Gap (GPS)

GAP INC. REPORTS SECOND QUARTER EARNINGS PER SHARE OF $0.19

SAN FRANCISCO – August 23, 2007 – Gap Inc. (NYSE: GPS) today reported that net earnings for the second quarter, which ended August 4, 2007, increased 19 percent to $152 million, or $0.19 per share on a diluted basis, compared with $128 million, or $0.15 per share on a diluted basis, for the second quarter of last year.

For the second quarter of 2007, non-GAAP diluted earnings per share were $0.21. The non-GAAP diluted earnings per share number excludes $0.02 per share of expenses associated with the company’s cost reduction initiatives. Please see the reconciliation of diluted earnings per share on a GAAP basis to diluted earnings per share excluding the expenses associated with the company’s cost reduction initiatives, a non-GAAP financial measure, in the table at the end of this release.

Second quarter net sales were down 1 percent to $3.69 billion, compared with $3.71 billion for the second quarter of last year. Due to the 53^rd week in fiscal year 2006, second quarter 2007 comparable store sales are compared with the thirteen weeks ended August 5, 2006. On this basis, comparable store sales decreased 5 percent, compared with a decrease of 5 percent as reported for the second quarter of 2006. The company’s online sales for the second quarter increased 26 percent to $172 million, compared with $136 million for the second quarter of last year.

“During the second quarter, we made solid progress stabilizing our business, streamlining our organization and importantly, hiring our new chairman and chief executive officer, Glenn Murphy,” said Bob Fisher, a member of Gap Inc.’s Board of Directors. “I am confident that under Glenn’s leadership and the creative direction set by our brand presidents, we will continue to make improvements to the business and deliver improved returns to our shareholders.”

“I want to thank Bob for his leadership in taking the necessary first steps towards stabilizing the business,” said Glenn Murphy, chairman and chief executive officer of Gap Inc. “We have a lot of work ahead of us, but we have great brands with enormous potential, and I feel confident that our creative talent and dedicated store employees will help fuel our progress.”