Good afternoon, ladies and gentlemen. My name is Ashley, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Gap, Inc. Third Quarter 2017 Conference Call. This call is being recorded. At this time, all participants are in a listen-only mode. As a reminder, please limit your questions to one per participant. I would now like to introduce your host, Jen Fall, Senior Vice President of Corporate Finance and Investor Relations.

Good afternoon, everyone. Welcome to Gap, Inc.'s third quarter 2017 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 our forward-looking statements, as well as descriptions and reconciliations of non-GAAP financial measures, as noted on page 2 of the slides supplementing Teri'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 November 16, 2017, and we assume no obligation to publicly update or revise our forward-looking statements. Joining me on the call today are President and CEO, Art Peck; and Executive Vice President and CFO, Teri List-Stoll. As mentioned, we will be using slides to supplement our remarks, which you can view by going to the Investors sections at gapinc.com. As always, the Investor Relations teams will be available after the call for further questions. With that, I'd like to turn the call over to Art.

Good afternoon, everyone, and thanks for joining us. As always, Teri and I are very happy to share with you today our Q3 results. We had another strong quarter delivering our fourth consecutive quarter of positive comps along with our fifth consecutive quarter of gross margin rate expansion. The momentum we're seeing in the business does give us the confidence to again increase our full-year guidance. Before I dive into the business, however, I do want to acknowledge that this quarter has had significant challenges, ranging from unseasonably warm weather, an unprecedented impact of natural disasters, and horrific events that have impacted our employees and our business. I want to take this opportunity to recognize and thank all 135,000 of my co-workers who've been there for our customers, while at the same time contributing tirelessly to their communities. Our hearts and our resources are with those in the communities which have still not fully recovered. I'm also pleased to share that we protected all of our impacted employees with pay continuity. This is a critical investment in our most important asset, our people. In a moment, I will turn it over to Teri, who will share more details on our Q3 results. But before I do, I would like to reiterate our balanced growth strategy, how it differentiates us from the industry, and how we're continuing to strengthen and sustain that differentiation. And I want to talk about some of the key components of it. Balanced growth is made up of four pillars. Number one, investing in growth and value in Active; and importantly, in Active, that extends into the performance lifestyle space. Number two, accelerating a large, fast-growing, highly-profitable, and accretive online and mobile business. As we spoke to you in September, we indicated that we were on the…

Thanks, Art, and good afternoon. As Art said, we're pleased to deliver another quarter of positive results while also making progress against the balanced growth strategy we outlined in September. As you also heard from Art, as part of that strategy, we're accelerating our store closure plans and now expect to complete the initially identified closures by the end of 2018. Additionally, we have and will continue to identify opportunities to leverage our scale and simplify our operating model. We'll continue to update you on this work as we progress. Turning now to the third quarter performance, and starting with sales. Comp sales were up 3%, marking our fourth consecutive quarter of positive comp sales. Net sales for the quarter were $3.8 billion, a 1% increase from last year. The spread between net sales and comp sales is largely due to our international closures last year. We're very pleased to deliver another quarter of positive comp and net sales growth despite the negative impact from the hurricanes we experienced throughout the quarter, as well as the warmer-than-expected weather. Just for reference, as a result of hurricanes Harvey, Irma and Maria, a combined total of 277 stores were closed for an average of approximately six days during the third quarter. Looking at the brand level, Old Navy delivered a positive 4% comp against a positive 4% comp last year. The last year comp excludes the negative impact of about 1 point from the Fishkill fire. Similar to the first half, Old Navy's results were driven by broad-based category strength. Continuing its sequential improvement throughout the year, the Gap brand comp was positive 1%, driven by improved traffic and conversion. This is against the negative 4% comp last year, again, excluding the negative impact of the Fishkill fire which was about 4…

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

Thank you. And our first question comes from Matthew Boss with JPMorgan.

Thanks. So on the gross margin, what was the performance by concept that comprised the flat merchandise margin? And, I guess, how best to think about merchandise margin opportunity in the fourth quarter? And then, finally, just what comp is needed to leverage occupancy from here, given the great performance this quarter?

Okay. I'll start with the last one and I'll try to remember all the questions you asked, Matt. We've, historically, said we need a low-single digit to mid-single digit comp to be able to leverage ROD. I mean that's really what you saw this quarter was we got that and you saw it come through in the leverage. On the margin question, we don't get into as much detail as you would like us to. But I can say as we look across the quarter, there were no significant outliers in what we saw. So we're seeing about what we expected. And we will remain focused on the AUR expansion that's helped drive some of the fundamentals we've seen this year as we go into the fourth quarter. The only challenge, of course, is that the fourth quarter historically is more promotional. And so, you're going to see that in the absolute rates. But we are very comfortable with the healthy margins across the brands.

Great. Best of luck.

And our next question comes from Ike Boruchow with Wells Fargo.

Hi. Thanks for taking my question. Teri, I guess, this question is for you. On the store closures, it sounds like you moved them up by a year. 30 net closures for this year. How many of the 200 stores that you've laid out previously is incorporated in whatever took place in Q3 and your plan for Q4?

This is how I will answer it, is the 200-store closure that we laid out is split between what we will accomplish over the fourth quarter, which is an acceleration, and then spread out over next year. And, as you said, that is an acceleration of about a year. We're going through the list of store closures now and finalizing the plans of the timing and how we will manage through those. But, net-net, we feel very confident that the acceleration this year and what we have planned for next year will take us to the finish line there.

So maybe just another way, is there a way we should be thinking about your net footage next year after all the store closure initiative takes place?

Yes. We haven't gotten to that level of detail publicly.

Yes. I would just say that, as you can imagine, this is a delicate dance that we're doing with our landlords, and there's a fair amount of negotiation going on right now. And so, as we start to harden this down, we'll certainly share the relevant and appropriate details. But we're up to our eyeballs right now in the midst of what is a really constructive dialogue as we're working our way through this.

Got it. That's helpful. Thanks, Art.

And our next question is from Brian Tunick with Royal Bank of Canada.

Thanks very much. I was curious on the marketing spend. Can you maybe just give us some perspective by division sort of what's happening year-over-year and how maybe you're thinking about where marketing investment should go next year? And then, second question, on the fabric platforming that you've talked about before, obviously, you've given us a sense of where Old Navy is, but maybe give us an update on Gap and Banana, sort of where are they relative to Old Navy on your viewpoint on the fabric platforming?

Yes. Sorry, and what was the – I was listening then to the second question and it flushed the first one out. Can you go back on that again?

Advertising.

Advertising.

Yes, advertising by division.

I don't want to go to the specifics here. I'd say the most important themes are, is that we're continuing to move the mix towards a variety of forms of advertising, probably more away from the traditional print, et cetera. And, again, pivoting much more heavily into digital where we can look at line of sight, we can get a clear measure of our ROAS and make intelligent calculations about how far down the ROAS curve we want to spend. And that's probably the biggest change that we're continuing to implement across all the businesses. We had very strong focus on two components, which is: filling the funnel with new customers, and that is a consistent focus across the entire business; and then reactivating and increasing the frequency of last customers or current customers. And we're seeing excellent traction, to be honest, across all of those as we've gotten more focused and we've managed the mix. I don't want to put a pin in at the level. But what I can tell you is, is that when we see the returns, which we are, and most importantly they manifest themselves in terms of the accelerating growth rate online on one side and our beat to industry traffic on the other, we're going to continue to spend where we know that that dollar spend brings us back a multiple. It's just good business. And then, on the other side...

Fabric platforming.

Fabric platforming. Yes. I mean, if I rank them, what I would say is, Athleta is probably the farthest along. And, again, it's our smallest business. And they've really gone after it with a vengeance. And we're absolutely seeing business outcomes, as I noted, associated with their ability to be highly responsive. And I would just, again, point out the fact that as much as I'm giving you more specific numbers now and, again, oftentimes the spread is whether we air it or put it on vessel in the ocean, we're continuing to look at ways to continue to get faster right now. And sometimes it's how to receive faster, how do we get it to our DCs faster, do we start doing some direct vendor-to-store deliveries, that kind of thing, because we're seeing absolutely consistent outcomes, excellent business outcomes associated with the speed. If I rank order, I'd put Athleta first, I'd probably put Old Navy second with Gap close behind, but it's a different business model. And then, it varies category by category. And Banana still has some work to do, but the team there is really heads down on being a super fast follower from what we've seen in other parts of the business.

Thanks. And good luck for holiday.

Thanks.

And our next question comes from Simeon Siegel with Nomura | Instinet. Simeon Avram Siegel - Nomura | Instinet: Thanks. Good afternoon, and congrats on the nice results, guys. So congrats on that positive comp at Gap. Just recognizing that you were lapping the compare from the fire, any thoughts on the right way to think about the go-forward Gap Global comps into Q4? And then, sorry for the dumb question, just to clarify, when you talk about traffic, is that store level or does it also include online? Thanks.

I think on Gap, what I'm really looking for here and I noted in my comments is consistent quarter-over-quarter improvement; and we've seen that. And I'm not going to call Q4 right now. I mean, we're two weeks into Q4, et cetera, and I'm not going to call it. But I can look under the covers and see why we're getting that improvement, and that's really what my expectation is of the business that we're going to continue to see. Sorry. Then, the second one was? I'm focused so much on...

Traffic.

Traffic, yes. It's been a long week already. Traffic. So when I'm talking about industry traffic, that's really looking at physical traffic into our stores. We don't really have the same kind of metrics as they apply to online traffic. We look more there at overall demand and growth rates, but it's just a little looser there. So when I say we've been beating industry traffic, it's really the standard industry traffic measures. And, again, really nice numbers from Gap and Old Navy pretty consistently, and nice to see Banana then in this quarter get on the bandwagon as well. And the matching formula here is get traffic moving. And then on top of that, sales less traffic, which comes out of your inbox levers around AUR, around conversion, around the size of the basket. And that's the underlying formula that we've got going here now more consistently.

And I do just want to clarify on the Gap comp compare that we gave you, it is adjusted for Fishkill. So the negative 4% last year is more of a normalized so you can see the progress. The positive 1% is against the normalized negative 4%. Simeon Avram Siegel - Nomura | Instinet: All right. Perfect. Okay. And then, Teri, just a quick one. Have you – the 53rd week impact to either sales or EPS, any help there?

Yes. We've said it's about $0.05 on the year. Simeon Avram Siegel - Nomura | Instinet: Okay. Great. Thank you. Best of luck for holiday, guys.

Thanks.

Ladies and gentlemen, as a reminder, please limit your questions to one per participant. Your next question comes from the line of Kimberly Greenberger with Morgan Stanley. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Great. Thank you so much. Art, back in September, you talked about some SG&A savings opportunities that you see sort of medium-ish term in the business. I'm wondering if you can just put a little more meat on the bone there? And then, I think at the same time you were discussing some SG&A savings opportunities. You were talking about other areas that you would like to invest in. So could you maybe talk about that a little as well? And on balance, do you think there will be some net SG&A savings? Thank you.

Yes. So I know you want more detail, because I've heard this question in different forms several times and I fully appreciate that. At the moment, I'm probably going to frustrate you a little bit, but answer you back a little bit more with the process of how we're approaching it rather than the specifics. And the way I would characterize the difference is that we and many others have often approached cost reduction on an episodic big bang basis. And we and many others have had less success with that sticking and really getting efficiency and productivity in the organization than we should; and then, we will. And so, this is different. We are taking, as I noted, the restructuring of the Banana headquarter structure, accelerating some of our stores and then there are bits and pieces around the organization. We are taking some of those actions right now. But we're also really approaching this as an ongoing, focused, highly-managed productivity initiative that, quite honestly, as I said in September, I anticipate this is going to live for several years and become part of our culture of how we do business. And that has not really been as much of the culture as it needs to be. On the investment side, I would note the things that Teri already called out, where we feel that we have an opportunity to differentiate whether it's through customer acquisition or our in-store experience. I would also call out the fact that we are continuing to invest in the underlying capabilities in fulfillment in our distribution centers. And I've talked about some of that before where we are investing in leveraging existing building capacity in our retail DCs to be able to fulfill direct orders out of those DCs as well. And that really is meeting the continuing and accelerating demand that we're seeing in our online space. And that's a big part of it. There's technology investment and there are other pieces as well. But that's an important customer-facing piece. Like I said, we'll talk about productivity, but it's going to be a continuing conversation as we identify opportunities. If and when we come up with an opportunity to say we're going to take a one-time by bundling things together, you'll be the first to know that as well. But we're in the middle of the work that we're doing right now, and we still have more work to do. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Great. Thank you, Art.

And our next question comes from Anna Andreeva with Oppenheimer. Anna Andreeva - Oppenheimer & Co., Inc.: Great. Thanks so much. Good afternoon, and congrats on seeing improvements in the business. Couple of questions on the Gap division. Art, maybe what is your view on the product content right now and talk about what you're most excited for the holiday? And just a follow-up to the 4Q guide, the SG&A growth rate implied pretty big improvement in the gross margin. Maybe talk about what's driving that acceleration. How do you guys think about the promotional stance into 4Q? Thanks so much.

Okay. I think I heard it. You got very faint in the second one. So if I'm off-track, just stop me and correct me. On the first one on Gap, what am I most excited about? Again, I'd say consistency in period-over-period improvement. If I dig inside of what's going on, we're seeing good traction in the bottoms business in women's, which is always an important place to see traction with denim really delivering right now. And our denim platform in Gap is responsive, and so able to put units back into the business. Super solid traction also there in the Active and in the performance lifestyle space. Excellent traction in GapBody. And we've just opened a couple of stores now, one in the adjacent space in the Banana Republic store on Broadway in Soho where GapBody Love is being expressed. And we feel there's a real opportunity here starting with product, where we're very much on trend in the product space in that concept and we're seeing excellent traction there as well. And then to deliver the numbers that we delivered, you have to have decent progress across the whole business at the end of the day. But those are some of the highlights that I would call out. On gross margin, it's a composite of things. It's obviously product acceptance, which comes from the work that we've been doing now for several years on continuing to develop an assortment that is on trend, that is properly bought, that has the appropriate quality and the appropriate fit, and do that consistently season over season. And our customers are registering that and responding to it. And that's the, first and foremost, most important lever to beginning to get our yields up and back off of promotion, is the right product…

And our next question comes from Ed Yruma with KeyBanc Capital Markets.

Hi. Good evening. Thanks for taking the question. Art, you've delineated the idea of performance lifestyle a couple times on this conference call. I know you highlighted the Rapid Movement Chino. But, I guess, how big is the opportunity for performance lifestyle? And how should we think about the banner opportunity and where you think you can drive the most amount of business? Thank you.

What I would tell you is that as we continue to bring innovation, technical innovation that delivers comfort, care characteristics, Active performance features, we continue to see the customer respond when we bring that into ready-to-wear fabrications. And so, I'm not going to call how high is high here, but we're very encouraged across all of our brands as we've continued to do this and see the customer respond. And it's super interesting because it's just as relevant in a men's casual beach short as it is in a men's Italian wool suiting that might happen to have stretch in it, or coming down the road that is washable rather than having to take it to a dry cleaner. And that's actually a meaningful benefit for a man and a woman, in that you save a lot of money and there's a big convenience factor associated with being able to launder yourself. So as I talk about performance lifestyle, it's really in some respects sort of the reinvention of some of these ready-to-wear categories, drawing on the best of the Active and performance space, but expressing it in traditional silhouettes and traditional fabrications in the ready-to-wear space. And it's a place where we don't see it happening, frankly, a lot. There are some very small brands out there that are playing around with it. We think we are one of the few, actually, doing it at the mass and scale level, and it's been very encouraging so far to see how the customer is responding to this. I mean just to state the obvious, it's important that this product be attractive, be occasion-appropriate, not be weird, not be techy, not be crunchy, but be a kind of product that you can wear as a traditional product maybe to work or a social occasion, but also delivers performance attributes. And that's kind of the magic where we really see the unlock and where the customer's really responding.

Thanks so much.

And our next question is from Chethan Mallela with Barclays.

Hi. Good evening. So in September when you provided detail on the margin profile by banner, I believe you disclosed that Gap brand had a very low-single digit operating margin in 2016 and recognized that FX has been the headwind that can reverse and some of the planned store closure activity could also help future profitability. But can you talk about other key unlocks that are specific to the Gap brand? And then, just as a follow-up, what you see as a more sustainable for that banner over time?

Yes. I mean, I'm indexing my expectations and the team will tell you, my knee in their back in terms of improvement off of how the brand performed relatively recently. Some of it under my time when I was actually running the brand. And so, without revealing the number, I can tell you that we have seen a performance that is significantly better than what we're seeing most recently. And the reason that's important for me, just to be clear, is that we can all acknowledge the secular trend surrounding the industry and those kinds of things and interpret those to mean whatever they mean. As I've said before, I view this as money we have lost and, therefore, money that is recoverable. And that's the work that we're doing right now. And so, I don't want to go into it right now because then I'll set expectations, et cetera. But it's definitely something that both Banana and Gap were looking at and, again, indexing expectations back on recent performance. If I say where should it come from with respect to Gap, it's kind of all of the above. Clearly, FX has put pressure on the business and we've delineated that. We have some store closures that we're doing, which will help as well. But it starts by, frankly, fundamentally continuing to make the product better, to get our yields up, to get our promotional intensity down and to manage the cost structure inside of the business. And those are all things that we're working aggressively on.

Perfect. Thanks so much.

And our next question is from Lindsay Drucker Mann with Goldman Sachs. Lindsay Drucker Mann - Goldman Sachs & Co. LLC: Thanks. Good afternoon. Art, in your prepared remarks you mentioned an Old Navy remodel. Could you give a little bit more detail: A, on what that's all about: and, B, how you're thinking about rolling it out? And then, just a quick housekeeping one for Teri. The $0.03 from the Fishkill recovery, can you confirm is that flowing through cost of goods this quarter or some other part of the P&L? Thanks.

Yes. Let me talk about the remodel. And the reason I'm calling this out is that we have a lot of stores in the Old Navy fleet that are still the original fitment. We call them the old Old Navy's. And you would recognize them with the circus like signs and a supermarket type cash register, booth sets that have been around for a while, et cetera. And they're typically very productive stores for us in locations that customers are still shopping in, but they look their age and maybe don't merit a full gut remodel. So we've gone in and we've done the relatively simple and the relatively low-cost things, typically starting with paint. Oftentimes, we'll paint the fixtures, redo the lighting, perhaps remodel the cash-wrap. Sometimes we'll even shrink the store down because perhaps it's too large. And so, we'll build a false wall at the back to tighten up the store and make it feel a little bit more intimate. And we've been rolling those out now with some tests before we pulled the trigger on deciding to go bigger. And we really found that the customer response and, first and foremost, oftentimes they will say is this all new product because it's displayed in an environment that is fresher and more respectful. And as I said, we're seeing the top line lift and the bottom line lift. And so, it's very encouraging to us. And we've got a bunch of those in the system right now and we feel like our customers deserve and our product is so exceptional that it deserves a clean fresh stage, and that's really what we're doing. And it's encouraging to see the economics that come with it.

Yeah. On the housekeeping matter, Lindsay, the $0.03 is in cost of goods sold. It offsets the logistics cost. Lindsay Drucker Mann - Goldman Sachs & Co. LLC: Thank you. Art, just you mentioned you have a bunch of the remodels in the system and you're seeing a top and bottom line lift. Can you quantify any of that, maybe order of magnitude, what kind of top line lift or order of magnitude how many of these remodels you've done already and how many you plan to do in 2018?

Well, we've done more than a handful, I would say, right now. And I honestly don't have the numbers in front of me in terms of 2018. What I can tell you is that the returns on the expense, which is relatively modest, or the CapEx is quite good. So it allows us to put this down. But I don't know the exact number right now, Lindsay. I'm sorry about that.

Yes. Over the course of 2017, we'll have north of 100 remodels completed, largely Old Navy, but a couple of similar approaches at Gap and Banana. Lindsay Drucker Mann - Goldman Sachs & Co. LLC: Great. Thank you so much.

Yes.

And our next question comes from Dana Telsey with Telsey Advisory Group.

Good afternoon, everyone. As you think about speed, what needs to happen to get faster? When does it happen? Is it a different pace for the different brands? And what does it mean in terms of inventory and gross margin? Just quickly on the second thing, with the high-teens comps in denim in Old Navy, which is very impressive, how can the learnings from Old Navy perhaps be incorporated into the Gap division to improve their performance in denim? Thank you.

There's nobody I would've expected more than you, Dana, to ask about speed and you delivered that question quite rapidly. So congratulations.

Thank you. Thank you.

This is one and I know my responses on this continue to probably frustrate simply because there isn't a macro answer that makes any sense. The averages here confuse, because it is category by category, brand by brand. As to how fast we can be, we are in places now constrained not by our design process and our vendors cutting and selling, but by the logistics associated with it, whether it's on vessel or, frankly, getting it into a port and then getting it on rail or on truck and into our DCs and out of our DCs and into our store. So in some of these categories, it's why I said on the call, we're starting to look at ways to continue to chip a day, a week, whatever, off on some of these things. And, again, I would highlight on denim, it takes nine minutes to make a pair of jeans. And it takes a lot longer obviously from the standpoint of releasing a PO today to actually having that in front of the customer. I'm not predicting we're going to be 3D printing denim in our stores in nine minutes, but we see a continued opportunity here. There's not an endpoint. This is an ongoing journey. As to leveraging, we are leveraging today as a company better than what I've ever seen, quite honestly. I've mentioned some of this before, but we have converted our sourcing organization to a category-based focus versus having a variety of competing denim offices or knits offices all around the world. We've significantly rationalized and are now sharing key vendors across the company. In some cases now, we are starting to share key base cloths across the brands that can be treated differently, washed differently, destruction, laser treatment, et cetera. And so, there's a big opportunity in front of us for continuing to share. And then, obviously, sharing in terms of best practices as well, which we're also doing. And again, I know that on Gap, Gap and Old Navy have been leveraging back and forth. In Gap women's denim, we saw 13% comp and a 22% gross margin comp. And those are really nice numbers. And, again, they happened for a lot of reasons. But part of the reason they happened is because we're increasingly responsive. We're also on trend, we've got good fit, good quality, et cetera, et cetera.

Thank you.

And our last question will come from Mark Altschwager with Robert W. Baird & Company. Mark R. Altschwager - Robert W. Baird & Co. Inc.: Great. Good afternoon. Thanks for squeezing me in here. So on the lines of focusing on the growth channel, I was hoping you could speak a little bit more specifically to the performance of your mall versus off-mall stores? And any takeaways on the outlet versus non-outlet by division or whatever level of granularity you're willing to share?

Yes. The level of granularity we're willing to share is probably a lot less than you would like.

Than you would be willing to take from us.

We don't get down to mall, non-mall kinds of performance. I think there's no question we have more of our specialty stores in some of the mall-based properties, and some of those are struggling more. So as we rationalize those, those are probably a little more concentrated in the mall base. But I don't know I'd go any further than that.

Yes. Mark R. Altschwager - Robert W. Baird & Co. Inc.: Great. Thanks. And maybe just to close out. Art, maybe a softball for you. But just wondered if you can talk about the broader apparel environment and how you're viewing it heading into holiday. I mean, consumers in decent shape, weather seems to helping at the margin, we're lapping the election and some tougher traffic from last November. You've spoken a lot about the controllable things that Gap is focused on, but just wondering what your crystal ball is telling you for the broader industry? Thanks.

I mean, first of all, in the broader industry, I continue to believe that there is, and there is happening in front of us, a consolidation taking place and that we are poised to win on the back of all of the advantages that we have and all the work that we've been doing, speeding up our product pipeline, innovating, delivering performance, all those things that are happening right now. And so, that's, I think, really important. And I sort of view this as almost regardless of consumer sentiment we've got an opportunity to drive growth and gain market share. My expectation, frankly, of all my businesses and all my business leaders is that we carry the momentum of this quarter into Q4. And everybody is heads down focused on making that happen right now. Mark R. Altschwager - Robert W. Baird & Co. Inc.: Great. Best of luck over holiday.

Thank you.

And that concludes today's call. Thank you for your participation. You may now disconnect.