'll see a bit more of that when we get into summer as well.
And then as we move into fall there's a little bit more.
And then the work that's going on right now on holiday is holiday for Gap is really a time for very a optimistic oppression of the brand.
At a time when a lot of the industry tends to go to a very dark and neutral place, we have done very good business over many years with a more optimistic expression of the brand during that timeframe.
That doesn't mean go nuts on crazy stripe again, go nuts on Fair Isle or some of the other cliche trends, perhaps, that you see during holiday, but we have an opportunity to express the brand in a very optimistic and colorful way there.
But also, obviously, in a feminine way, which is the other piece that's missing from the women's business.
And so I'm not going to call a turn on the business right now.
I'm being very honest with you about the work that's going on and when you will start to see some change and I'm not promising anything until we get later in the year.
But I think even as we get to summer and the fall, we'll start to see the brand shift a little more to be expressed through the appropriate filters of the brand.
I'll let <UNK> grab the specific number, if she wants to talk about that.
I'd rather go to a slightly different place, which is to really talk about this change that we've made in the structure of digital and marketing.
And it's something that I did very intentionally.
And I did it very intentionally in the two brands that we did it in under two leaders who I know very well and I think are very enlightened and very capable leaders.
Now, you're going to want to know what does that mean at the end of the day.
And let me give you a couple things that we'll probably continue to talk about.
Our brands are being engaged digitally much more so than through traditional marketing vehicles.
And the good news about digital engagement is we have a much better line of sight to the return of our spend in digital engagement versus some of the traditional marketing vehicles, like a billboard or a transit shelter or those kinds of things.
And so part of what I'm trying to do by bringing those two things together is to really get our arms holistically around how the customer is engaging our brand and then start managing that for the highest returns in our overall spend.
And I'm not going to say that we are going to spend less marketing, but, honestly, I'm pretty confident that we are going to be able to see a path towards evolving to higher returns on the marketing spend that we have across a number of different vehicles.
The second thing which I've highlighted, but I want to highlight again, is that we have had the luxury of living with our digital expressions of our brands, our websites as being very efficient transactional channels.
Today, to me, it becomes an end, which is those digital properties also have to carry the aspiration and the emotion of the brand, as well as being very efficient channels.
And by bringing those two things together, we really now have leaders and an organization that's going to be thinking digitally first in everything they do.
And it starts with very simple things, which is if you're shooting marketing assets for traditional marketing vehicles, oftentimes those assets don't manifest themselves in the best way possible for digital use.
And we just need to put to a digital first mindset, and I do believe we'll get some efficiency out of doing that.
I'm much more excited about the effectiveness of our overall spend that we're going to see.
So it's kind of a mixed bag, quite honestly.
And really depends as a function of a couple of things.
Obviously how the assortment was bought and how a team in a given part of the world put pressure on different parts of the business.
In some places in the world, like in China as an example, our kids and baby business indexes much higher into the overall business than the adult business.
And that business has been pretty consistent and pretty strong.
And so here's what I would say is we have had the same ---+ product issues that have been the product issues in North America have been product issues everywhere, in that we have brought the business different and the customer engages the business different.
We've seen levels of strength in China, as an example, that have been better than what we've seen in other parts of the world.
I don't know, <UNK>, if you want to talk at all about specifics of the China business.
We don't break out very much, so I think directionally that's appropriate.
I think we had our success in China, certainly, than we saw in North America with the assortment.
And a lot of that is, as <UNK> said, is how it was bought in China and the favorable mix to kids and baby, which has continued to be more of a relative strength.
The other thing I'll say, just to put a period at the end of the sentence is, we're confident that as we make progress in the women's business, it will have an impact around the world.
Thanks for the question, <UNK>.
So if I step back and look at opportunities for the brand, opportunity number one, is consistency, season after season, and that's what gets me probably more excited than anything about the fact now that we've had a little bit of a run there with consistent product, which the customer has consistently responded to.
I would also really point you to the expression of the brand and our marketing.
I follow them ---+ probably the best place that I go to, honestly, to see it is on Instagram.
I follow Old Navy and a number of our other brands, as well as a number of other brands.
And there are honestly times when I look at Old Navy's imagery on Instagram, and it's hard for me to distinguish between a premium or a premium contemporary brand in terms of the aspiration of the fashion that we're presenting.
And so Stephen uses the word naspirational.
I think it's a great expression that you see when you see those brands juxtaposed against each other and how Old Navy is really communicating the fact that it's got current trend that is right where it needs to be right now.
And clearly, that's what she and the overall family is responding to.
Still bullish, obviously, for Old Navy, so that's in the domestic business.
Given consistency, there's a long runway in front of us there in terms of opportunity.
Very bullish on the international business and the expansion that we have in both Japan and in China.
And then a couple places worth highlighting inside the assortment.
I touched on the fact that Old Navy has a family-wide active expression.
We've had tremendous customer reaction to that.
She's really engaged and she is engaged on behalf of the family.
Kids, the men's business and her business, the active expression.
And that's a place where, if that's a trend, that's a trend that's got a long runway in front of it.
So we're excited about being able to build out that business and it's a business that is, essentially, purely incremental for us inside of Old Navy.
There's real estate to house the business.
We're not having to trade off other key categories, so it's a very nice incremental business for us that allows us to build the business, build productivity in the real estate and give her another reason to come inside the store.
On the first question, it definitely, <UNK>, includes the hedge rates embedded, so the guidance includes the hedge rates for 2015.
And as I mentioned, we hedged 12 to 18 months in advance, so the hedge rates tend to lag spot by about 12 to 18 months.
So they worsened again, but they didn't worsen to the degree that they did coming out of 2013 to 2014.
But that is all embedded.
With regard to how we look at defending margin rate, I would say we look country by country, certainly, and we don't feel like, in a lot of our countries, given the competitive landscape and the orientation toward value of the customer, that there's a lot of room to just full sail increase prices, given the increase in AUC driven by the stronger dollar.
What we look at more is how do we assess and address the issue through our promotional cadence, through our sales and markdowns.
That's what we've been trying to do overall for the last year and half as we've been facing the pressure already.
And we'll continue to look at sourcing mechanisms as well as we move forward, since we'll probably be in a dollar strong environment for a little while here.
Okay.
So I'll take a quick pass at this and then I'll hand it off to <UNK>.
So let's be clear.
We participate in an almost $2 trillion global marketplace for apparel and accessories.
So as a Company that has $16 [billion], roughly, in revenue, there's a lot of space out there.
As to the target customer for Gap, I think I am less focused on the target customer than I am on the fact that Gap, at its best, has historically been a pretty democratic brand.
And what gives me the greatest pleasure is to see a woman with her daughter, either a young daughter or her adult daughter, shopping in the brand.
And that is exactly what we saw back in 2012 and in 2013 when we had product, well-priced, appropriate for the brand, that was on trend in our stores.
And so I'm a little less inclined to embrace the two-dimensional cutout of the target customer, rather than great product that's right for the brand and for the aesthetics filters of the brand.
We'll power a good business.
And so then as to our brands competing with each other.
My basic perspective on that is get the best product you can through your brand filters.
And there's a lot of competition out there to go and beat.
And I'm less inclined to think about our brands competing against each other than competing with both fists against our competitors and winning every day.
<UNK>.
Yes, briefly on the buybacks, our range always includes various scenarios.
And given our track record, I think it's safe to say our scenarios would include some level of buyback.
Great.
I'd like to thank everyone for joining us on the call today.
As a reminder, the press release, which is available on gapinc.com, contains a full recap of our fourth-quarter results, as well as the forward-looking guidance included in our prepared remarks.
And as always the Investor Relations team is available after the call for further questions.
Thank you.
