Gap (GPS)

Company Generates Nearly $1 Billion in Free Cash Flow

SAN FRANCISCO – February 26, 2009 – Delivering solid financial results, Gap Inc. (NYSE: GPS) today reported net earnings for fiscal year 2008 increased to $967 million, or $1.34 per share on a diluted basis, compared with $833 million, or $1.05 per share on a diluted basis, for fiscal year 2007. Net earnings increased by 16 percent over fiscal year 2007, while earnings per share increased 28 percent over the prior year.

For the fourth quarter, which ended January 31, 2009, the company’s net earnings were $243 million, or $0.34 per share on a diluted basis, compared with $265 million, or $0.35 per share on a diluted basis, for the same period last year.

“Our ability to drive healthy margins and achieve significant cost savings helped us deliver earnings growth of 16 percent over the course of a very challenging year,” said Glenn Murphy, chairman and chief executive officer of Gap Inc. “With nearly $2 billion in cash on hand and virtually no debt, we have a strong foundation that will allow our globally recognized brands to compete effectively this year as we navigate the current environment.”

The company generated $981 million of free cash flow in fiscal year 2008, defined as net cash provided by operating activities less purchases of property and equipment, and ended the fiscal year with $1.8 billion in cash. 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.