Gap (GPS)

Additional Results and 2010 Outlook

Earnings per Share

The company expects diluted earnings per share of $1.70 to $1.75 for fiscal year 2010.

Operating Margin

The company expects operating margin for fiscal year 2010 to grow to about 13 percent.

Share Repurchases

During the fourth quarter, the company repurchased about 19 million shares for a total of $413 million. For fiscal year 2009, the company repurchased about 24 million shares for a total of $510 million.

In a separate release today, the company announced that its Board of Directors authorized an additional $1 billion share repurchase program.

Dividends

The company paid a dividend of $0.085 per share during the fourth quarter.

In a separate release today, the company announced that its Board of Directors intends to increase the annual dividend per share from $0.34 to $0.40 for fiscal year 2010. The Board of Directors declared the first quarterly dividend of $0.10 per share payable on April 28, 2010 to shareholders of record at the close of business on April 7, 2010. Additional quarterly dividends are expected to be paid in July, October and January.

Cash and Cash Equivalents and Short-term Investments

The company ended the fourth quarter with $2.6 billion in cash and cash equivalents and short-term investments. For fiscal year 2009, free cash flow, defined as net cash provided by operating activities less purchases of property and equipment, was an inflow of $1.6 billion compared with an inflow of $981 million last year. Please see the reconciliation of free cash flow, a non-GAAP financial measure, from the GAAP financial measure in the tables at the end of this release.

Effective Tax Rate

The effective tax rate was 40.0 percent for the fourth quarter of fiscal year 2009. The effective tax rate for fiscal year 2009 was 39.3 percent. The company expects the effective tax rate to be about 39 percent for fiscal year 2010.

Inventory

On a year-over-year basis, the company reported that inventory per square foot was down 1 percent at the end of the fourth quarter. The company expects inventory per square foot at the end of the first quarter of fiscal year 2010 to be up in the mid-single digits compared with a 12 percent decline at the end of the first quarter of fiscal year 2009. Please see the Financials section under the Investors tab on www.gapinc.com for the company’s explanation of numerical range guidance.

Depreciation and Amortization

Fiscal year 2009 depreciation and amortization expense, net of amortization of lease incentives, was $573 million. The company expects depreciation and amortization expense for fiscal year 2010 to be about $550 million.

Capital Expenditures

Fiscal year 2009 capital expenditures were $334 million. The company expects fiscal year 2010 capital spending to increase to about $575 million, driven by Old Navy store remodels, new international store openings and the online launch in Europe and Canada.

Operating Expenses

Fiscal year 2009 operating expenses were about flat to last year.

Real Estate

During the fourth quarter of fiscal year 2009, the company opened 11 store locations and closed 59 store locations.

For fiscal year 2009, the company opened 47 store locations and closed 101 store locations.

The company ended fiscal year 2009 with 3,095 store locations, and net square footage decreased 1.8 percent from the end of fiscal year 2008.

For fiscal year 2010, the company expects to open about 65 stores, weighted towards international and outlet. The company expects that it will close about 110 stores, weighted towards Gap brand. Square footage is expected to decrease about 3 percent for fiscal year 2010.