Good afternoon, ladies and gentlemen. My name is Katherine and I will be your conference operator today. At this time, I would like to welcome everyone to the Gap Incorporated Second Quarter 2016 Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to introduce your host, Jack Calandra, Senior Vice President of Corporate Finance and Investor Relations.

Good afternoon, everyone. Welcome to Gap Inc.'s second quarter 2016 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. For information on factors that could cause our actual results to differ materially from the forward-looking statements as well as reconciliations and descriptions of non-GAAP financial measures, as noted on page two of the slides supplementing Sabrina's remarks, please refer to today's earnings press release as well as our most recent Annual Report on Form 10-K and our subsequent filings with the SEC, all of which are available on gapinc.com. These forward-looking statements are based on information as of August 18th, 2016, and we assume no obligation to publicly update or revise our forward-looking statements. Joining me on the call today are CEO, Art Peck; and Executive Vice President and CFO, Sabrina Simmons. As I mentioned, Sabrina will be using slides to supplement her remarks, which you can view by going to the Investors section at gapinc.com. With that, I'd like to turn the call over to Art.

Thanks, Jack, and good afternoon. I have a number of things on my mind today that I want to share with you, and really they are reflections about the first half of this year and certainly about Q2. So, number one on my mind is a consumer environment and let me really tease it apart. There's obviously some strength out there in different parts of retail. In apparel specifically, the environment remains challenging, and quite frankly, it remains most challenging in the higher end of the market. And just to remind everybody, we have a very robust value portfolio with our outlet channels and the Old Navy business. Number two, the restructuring work that we announced several months ago. I'm very pleased that we've been decisive and we've taken action, and as you know that includes some expense reduction and trimming some parts of the portfolio where we had businesses that we felt did not have the potential for long-term returns. We're not all the way through this and we've taken action in Japan with the Old Navy fleet there, and as we mentioned are making progress on tuning in to BR international fleet as well. The third thing on my mind is the product to operate model. And we've obviously been talking to you quite a bit about this over the last several calls that we've had. If you think about the work that we're doing, we've been very aggressively focused now for some time on the back end of our model on really building responsive supply chain capabilities and that's through all the things that we discussed; fabric platforming, more test and respond, shorter lead-times, and shorter calendar. The front end of that model is demand-driven buying. And so, we're doing work in both of those right now.…

Thank you, Art. Good afternoon, everyone. While we have more work to do to deliver the performance we expect of ourselves, it's important to acknowledge there were signs of improvement in the business in Q2. For example, comp and adjusted earnings trends improved quarter-over-quarter, merchandise margins in the quarter were up versus last year with positive average unit retail, and Old Navy, our largest brand, began to see signs of stabilization with a six-point improvement in comp versus Q1. Additionally, we maintained our operating discipline. Specifically, we managed inventories tightly, delivered strong free cash flow, and continued to manage expenses prudently. With regard to second quarter performance, as anticipated, our reported results were negatively impacted by the costs associated with our previously announced restructuring plan. These costs totaled about $0.29 in earnings per share, of which about $0.07 related to a higher effective tax rate. The non-tax related restructuring costs were about $150 million, with about $15 million hitting gross margin and about $135 million in SG&A. On a reported basis, earnings per share were $0.31. Excluding the impact of restructuring costs, our adjusted earnings per share were $0.60. It's important to note that foreign exchange negatively impacted the quarter by about $0.05, or about eight percentage points of EPS growth on an adjusted basis. Excluding restructuring costs in both periods and the impact from foreign exchange, our adjusted earnings per share year-over-year were up slightly. Regarding other key metrics, sales totaled $3.85 billion, comp sales were down 2% and total sales were down 1%. Total sales and comps by division are in our press release. Excluding restructuring cost for from periods, adjusted gross margin rate was about flat. It's worth noting that our merchandise margins were up 20 basis points year-over-year, or up about 90 basis points excluding foreign…

That concludes our prepared remarks. We will now open up the call to questions. We'd appreciate limiting your questions to one per person.

Thank you. [Operator Instructions] We'll go to John Morris with BMO Capital Markets.

Thanks. My congratulations to everybody on the great progress you're making. I think the question would be for Art? You mentioned a couple things that were interesting in your prepared remarks, and I'm wondering if you can give us a little bit more color around the Gap division? Particularly when you talked about very good product acceptance, where are you seeing that? And in what ways would you look to get that cost structure in line on a go-forward basis? Thanks.

Yes, let me just -- I'll just skate on this, John, a little bit. And obviously if you have further questions we're happy to process them. We've seen good product acceptance in particular on our key fashion buys that we haven't bought deep enough. So, if you were in our stores in July, you would've seen some really beautiful, well-made, feminine, brand-right tops with eyelet and lace. They were in the stores and gone in a heartbeat. Very much on-trend, off the shoulder as well, some of those things. We were over-assorted in some of our basics programs, which is why in summer clearance I called it just a sort of an array of color that was left, particularly in Knits where we were over-assorted. And so it's about rebalancing the buys and having more confidence in some of the fashion places where we're now starting to see some of that validation. And we're also seeing, really, the authority of the brand. I was in our flagship store in New York a few weeks ago and in San Francisco, here, yesterday. There is a suede program which is a flagship program which has prices from $200 to $450, and it sold down to the piece. And it shows where, when we get it right with the authority, the brand is from a pricing aperture standpoint as well. And again, I'd like a lot more depth behind those buys and so we're learning here to get that confidence. On the cost structure, Gap has been our most complicated business in terms of geographies and channels and multiple locations. And so as we're rebuilding business processes, we're also further rationalizing some of the complexity and getting some more leverage out of the cost structure as well. We've had essentially two headquarters locations between San Francisco and New York, and then different teams in different parts of the business and we're just looking for efficiency every place we can in the overall cost structure.

Great. Thanks. Good luck for the fall.

Thanks.

Thank you. Our next question comes from Matthew Boss with JPMorgan.

Thanks. So, with traffic at the Gap brand and Banana I know materially down, exiting the quarter, have you seen any signs of improvement in August? And just your comfort with inventory, if traffic did not bounce back from what you saw in July?

Yes, I'd rather not talk about August right now because we'll talk about that when we get into sales. And especially with volatility, before we have the whole month in, depending on the day you look at it with traffic patterns right now, you can call any of a number of different directions. And we're also seeing Gap back-to-school now really kicking in earnest across the country. And so, I think it's a month that's still got to fill itself out before we're really ready to say what it looks like. With respect to inventories, we are and always have been for a while very, very responsible on inventories and being very careful about how we buy to the traffic trend. And so we were aggressive on our carryover in terms of summer clearance. We wanted to make sure that we moved as quickly as possible to get clean there. I'll let Sabrina jump in here as well, but I don't have acute concerns about our inventory levels right now.

Yes. No, I agree. I think we're trying to strike the right balance of being tight and lean on inventory, but not cutting off the opportunity to positive comps mostly using better average unit retail. So, that's the balance we're trying to strike. And obviously our inventories are in line with our overall total sales right now, which is not a bad place to begin a new quarter.

And Matthew, I just had one more thing here. As we’ve talked now again about building responsive supply capabilities, back to those fashion tops that we had in the women's assortments, we blew through them. We felt we had a selling opportunity as we went into August and September. And in working differently with our vendors, we actually executed several new styles in a 24-hour period, including approving samples. Put the PO out and were able to book several hundred thousand units with just a multi-week, several weeks lead-time to have them back in stores, and so as we continue to scale those very responsive in-season fashion capabilities, it gives us the ability to feed the upside when we see it.

Great. Good luck.

We'll now hear from Lorraine Hutchinson with Bank of America.

Thank you. Good afternoon. Sabrina, could you talk a little bit about which of the brands saw the most dramatic change from the first quarter in terms of gross margin and what the drivers of that were?

Yes. So, I'll start with Gap. We've been saying all year, Lorraine, that Gap has been managing their actual margin rate pretty well, that they've delivered their performance with pretty healthy comps. So, that continued throughout the quarter. I would say they weren't a big driver to the upside, but they certainly continued to deliver healthily. On the flip side, I will tell you, again, not new news to you, but Banana Republic experienced the most margin pressure, and offsetting all of that, of course, was Old Navy, who we've talked about had quite a strong June. It led with very nice, healthy margins, and that really helped deliver the higher AUR that we mentioned on my remarks.

Thank you.

Thank you. We'll now go to Ike Boruchow with Wells Fargo.

Hi, good afternoon. Thanks for taking my question. Sabrina, it sounds like the merch margin had a 70 bps drag from FX from your prepared remarks? I'm just curious, how does that drag look as we move into Q3 and Q4 on the merchant margin line? And then given the lean inventory position, do you think you could continue to see merch margin improvement in the back half, even in a negative comp environment?

Yes. So, starting with the foreign exchange impact, we lock our rates in 12 to 18 months in advance of the year. So, a lot of that headwind we're feeling is really from a while back when we locked in the rates. The year-over-year rates, especially for Canadian dollar and for yen had declined significantly and that's the headwind we're feeling. So, for the portion of our cost of sales that we have hedged, which is the majority, let's just call it round numbers 80%, we will continue to have that kind of headwind. Now offsetting that opportunity is, for example, the yen has strengthened a lot, which is great. And so for the piece that's unhedged, you have opportunity and on translation you have opportunity. So, certainly translation is not as big of a headwind in terms of sales. So, that's part one of your question and then part two was -- sorry I didn't write down?

I was basically saying, can you continue to see merch margin improvement like you did in Q2 if you get a negative comp back half?

Yes. We haven't guided to merch margins or growth margins. Obviously, what we're striving for is that kind of improvement. A lot of it depends on where the traffic comes out. So, you've seen when we bring traffic into a low single-digit negative, we've done much, much better on both topline and delivering it in a healthy way. And as tougher is that, if that traffic doesn't show up. So, again, I think a lot of it will turn out -- or will be dependent upon whether we can bring and sustain traffic levels that are not deeply negative, but are reasonable like in the low single-digit range.

Got it. Thanks. That's helpful.

Our next question comes from Simeon Siegel with Nomura Securities.

Thanks. Good afternoon. Art, to your comments about the technical innovation ready-to-wear and I guess the growing Athleta business? Can you talk to your approach around R&D, maybe any thoughts on the cost associated there versus any potential AUR you may expect to recognize from improved product? And then just to the comment about inconsistency traffic, do you guys tend to see any meaningful deviations between e-com and brick-and-mortar when you see that inconsistency? Thanks.

Yes, let me talk about this technical thing and see if I can answer your question. It's a very -- it's a deep and large question, so I may not get you all the way to satisfaction. If I just use an example of beginning to build in stretch into men's woven fabrications. That is something that is really partly our vendors and partly a direct port from some of our fabric R&D work and fabric and technical knowledge that we have inside of Athleta. And some of the work we're doing in our businesses as well, working with our vendors. And so I don't see it as -- I mean we are taking some organizational steps in order to concentrate our strength there and our knowledge in fabric R&D. I don't see this as driving any significant deviations from the standpoint of the cost of our products. And one of the advantage we have is when we put our businesses together, we do have scale. We're buying very large quantities; we're working with our vendors as a large purchaser. And so if I look at Old Navy as an example where we built a great deal of stretch into the men's denim complex, it was a modest impact on product cost, but not a huge impact on product cost. And I'm really pleased that as we continue to feather it into the assortment, the incremental product cost has been overwhelmed by price realization. And so we've seen that he's actually willing to pay for it and willing to pay more for it. So, to me, this is being careful, but so far, the validation that customers are willing to pay for technical innovation in ready-to-wear is very clear across all of our brands and across the entire family. On traffic, Sabrina unless you want to jump--

Yes, I would say web traffic is much more consistent than brick-and-mortar traffic. There's some volatility, but overall definitely more consistent.

Yes. Great. Thanks a lot guys. Best of luck for the rest of the year.

Thank you. Our next question comes from Paul Lejuez with Citi.

Hey, thanks guys. It seems like AUC maybe wasn't much of a help in the second quarter. If you can confirm whether or not that's true? And I'm curious if you do expect to see some AUC improvement in the back half of this year and even into next year?

Yes. I would say, Paul, that from a commodity perspective, average unit cost has some tailwind for all of 2016. Now, what we've been saying all along, it's no headline because our brands always make decisions around mix choices and investment choices and once you take that all into account, there's just not any significant change in average unit cost. And we're not talking yet about 2017, so more to come on that.

Got you. And then just one follow-up? We can't really see into your hedging so much, so I'm just curious, if FX rates kind of stay where they are today, what are the P&L impacts for next year? You might be able to shed any light there?

We're partially hedged already for next year because, again, hedging 12 to 18 months in advance would have us partially hedged. So, for example, a lot of the first half would be done, but we'd have much more opportunity in the second half. And then we have quite a bit open. So, there should be, for the yen for example, there should certainly be some opportunity.

Great. Thanks. Good luck.

Our next question will come from Lindsay Drucker Mann with Goldman Sachs.

Thanks. Good afternoon everyone. Art, I wanted to ask on Gap brand, now that you have of a lot of the pieces in place that you need for the turnaround what -- with comps still negative, what are some of the indicators you're looking at that give you confidence that it is working? And as we think about over the next two to three quarters, what signs we'll see to show continued progress and ultimately, when do you think we can get back to positive comps?

Yes, I mean I sort of worked through a chain in my mind and this is the conversation we've been having, which is first to get the product out back into the aesthetic of the brand and to restore the quality and the fit. And we have very encouraging metrics on all three of those that we -- our customers see us as expressing the brand appropriately and that they are responding to quality that they understand, recognize and value. And our fit consistency has continued to improve, but it's been a real focus on bottoms. And that's a big deal for us and when we're at our best, we really kill it on fit. And she really appreciates that. But we've done too much wandering around the landscape over the last couple of years, as we've tuned and tweaked fit and not had a consistent fit. It also as you probably know, has an economic drag on the company, particularly in the online business because when you're inconsistent on fit, she quickly learns that she's going to order a two, a four, and a six knowing that four is her size, and obviously figuring out which one fits and then sending the other two back or returning them to a store. And that has a drag of cost and devalued merchandise associated with it as well. So, fit has been a big issue for me and we're seeing some progress and response there. Next really is to bring the voice of the brand back, and start telling the story because we increased marketing a little bit. We really pivoted it towards traffic and digital, but we've not been telling the story about the product and about the quality of the fit, et cetera -- all the elements of the story to the extent that we need to. And so, as we look at the back half, that's something that's very much on my mind, as you can imagine. I mean that's part of the story at Old Navy is that we've continued to put marketing against the business and we've seen the consumer respond to it, but we've been relatively quiet at both Banana and Gap.

Yes, and further to Art's point. I stated in my remarks that marketing was flat in the second quarter, but we're planning on investing in marketing in the third quarter. Still working out our plans for the fourth quarter, but we will be investing in marketing in the third quarter.

So, what would you say -- Art, you talked about you're seeing some encouraging metrics that she is responding? Are you able to share any of those with us? And then maybe when do you think the brand is in a position to comp positively?

I came out pretty provocatively on this earlier in the year and it has taken longer with this consumer environment and frankly, rebuilding our trust with the customer. And so this is a period-over-period improvement and we're seeing those. I don't want to go into a lot of specific metrics right now, but I am very confident we're doing the right work, and I'm very confident that we're seeing the customer respond to it. It just isn't happening as significantly and as fast as it needs to.

Okay. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Brian Tunick with Royal Bank of Canada.

Thanks. Good afternoon and congrats on the progress. I guess curious in hindsight, it seemed like July was the strongest month for a lot of companies? So, I was just curious, as you hindsight the quarter or look at maybe there was a calendar shift, but any reason why July was called out as weaker in traffic I think from you guys? And the second question is it sounds like additional mall anchors are announcing store closings? Can you maybe talk about how you feel about your portfolio between your value channel versus what you see in the mall and how often and what we could hear about an additional store closings' viewpoints? Thank you very much.

Hey Brian, I'll start with those. So, with regard to July, the difference really between June and July was the traffic dropped off significantly again for Banana and for Gap. We actually held traffic pretty well in July for Old Navy and that's why they have the better results of the three brands. Why it dropped off, we're still trying to work through that. That's part of the reason that we are investing in marketing in Q3 because we're really focused on trying to change that inconsistency in trajectory. So, that's the July feel. With regard to the portfolio and the state of the fleet, we're, as you know, have been very proactive in trying to stay ahead and take action on optimizing the fleet with big announcements last year on the Gap fleet and then another announcement in Q1 of this year closing another 75 stores in addition to those 175. So, we're always open to looking to opportunities to optimize the fleet, but also, I think Art mentioned in his remarks, to look for opportunities to grow the fleet where appropriate. Now, any growth in our future will certainly be focused around much tighter, smaller boxes. That is something we're very sensitive and hyper-aware about, is we just think we need to get much more productive within smaller boxes in our future.

The other thing I'd say, as you mentioned closures right now. We certainly have our eye on -- if we're in a center and there is an anchor tenant that announces a closure, that's going to be something we're going to process and deal with. So, some of these companies have come out and announced significant closures. We're waiting to know what the specifics are in order to figure out whether we need to do something there.

Thanks very much.

Thank you. We'll continue onto Adrienne Yih with Wolfe Research.

Good afternoon. Congrats on the progress at Old Navy. Art, can you talk a little bit about the -- more about the responsive supply chain? And then a part that comes with it, test and reorder? How much to hold back at the beginning of the season, how much can you chase into intra season? And then Sabrina really quickly, just helping us with the timing of the 200 basis points gross op margin opportunity that you announced last quarter? Thank you.

Yes, again, very long conversation, so let me try to be quick and maybe not fully satisfy you. But there's really two components to the responsive supply chain, the back end, which is vendor facing, the length of our calendar, our fabric being platform, strategic vendor relationships where they have capacity reserved and they can cut into us on release of a PO. I'm really pleased with the extent to which we've built that capacity out. The reality right now is that we are constrained and fully utilizing the back end by our front end processes which is why I also threw in the work that we're doing on demand-based buying. And that's really -- if you really want to think about what that is, it's disaggregating what was a four season grand reveal buy all at once, into a much more disaggregated de-averaged buying process. And so we're working through that one right now. It is the constraint of scaling this at the enterprise level, and Gap brand is doing the heavy lifting on the front end right now on behalf of other parts of the company. And so we have a ways to go there and it's really step-by-step. We're a long way advanced from where we were a year ago and we have a lot of room in front of us to continue to hold more open, be more in season, et cetera.

Yes, and with regard to the operating margin opportunity, Adrienne, as a reminder, that opportunity was outlined as going with the restructuring announcement that will provide us with $275 million of annualized savings. So, the way you get the two points is really just take out that annualized cost, holding the other variables. Now, we said that because the actions we are taking are happening throughout the year, and many of them at the end of the year like a lot of the store closures for Old Navy, Japan, that opportunity will mostly be viewed in 2017.

Okay, great. Thank you very much. Good luck.

Thank you. Our next question comes from Mark Altschwager with Robert W. Baird.

Hi, good afternoon. Thanks for taking the question and congrats on a nice progress with margin and inventory. Art, I was also intrigued by your comment about the accelerating technical innovation in ready-wear? Beyond stretch denim, what's the timeline for introducing some of these additional innovations into the assortment in a more significant way? And are there areas where you think that Gap Inc. brands will have some differentiated fabrications versus the competition? And then finally, what would the strategy be to communicate these technical innovations to the consumer? I think marketing has traditionally been focused on style and a value message, not necessarily technical attributes, so curious how you might thinking about that? Thank you.

Mark, you really pushed the button -- you really pushed several of my hot buttons on this question. So, congratulations. Again, if you start with, where can we see start to see this roll out. We're really pushing stretch in men's, which we're finding the men's customer really responds to across multiple fabrications and multiple wearing occasions. So, if you're in Old Navy today, there's a stretch Oxford shirt in there that is super comfortable. It's really like this precision fit. We're pushing stretch across, -- really in men's, our two key bottoms fabrications in terms of denim and twill and both shorts and long bottoms. And really testing where else we can go with it, because we believe that it's actually really revolutionizing in many respects. That's a big word, but how men dress and the comfort and fit that they have in both tops and bottoms. So, that's a step. We have nanotechnology in pants in Banana that we have basically not marketed at all, which is highly stain-resistant. If you pour a cup of coffee on the pants, it beads up and runs off and we find that he has responded to that. Right now, to be honest, we are more using pre-existing fiber and fabric innovation from our vendors. We're also reorganizing in order to be able to work with some of our key vendors and be more proactive about driving innovation, which then we believe can unlock potentially some proprietary benefits. And I don't want to get into that right now. It's a much longer conversation and its early days, but we feel that our scale and our size, working as a $16 billion enterprise for the company, has the potential to not just benefit from pre-existing innovation, but drive innovation. And so that's exciting for us as well. And it's across a number of different dimensions, whether it's as I said -- whether it's heat management, whether it's stain-resistance, whether it's stretch and comfort. Just to name a few right now that are out there.

Thanks again and best of luck.

Yes.

Thank you. We'll now hear from Janet Kloppenburg with JJK Research.

Good afternoon and thank you for taking my questions. Art, I was wondering if you could comment on what the outlook is for the fashion -- basic fashion versus basic inventory to get in better balance at Gap? You talked about shortening some of the lead-times and betting bigger on some of the fashion? Maybe could give us a timeline on when that inventory content may balance out? And I was also wondering about your denim positioning, it feels like we're going through a resurgence of denim right now and Gap has always been very well-known for their denim and I wondered if you were hopeful on that front? And lastly, Sabrina, on the 8.5% operating margin guide, does that assume a big uptick in operating expenses? Not big, but a step up from where we were in the second quarter? I'd appreciate some help there. Thank you.

So, let me try to quickly hit the two. On rebalancing fashion versus basics, it's kind of an old term, but I'll go with it for a second. We needed to reestablish store authority in some of our key item programs because we had moved away from that. And so you saw that happen in spring and summer -- big [Indiscernible] knit programs, et cetera. We were over-assorted there and so we're learning season-over-season and we've made some changes even after we booked in order to tighten some of our programs up. So, season-over-season, getting rebalanced for, again, key item programs but also making sure that we have depth in some of these fashion buys. That's something that is going to get better every season. I was just again in stores yesterday, and I saw Gap show up again with the first fall and you'll see that again with more depth in fashion as we get into September. So, it's a season-over-season process, and one where we're actively learning and managing our buys as aggressively as we can. On denim, I've obviously been tracking and reading all of the comments that have come out across the industry over the last several days and there's a bit of optimism about denim out there. We're obviously extraordinarily well-positioned in the denim business across all our businesses. Banana has a great denim business now as well and it's front of store. I'm not ready to say -- I'm always hopeful about denim and it's been in a trough for a long time. We're absolutely positioned to ride the rise of denim, but I don't want to get frothy about talking about the fact that denim is now on a massive upturn and everything else. I'm much more in the mode of under-promising and trying to over-deliver here. And I'm confident denim will come back because it has been in kind of a malaise. We are well-positioned across all of the bottoms fabrications whether it's from an active fabrication, a Bi-Stretch, a pant for a woman, a twill fabrication or denim; we're well-positioned to play wherever the market goes.

Yes, and on the operating margin guidance, Janet, we don't guide specifically to expenses as you know. But to try to be helpful, what I'll just remind is that we will continue for certain to be very disciplined with regard to our expense management. We delivered not only in Q2, but I think for the entire first half on an adjusted basis, flat expenses and that isn't easy to get to because we're on many years now of managing these expenses pretty much flat and it gets harder in the second half. The other reminder I'll just point to is that I've mentioned a couple times that because we are focused on improving the traffic, we're making some investments in marketing in Q3.

Thank you. Our last question will come from the line of Betty Chen with Mizuho Securities.

Thank you and thanks for taking my question. Congrats on the progress. I was hoping to maybe shift the conversation a little bit to the international business for a moment? Can you talk a little bit about what you're seeing in each of the major geographies, Canada, Japan, Europe, and especially China? And some of the progress, maybe by brand, if possible? Thanks.

Sabrina will jump in and I'll jump in behind her.

Yes. So, I would say broadly speaking, North America is stronger than international. It was interesting to see the I think the U.K. retail sales come out this morning that were fairly strong. So, maybe that's European tourists going into the U.K. But broadly speaking there have been more challenges versus North America, and I would say that is probably somewhat attributable to global geopolitical uncertainties. But it does vary by geography and it actually varies quarter-by-quarter.

Yes. I just -- we're still bullish on our international business. Obviously, I'm committed to it. But it's -- honestly, you have to look country-by-country at the end of the day. Old Navy, as an example, in North America and Canada, it's continued to be a very strong business. If you look at what is I think a very interesting environment is in China right now, in the space that we're in. We're seeing the value business there; particularly with our Gap factory stores continue to be very good. But the customer is somewhat standing on the sidelines, which has resulted in a lot of very aggressive and early sale activity across the whole specialty channel. So, it's hard to really generalize overall, but I would agree with Sabrina, North America better and international more challenging.

Thank you.

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 second quarter results as well as the forward-looking guidance included in our prepared remarks. As always, the Investor Relations' team will be available after the call for further questions. Thank you.

Thank you, ladies and gentlemen. That does conclude our conference. You may now disconnect.