Gap Launches New Chain

Thursday's meeting marked the first time in about two years that Gap has hosted an analysts' day, noted analysts Lauren Cooks Levitan and Betty Chen of SG Cowen & Co., who said in a report before the meeting that they expected the gathering to "shift investor attention away from weak recent trends to focus on balance sheet strength and robust cash flow" at Gap.

The unveiling of the Forth & Towne name answered speculation about what the company would call its new retail concept, which Gap discussed last year but without revealing any details or the name of the new format. The new brand will target what Gap calls "a rapidly growing segment of the population" with "spending power that accounts for about 39% of women's total apparel expenditures." The Forth & Towne stores will offer "fashionable apparel and accessories in a broad range of sizes, with a focus on fit, and assortments that serve a variety of occasions," according to longtime Gap executive Gary Muto, president of the new brand.

In terms of store openings that were outlined Thursday, most of the action in the coming years will be at Old Navy, which plans to grow its business by opening about 200 net new stores through 2007. Gap Inc. International expects to open at least 50 net additional stores in the U.K., France and Japan through 2007, including bringing Banana Republic to Tokyo this fall. And in 2006, Gap's international team plans to introduce a franchising operating model and begin exploring the Chinese market. The store openings will represent an increase of about 2% in total square footage for the company in 2005, about a 3% increase in 2006 and a 5% increase in 2007.

Along with its store openings and international plans, Gap announced Thursday that it has hired Stephen Sunnucks for a newly created position, president of Europe for Gap Inc. International. Sunnucks most recently spent four years as CEO of New Look, a fashion retailer with 700 stores in the UK, Ireland and France. He will report to Andrew Rolfe, president of Gap Inc. International.

Besides growth via expansions, Gap execs said Thursday that the company will improve its Gap brand's store experience and refocus it toward "a fresh, casual American style." The brand also expects to improve sales productivity by optimizing square footage allocated to each sub-brand, including Gap, babyGap, GapKids, and GapBody. Seven such remodeled stores are slated to open in the Denver-area today.

At Banana Republic, Gap plans to extend the brand through jewelry, handbags, personal care products and petites. Banana Republic Petites has expanded to 23 stores since 2004, and the brand expects to have five petites stand-alone stores by the end of 2005.

The Gap executives outlined the store openings and other plans at a full day of sessions on Thursday, delving into virtually all aspects of the company's operations from supply chain logistics to merchandise assortments, capital expenditures, partnerships with vendors, purchasing strategies, earnings growth and dividend distributions. "We believe that the growth initiatives we are outlining today will strengthen Gap Inc.'s position" CEO Pressler said. "We are committed to delivering long-term shareholder value, through both EPS growth and cash distributions."